In a ruling made public on Monday, U.S. District Judge Otis Wright denied the San Francisco-based bank's motion to have an appeals court decide whether Los Angeles has legal standing to recover damages under the U.S. Fair Housing Act.
Wells is one of four banks sued by Los Angeles for allegedly giving minorities mortgage loans they could not afford, causing defaults, lower property values and neighborhood blight.
The city is seeking damages for lost tax revenue and increased city expenses in affected neighborhoods.
The mortgage crisis in Los Angeles resulted in more than 200,000 foreclosures and lowered home values by an estimated $78 billion from 2008 to 2012, according to a report cited by the city in its lawsuit, filed in December.
Spokesmen and lawyers for Wells and Los Angeles did not immediately respond to a request for comment. Wells has previously contested the claims, saying it is prepared to defend its record as a responsible lender.
The city has also sued Citigroup, Bank of America and JPMorgan Chase to recover damages for alleged mortgage discrimination.
Wright in May had turned down Wells Fargo's first motion to have the case dismissed. On Monday, he rebuffed the bank's request for an immediate appeal of that decision, saying there were no substantial grounds for a difference of opinion about the law involved in the case.
Wells had argued that the city lacked standing to recover damages under the Fair Housing Act, which was passed to provide for fair housing. The city's attempt to recover damages for injuries that happened to other persons was outside the act's purpose, Wells had argued.
The case is: City of Los Angeles v Wells Fargo & Co, U.S. District Court, Central District of California, No 13-cv-9007
(Reporting by Dena Aubin; Editing by Kevin Drawbaugh and Nick Zieminski)
By Dena Aubin