My Credit card company back in January I paid off my balance and had a -1200.00 balance

What probably happened is that someone else's $1200 payment got credited to your card. When that other person complained that they got late fees (or whatever), the bank investigated and figured out what happened, then took the accidental money from your card and put it on the correct one.

Normally, if the card is overpaid (and has a negative balance) but you're actively using it, the easiest thing to do is to just keep using it and consider it a pre-payment for the next month. Some people even used to deliberately overpay bills, just so that they wouldn't have to deal with them every month. If you'd left it there, your next bill may have been lower than usual, and the one after it higher than usual, but it would still be the same total amount you owed.

However, since you did ask for the money to be refunded back to you, the money is no longer on your card for the bank to reclaim. Therefore, they just increased the amount you owe so that you pay back the $1200 they gave you. If you'd closed your account in that time, the bank may have just eaten the loss, but they may also have tried to collect it from you (directly or via a debt collection agency).

If you want a solid answer as to whether this is legal, you can do a close reading of your credit card agreement (which should say something about this) and/or ask on the Law stack exchange. However, the answer is almost certainly "Yes, it is".

Consider this: If you suddenly had a $1200 charge show up on your card, and you called the bank to complain, would you accept "Sorry, we screwed up. You still owe us that money" as an answer? If not, then "Sorry, we screwed up. We gave you extra money" shouldn't be accepted either.

The best thing to do in situations like this (if you do go ahead and ask for the refund) is to put the money into some kind of interest-bearing account for a few months. If the bank asks for it back, you can return it and you still have whatever you earned in interest. It may not be a lot of money, but it's more than you'd have had otherwise, and more than you'd get if you left it as a negative balance on the card (which pays 0% interest).

It was never your money, and spending it was a stupid idea.

Right now, it is a correction of an error, but if you don’t pay it back, it will become theft. It doesn’t matter if you knew it was incorrect or not.

Given that from your description you did try fairly hard to validate that the money was genuinely yours and the credit card money confirmed it was, you would probably have a reasonable chance of asserting "Change of position" if it comes to court: after making reasonable enquiries, you spent money that you thought was yours and wouldn't have spent otherwise, and now you don't have it to return.

That said, actually asserting that position could cost you more in time, legal fees and possible hit to your credit record than just repaying it.

You might get more detailed legal suggestions by asking a general question about this topic to law.stackexchange.com.

This is an unfortunate situation. My advice is to you, since you've been previously paying your card in full, is to ask your bank if they will give you 0% interest on the $1200 for a certain length of time, say 12 months. This way you can continue to pay your card in full, and then add $100 per month without accruing any new interest. Because the bank made the error, I believe they would consider this request reasonable and approve it. (On their end this would be similar to a time limited 0% on all new purchases offer. So you know their computer system can easily handle this kind of request, if they code it properly.)