U.S. District Judge Lee Rosenthal cited a motion filed by the U.S. Justice Department, known as a "Suggestion of Immunity," in which the government said allowing the lawsuit to proceed would be "incompatible with the United States' foreign policy interests."
"After a suggestion of immunity is filed, it is the court's duty to surrender jurisdiction," Rosenthal wrote in the ruling, a copy of which was obtained by The Associated Press.
Joseph Ratzinger - Benedict's former name - is named as a defendant in the civil lawsuit, accused of conspiring with the Archdiocese of Galveston-Houston and some of its officials to cover up the abuse of three boys during the mid-1990s. The suit is seeking unspecified monetary damages.
The three boys, identified in court documents as John Does I, II and III, allege that a Colombian-born seminarian on assignment at St. Francis de Sales church in Houston, Juan Carlos Patino-Arango, molested them during counseling sessions in the church.
Patino-Arango has been indicted in a criminal case by a Harris County, Texas, grand jury and is a fugitive from justice, the lawsuit says.
The alleged victims' lawyer, Daniel Shea, argued in court documents that a May 18, 2001, letter Ratzinger wrote to bishops around the world was evidence that he was involved in a conspiracy to hide Patino-Arango's crimes and to help him escape prosecution.
The letter, written when Ratzinger was still prefect of the Congregation for the Doctrine of the Faith, explains that "grave" crimes such as the sexual abuse of minors would be handled by his congregation and that the proceedings of special church tribunals handling the cases were subject to "pontifical secret."