The 9th U.S. Circuit Court of Appeals on Wednesday rejected an appeal from the administration, saying U.S. District Judge Thelton Henderson can proceed with the hearings.

The Schwarzenegger administration is refusing to turn over $250 million as a down payment sought by a court-appointed receiver. The receiver, J. Clark Kelso, wants up to $8 billion spent on new medical centers for prison inmates.

The appeals court decided the case on procedural grounds. It did not weigh in on the larger question of how far the federal government can intrude on states' control of their prisons.