The 9th U.S. Circuit Court of Appeals said that under a doctrine set by the U.S. Supreme Court in 1971, federal courts should not intervene in the case because there are ongoing state proceedings.
The court set aside a 2006 decision in which U.S. District Judge James Ware overturned the law. It also ordered dismissal of a lawsuit filed by a chamber of commerce group.
The ordinance was enacted as a result of a San Jose voter initiative. It bars independent political committees from collecting more than $250 per person for the purpose of influencing San Jose City Council and mayoral elections.
The measure was challenged by the San Jose Silicon Valley Chamber of Commerce Political Action Committee, which argued that the law violated its right of free speech. Ware agreed in a ruling overturning the law in September 2006.
But in today's decision, the appeals court said that federal courts should abstain from ruling on the case because proceedings were ongoing before a city elections commission and potentially before state courts as well.
Lawyers for the city and the Chamber of Commerce committee were not immediately available for comment on the ruling, which could be appealed further.