A California state judge refused to dismiss a lawsuit over the state's cancelled $2.3 billion deal to sell 11 state-owned buildings to private investors.

San Francisco Superior Court Judge Marla Miller on Monday denied the state's motion to dismiss the lawsuit, and will allow the group of investors to seek monetary damages equal to the a mount the group would have earned had the deal gone through, according to the Sacramento Bee.

The investor group, California First LP, filed suit in 2011 claiming the state violated its contract by backing out of the sale-leaseback deal.

The administration of the previous governor, Arnold Schwarzenegger, negotiated the agreement under which the state would sell the buildings to a consortium of investors led by a privately owned real-estate firm and private equity firm for $2.33 billion and lease them back to the state.

The deal would have brought in $1.2 billion in one-time money for the state in 2011 to close a hole in its budget. It also would have triggered the redemption or defeasance of $1 billion of tax-exempt lease-revenue debt issued in connection with the buildings' original financings.

The plan also called for the state to pay about $56 million annually to lease the buildings, which would increase over time.

In February 2011, Gov. Jerry Brown killed the plan, saying it didn't make much sense because it was, in effect, a gigantic loan with interest payments in excess of 10% every year.

Some of the buildings in the deal included the attorney general's building, the Franchise Tax Board complex, and the Department of Justice building in Sacramento.

California First LP is represented by Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor. The state is represented by Mennemeier Glassman & Stroud LLP.

The case is Jerry B. Epstein v. Arnold Schwarzenegger, case number CGC-10-505436, in the Superior Court of the State of California, County of San Francisco.

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