One Baton Rouge federal judge declined Wednesday to consider state-requested sanctions against two whistle-blowers who reported state and corporate officials for alleged improprieties in a $750 million program benefiting homeowners in flood-prone areas of Louisiana.

A second federal judge now must decide whether to retain the dispute in federal court or return it to state District Court in Baton Rouge.

The complicated case pits the whistle-blowers against both the Louisiana Office of Community Development and Shaw Group Environmental & Infrastructure Inc. Shaw monitors the home-elevation program for the state.

Former Shaw employee Christy Weiser, of Denham Springs, and suspended Shaw employee Thomas G. Pierson, of Livingston Parish, filed their civil suit in May in state District Court.

Weiser and Pierson allege that kickbacks and favoritism have plagued the federally funded state program for homeowners in low-lying areas.

The two also allege they suffered on-the-job retaliation because of their whistle-blowing efforts.

State officials describe the size of the home-elevation program as unprecedented.

“This is the largest program of its kind in American history,” Christina Stephens, communications director for the Louisiana Office of Community Development, said Wednesday.

Stephens said the Federal Emergency Management Agency forwarded the $750 million to the state office for elevation of homes that could be flooded by disastrous forces, such as hurricanes.

In court filings, state and Shaw officials have denied the whistle-blowers’ allegations, including favoritism toward certain contractors hired by homeowners.

But the state Office of Community Development is conducting an in-house investigation as a precaution, Stephens said. And three other state agencies — the Inspector General’s Office, Attorney General’s Office and Department of Homeland Security — also are investigating, she said.

Two state supervisors — Courage Idusuyi and David Knight — have been suspended with pay pending the conclusion of the investigations, Stephens said.

State officials sued the whistle-blowers last week in federal court where they alleged Weiser and Pierson stole state documents containing confidential homeowner information.

State officials also claimed that confidential information was made available to the news media.

Through attorney John B. Dunlap III, the state asked U.S. District Judge James J. Brady to penalize the whistle-blowers for theft and dissemination of the documents.

Brady issued a temporary restraining order last week to bar additional release of state documents by the whistle-blowers.

But the judge dissolved that restraining order Wednesday.

“I am going to decline jurisdiction,” Brady added.

“The defendants in this case stole documents that did not belong to them,” Brady said of Weiser and Pierson. But, he said, the dispute over that action is a matter that falls under the authority of state law.

Brady took no action on a state request to cite Weiser, Pierson and their attorney, Jill L. Craft, for contempt. State officials alleged that the group released documents to the news media after Brady issued his restraining order. Craft denied that allegation.

“I’m pleased because my clients did nothing wrong or illegal in the first place,” Craft said after the hearing.

Craft said she understands the concern over stolen documents, but added: “That happens when employees believe they have been shoved into a corner.”

Craft was represented by attorney John S. McLindon against the state’s request for the contempt citation.

“They (state officials) withdrew it,” McLindon said. He said he would have filed for sanctions against the state if the matter had not been dropped.

Brady’s exit leaves the whistleblowers’ original suit in the hands of U.S. District Judge Brian A. Jackson.

State officials transferred that suit from state District Court to Jackson last week.

Craft has asked Jackson to return the case to state court. The federal judge has yet to rule on her motion.

Through Wednesday, the state had provided house-elevation grants totaling $313 million to 6,956 households, Stephens said. She said another $337 million eventually will be distributed to other households. The program’s final $100 million is earmarked for its administrative costs, she said.

“The most important action out of today’s ruling is that private homeowner data will stay protected,” state Commissioner of Administration Paul Rainwater said in a written statement.

Rainwater said the whistleblowers “have agreed in principle to a court-issued protective order to keep the (stolen) documents under seal.”