(Reuters) - A 10th U.S. Circuit Court of Appeals panel on Monday signaled that it would order an Oklahoma state university to reinstate with tenure a transgender English professor, who had won a lawsuit claiming she was forced out of position because of her gender identity.

A Denver-based three-judge panel during oral arguments held via livestream sounded skeptical of claims by Zach West, a lawyer in the Oklahoma attorney general's office who represents Southeastern Oklahoma State University, that hostility engendered between Rachel Tudor and the school since the lawsuit was filed in 2015 precluded her from returning to her position.

Circuit Judge Carolyn McHugh told West that his claim that Tudor's attacks on a high-ranking faculty member's religious beliefs over the course of the litigation had fueled that hostility was a "red herring" and did not overcome the presumption under Title VII of the Civil Rights Act of 1964 that reinstatement is the proper remedy for wrongful termination.

"There is typically litigation hostility because lawyers aren't saints," McHugh said. "If we rely on litigation hostility, there is probably never a case where reinstatement can be awarded."

McHugh, an appointee of former President Barack Obama, said that if the court denied reinstatement to Tudor, employers could "discriminate with impunity" by saying they do not want to work with someone who prevailed in a bias lawsuit.

"Doesn't that just reward the discrimination? It takes all of the teeth out of the statute," she said.

The U.S. Department of Justice under the Obama administration sued the university on behalf of Tudor in 2015, claiming its decision to deny her tenure amounted to sex discrimination in violation of Title VII. It was the first discrimination lawsuit filed by DOJ on behalf of a transgender person.

DOJ settled with the school in 2017, after President Donald Trump took office and shortly before his administration took the position that discrimination against transgender people is not a form of unlawful sex bias.

Tudor had intervened in the case after Trump was elected and continued to pursue the litigation, winning a jury verdict of about $1 million in 2017. U.S. District Judge Robin Cauthron in Oklahoma City the following year lowered the verdict to about $300,000, citing caps on damages under Title VII, plus about $60,000 in "front pay" to reflect her lost future earnings.

Cauthron denied Tudor's bid to be reinstated to her job with tenure, after the school claimed that many faculty members opposed her return and that it did not have the money to pay her.

Tudor, represented by Jillian Weiss, a New York-based solo practitioner who is transgender, appealed.

On Monday, the 10th Circuit judges seemed to agree with Weiss that Cauthron had abused her discretion by denying Tudor reinstatement.

Circuit Judge David Ebel said the university had not met the high bar of showing the "severe adversity in the relationship" necessary to justify such a move. He also rejected West's claim that Tudor was not qualified for tenure because she had not produced any notable scholarship over the last several years.

"Her life after she was denied tenure was turned upside down, and to expect that she would keep up normal scholarship when she didn't have a university anchor to support her ... is probably not very fair," said Ebel, an appointee of former President Ronald Reagan.

The panel also included Circuit Judge Harris Hartz.

The case is Tudor v. Southeastern Oklahoma State University, 10th U.S. Circuit Court of Appeals, No. 18-6102.

For Tudor: Jillian Weiss

For the school: Zach West of the Oklahoma Attorney General's office