U.S. District Court Judge Audrey Collins ruled that the city was within its rights, formalizing an earlier tentative ruling during a hearing Monday.
"This amounts to an erosion of First Amendment liberty for religious speech in this country," said William Becker, attorney for Santa Monica Nativity Scenes.
For decades, the city of Santa Monica has allowed the nativity scene to be erected each Christmas in Palisades Park. But the trouble began three years ago, when Damon Vix, an atheist, applied for and was granted a booth in Palisades Park alongside the Christmas nativity scene. Vix hung a simple sign that quoted Thomas Jefferson: "Religions are all alike -- founded on fables and mythologies." The other side read "Happy Solstice."
In 2011, Vix recruited others to inundate the city with applications for displays. The secular coalition won 18 of 21 spaces. Most of the signs were vandalized and in the ensuing uproar, the city ended a tradition that began in 1953 and earned Santa Monica one of its nicknames, the City of the Christmas Story.
But the content of the message was not the issue for the city or the court. It was resources: The city had to hire two staff people who spent 245 hours processing applications.
The city argued that the displays obstructed the view, foot traffic destroyed the grass and the time to manage the private exhibits was too costly.
The court said the churches have many other alternatives. Displays are allowed if there is a person in attendance to monitor the displays. Caroling and live performances are welcome too. An attorney for the churches says he will appeal the denial of a preliminary injunction.
The Associated Press contributed to this report.