The dispute was triggered by a three-part Tweet by Trump on July 26, in which the president said he needed to reverse his predecessor's transgender policy to protect military readiness and reduce waste. Stone has received numerous commendations for his service.
Transgender service members have been able to serve openly in the military since previous year when then-Secretary of Defense Ash Carter, during the Obama administration, lifted the prior ban.
Both cases said the ban violated United States constitutional guarantees of equal protection and due process under the Fifth Amendment, while one said it also infringed on the free speech rights of service members. Late Friday President Trump signed a memo dictating guidance on implementation of the ban.
It also suggests Trump's motivations were "purely political", and that he was trying to get more votes in Congress to fund his U.S. -Mexico wall by appealing to members who morally disapprove of men and women who are transgender.
The two locations maximize the chance that the pro-transgender cases will be heard by progressive judges, who may declare that Trump's power as Commander in Chief is insufficient to stop the enlistment of people who say they are living as members of the other sex. The lawsuit argues that the ban discriminates based on sex and transgender status and that the ban is based on uninformed speculation, myths and stereotypes, moral disapproval, and a bare desire to harm this already vulnerable group. Trump cited concerns over "tremendous medical costs and disruption that transgender in the military would entail".
Before the policy change by the Obama administration, the Pentagon had concluded that there was no basis for the military to exclude transgender people, as long as they could meet the same fitness requirements as other members of the military.
The president has echoed a claim from many conservative Republicans that transgender service members disrupt the military's ranks and add medical costs that undermine troop readiness - a cost that LGBT groups say is just a minuscule sliver of the Defense Department's overall health care budget. It notes that 18 other countries, including 11 North Atlantic Treaty Organisation members, allow transgender people to serve openly, and says Rand found no significant effect on operational effectiveness.
The ACLU lawsuit is one of at least three brought since the announcement.
RAND estimated the number of transgender individuals now serving in the military to be between 1,320 and 6,630, out of 1.3 million total service members.
A Department of Defense spokesperson said the Pentagon was aware of the lawsuit, but referred all questions to the Department of Justice. The second federal lawsuit, Stone v. Trump, was filed in Maryland by the ACLU of Maryland.
White House officials said Monday that they do not comment on pending litigation.