Law360, New York (April 21, 2016, 7:56 PM ET) -- When the Fourth Circuit ruled this week that barring a transgender male student from the boys' bathroom in Virginia violates federal education law, it forecast a defeat over North Carolina's already notorious discrimination law.Among its many provisions, H.B. 2 restricts transgender people's access to public restrooms, which, if enforced in schools, experts say could cost North Carolina $4.5 billion in federal funding. While the Fourth Circuit ruling doesn't touch most of the law, it could be detrimental to public schools and does show that the judges consider bathroom limitations discrimination on the basis of gender identity."Public school districts are now in a position where if they follow state law, they're violating federal law, and if they follow federal law, they're violating state law," said Jane Wettach, a Duke University School of Law professor who specializes in education law.As the Fourth Circuit only ruled on plaintiff Gavin Grimm's arguments regarding Title IX of the education code, North Carolina's law isn't preempted. Instead, the state risks losing federal funds for public education if it chooses to stop transgender students from using the bathroom of the sex they identify with.But when the district court rules on Grimm's constitutional claims of equal protection, that could provide the preemption, Wettach said. She said while at the moment there's not a direct relationship between the law and the Virginia case, it "casts a pall over the whole thing," specifically that the federal government filed an amicus brief in support of Grimm."It gives great credibility to the opponents of H.B. 2 who say this law fosters discrimination," Wettach said. "The fact that the Fourth Circuit accepted the federal government's interpretation of discrimination as including discrimination of transgender persons to me makes it clear that that position is not a position extremists [are] engineering."Kevin Murphy of Van Kampen Law PC, a North Carolina employment law firm, said this decision could encourage the general assembly to just repeal the law."While [the ruling] barely scratches the surface [of H.B. 2], it is true to say that the governor and General Assembly have all along said that H.B. 2 is only about bathrooms — only about the common sense concept that a man should not go in women's room for safety of our women and children, that's how they put it," Murphy said. "That part of their law will not work anymore in schools because of the Virginia opinion. If that's all H.B. 2 is about, you might as well repeal H.B. 2 because you're not even going to get that now."The American Civil Liberties Union has filed a federal lawsuit challenging the law, and if that heads up to the appellate level, the circuit court has already proven that the state is less likely to succeed, Wettach said.The firestorm over H.B. 2 began immediately after state lawmakers passed the bill during a March 24 special session. It invalidated a Charlotte city ordinance set to take effect April 1 that would have extended anti-discrimination protections to lesbian, gay, bisexual and transgender people and allowed transgender people to use the bathroom of their choice. The state measure requires that individuals bathrooms in schools and government buildings that match the gender listed on their birth certificates.The bill also preempted local ordinances involving anti-discrimination or employment regulations, and enshrined as state policy protection from discrimination for so-called biological sex, which was defined as the one listed on a person's birth certificate. As such, individuals who believe they are discriminated against could not sue in state courts. The statewide policy did not mention gay and transgender people.North Carolina Attorney General Roy Cooper subsequently called the law "a national embarrassment" and pledged that his office wouldn't defend the statute against the ACLU's suit.Gov. Pat McCrory on April 12 then issued an executive order attempting to roll back on some of the provisions, including letting local governments make their own discrimination policies regarding housing and their own employees and allowing private businesses to have nondiscrimination and bathroom policies. However, the order still upheld the biological sex bathroom requirement in state facilities.McCrory said Tuesday that he will be evaluating how the Fourth Circuit's decision affects H.B. 2."I strongly disagree with both President [Barack] Obama and Attorney General Roy Cooper's objective to force our high schools to allow boys in girls' restrooms, locker rooms or shower facilities," he said in a statement. "I think that's bad precedent and I don't think it's the traditional way we do things. The way I think we should have done it is to allow the high schools to make the appropriate arrangements for those students who have unique circumstances. But this is the federal government, very similar to the Charlotte government, forcing brand new standards, that we've never seen before."--Additional reporting by Vin Gurrieri. Editing by Katherine Rautenberg.