For years city officials have tried to improve the eyesore that is the Chapel Square Mall, but they’ve been stymied by a three-year-old lawsuit. Now, a judge’s ruling guarantees the mall will be in legal limbo for at least another year.

A federal judge last month ordered that a trial go forward in the 1998 lawsuit. A group that had an option to buy the mall property sued the city for obtaining loans used to locate the now-defunct Yale Co-op in the mall. The city had sought to have the suit dismissed, but Senior U.S. District Judge Warren E. Eginton rejected the city’s motion.

The lawsuit, filed by 155 Temple St. LC, claimed that the city breached its contract with the New Haven organization by encumbering the property with about $1.5 million of loans.

Barbara Cox, attorney for 155 Temple St. LC, said the city and the Chamber of Commerce and its subsidiary, Chapel Square of New Haven Inc., which owns the property, did not fulfill their contractual obligations in good faith.

“My client had an option to buy the Chapel Square Mall and exercised that option in a timely way,” Cox said. “However, the property was required to be free and clear of debt.”

The debt was the money that the Chamber of Commerce and Chapel Square Inc. borrowed to add the financially troubled Yale Co-op to the mall in 1997. The Co-op eventually filed for bankruptcy in November 1999 and closed in October 2000, still owing creditors $1.2 million.

New Haven Corporation Counsel Thomas Ude said that bringing the struggling Co-op to the mall was a reasonable course of action at the time and did not constitute a breach of contract by the city.

Ude added he was disappointed with the ruling but is confident the city will not be found culpable when the case goes to trial.

“This decision is not an indication that the other side is likely to win,” Ude said. “I remain convinced that the weight of the evidence is in favor of the city, the mayor and the Chapel Square Mall.”

But Cox said she is equally confident the court will rule their way.

“What the city, the mayor and the Chamber did is very well-documented,” Cox said.

The judge’s decision comes just as New Haven attempts to redevelop the downtown section of Chapel Street, which includes the Chapel Square Mall. The city has recently assembled a panel of city officials and businessmen to select a development team to facilitate the project. The lawsuit, however, threatens to further delay the impending renovations.

But Cox said the lawsuit filed by 155 Temple is not to blame for the delay in Chapel Street’s redevelopment.

“Had the city not breached its option agreement, this area would be a vibrant property today,” Cox said. “The real shame is for the citizens of New Haven.”

Cox said she expects the lawsuit to go to trial in the spring or summer of next year.