Lorena Lopez, the child's mother, sued the LAPD claiming the SWAT unit was negligent in the shootout that led to the toddler's death.
Monday's decision came as jurors were about to hear final arguments in the case. Lawyers for Lopez were stunned by the judge's sudden ruling.
"We respectfully disagree with the judge. We believe there was sufficient evidence and there would have been a split decision in favor of the plaintiff if the case went to the jury," said Alejandro Blanco, a lawyer for Lopez.
Susie Pena was accidentally shot and killed by police during a shootout with her 35-year-old father at his used car dealership Raul's Auto Sales. He was holding the toddler as he exchanged gunfire with officers. He was also shot and killed.
Lopez said the LAPD has failed her and how the justice system has failed her too.
"If we don't find justice it's going to happen again, innocent people are going to be dying," said Lopez.
Police say Pena was under the influence of cocaine and methamphetamine when he barricaded himself inside Watts car dealership.
Lopez' lawyers argue that the toddler's death could have been prevented if police had not stormed the dealership and confronted Pena while he held his daughter in one hand and a gun in the other.
"When you give police officers a wide zone of protection where's less protection for the average civilian. That's what's so fundamentally unfair about what happened today," said attorney Louis Carrillo.
However, attorneys for the city say the girl's survival was a top priority of SWAT team members.
Atonerys for Lopez have not yet decided whether they will appeal the judge's ruling.
City News Service and the Associated Press contributed to this story.