Minneapolis city officials won't comment publicly, but a source within the police department welcomed the judge's decision.
Lee family attorney Rich Hechter says the city shouldn't celebrate just yet.
Hechter says officer Jason Andersen was acting as an employee of the city when he shot Lee, making the city liable for potential damages.
"The bottom line is, it's our position, based on the evidence, this was an unjustified killing," Hechter said.
The killing was unjustified, according to Hechter, because 19-year-old Lee was unarmed. He says Andersen violated Lee's rights and committed assault and battery.
But Andersen and his partner at the time, State Trooper Craig Benz, say Lee had a gun. A 2007 grand jury investigation brought no indictments against the officers.
Fong Lee's family believes officers planted a gun next to his body to justify the shooting. The judge's ruling does not weigh in on whether or not there's evidence of a cover-up or tampering with the investigation. There's a settlement conference scheduled for next week, before the case goes to trial. Some say, the family still has a strong bargaining chip.
"The political stake is very high for the city," said Attorney John Klassen, who recently won a settlement for five African American police officers who sued the city for discrimination.
Klassen says the case highlighted racial tensions within the department and between officers and communities of color. On one hand, he says the current atmosphere could push the city to settle in an attempt to keep a lid on the tension.
"But that could work in reverse and entrench both city hall and the council, not to want to settle this but to vindicate itself through a trial," he said.
The Minneapolis police department may also be looking to vindicate itself through a trial as well.
A few weeks ago police chief Tim Dolan publicly defended his officers against the gun planting charges and allegations of a cover-up. He called the allegations ridiculous and said he wouldn't be surprised if the case got thrown out of court before it could get to trial.
But despite Dolan's attempt to shore up confidence in his officers, there are still many fences to mend.
"Obviously, for the most part, the Lee family along with many other citizens in Minneapolis, do not feel they can trust the Minneapolis department," said Activist Tou Ger Xiong, part of a multi-racial coalition of groups calling for an independent investigation of the shooting, in addition to the current court case.
Xiong says people he's talked to have strong doubts about police accounts of the events surrounding Lee's death. He says they've seen clips from the security camera video which they believe show that Lee was not carrying a gun before he was shot.
And Xiong says it's time that members of Hmong community as well as others speak out and demand answers to their concerns.
"Community members should be concerned and should participate in this dialogue and I encourage to ask all these questions," Xiong said. "Because this could happen to anyone of our brothers or sons, our cousins, what have you. In this case it just happens to be a Hmong family. It just happens to be a 19-year-old."
Xiong and others will participate in a rally outside the federal courthouse in St. Paul on Monday, before the settlement conference.
The coalition will also demand that the city revoke the Medal of Valor given to officer Jason Andersen for shooting Lee. And they want a Hmong community ombudsman to work with the Minneapolis police department.