A federal appeals court ruled on Friday that an American Civil Liberties Union lawsuit seeking to stop a new health insurance arbitration system from being implemented in California can proceed.

The California attorney general’s office argued in a court filing that the state is required by federal law to develop a new arbitration system and that the arbitration provision is not preempted by federal or state law.

The ruling by the 9th U.S. Circuit Court of Appeals in San Francisco could set a precedent for states to use arbitration provisions to stop federal or local efforts to regulate health insurance, according to the American Civil Liberty Union, which brought the case.

The lawsuit by the ACLU and California Attorney General Kamala Harris sought to block the use of an arbitration system, which is based on a consumer-based dispute resolution system, for people with insurance coverage in California.

It also sought to stop the system from becoming operational until at least 2022.

The U.N. agency that oversees health insurance regulations said it would review the ruling and will likely appeal.