U.S. District Judge J. Garvan Murtha in Brattleboro refused to issue an injunction that would have stopped the slaughter of the flocks, which are owned by Larry and Linda Faillace of East Warren, and Houghton Freeman of Stowe.
The Faillaces and Freeman argued the tests used by the federal government to condemn their sheep were inconclusive.
"When preventing diseases with lengthy incubation periods the USDA cannot be expected to wait until clinical signs of disease appear," the judge wrote, "because any actions implemented at that time would be taken years too late."
The owners have until Aug. 7 to appeal.
Linda Faillace said news that the judge had rejected their arguments was numbing. She had not decided whether to appeal.
"It's unbelievable that the government would have the right to do this," she said. "It's like them coming in and taking your children away."
Thomas Amidon, a lawyer representing Freeman, said an appeal is possible.
"Obviously we knew that we had a huge burden to overcome going in," Amidon said. "But we really had to have someone look at it. To that extent we are appreciative to the fact that a third partythe judiciaryhas taken a look at it."
A U.S. Agriculture Department spokeswoman reacted positively to the verdict.
"The judge's decision is in the best interest of the farmers, American agriculture and the American people," said Susan McAvoy, USDA spokeswoman. "And we, in the USDA, will continue to work with the farmers to resolve this matter."
Last month Agriculture Secretary Dan Glickman ordered 376 sheep in the two flocks to be destroyed after tests on the carcasses of four animals from Freeman's farm were found infected with a transmissible brain disease that could be bovine spongiform encephalopathy, the scientific name of mad cow disease.
The owners of 21 sheep in a third flock voluntarily sold their sheep to the USDA to be destroyed before Glickman's order.
Mad cow disease devastated the cattle industry in Great Britain in 1995. It has killed about 70 people in Europe andbecause the incubation period of the disease can be up to 10 yearsthe number of human victims is expected to rise.
Even though scientists aren't sure the four Vermont sheep carcasses had a form of mad cow disease, the USDA says it's better to destroy them and avoid any possibility the disease could gain a foothold in North America.
The sheep in all three flocks were either imported from Belgium in 1996 or are the offspring of imported sheep. The USDA feels the sheep might ave eaten contaminated feed in Europe before they were brought to Vermont.
©2000, CBS Worldwide Inc., All Rights Reserved. The Associated Press and Reuters contributed to this report