Chancellor Frank Brown on Wednesday put down a formal order invalidating the $9 million Tax Increment Financing (TIF) for the Black Creek project.
The bonds have already been issued and some of the money spent. They were bought by the development group.
The group that includes Gary Chazen and Doug Stein sought the bonds - the first issued in Chattanooga under the TIF law.
Citizen activist Helen Burns Sharp filed suit, saying the City Industrial Development Board (IDB) violated the Open Meetings Act in approving the bonds and that this was not an eligible project under the statute.
Chancellor Brown said in his order that Ms. Sharp "won."
The developers said they needed the funding to build a road and sewer line up Aetna Mountain to a planned small city at the top.
Click here to read the order.