Spears' mother, Lynne Spears, had asked the justices to become the first California court to adopt a "libel-proof doctrine" that a person cannot sue for defamation if their reputation is so bad that it cannot be further damaged by potentially false statements.
Lutfi sued Lynne Spears and her daughter for libel and defamation in February 2009, claiming he had been falsely accused of controlling the singer and grinding pills into her food during a turbulent period.
The lawsuit cited numerous passages from Lynne Spears' book, "Through the Storm: A Real Story of Fame and Family in a Tabloid World," in which she described him as a "Svengali" and "predator."
Lynne Spears had asked a Los Angeles Superior Court judge to throw out several of Lutfi's claims for damages, stating the passages in the book were true and had been widely published. The judge refused, and the appeal was filed. It was the subject of oral arguments Nov. 18, during which Lutfi's attorney noted the book remained widely available.
Many of the Lynne Spears' claims had been contained in court filings that led a judge to establish a conservatorship involving the Grammy-winning singer in February 2008. At the time, Lutfi was expelled from Britney Spears' inner circle.
The singer's father won a three-year restraining order in 2009 after he said Lutfi violated an agreement not to contact his daughter.
The appeals court noted that Lynne Spears' court statements regarding Lutfi's actions and how they were reported by many news outlets made clear they were allegations.
"We find that Lutfi's reputation was not so badly tarnished by the allegations in (Lynne) Spears' court-filed declarations as to be immune from further damage," the court opinion stated.
Lynne Spears' attorney, Michael Adler, declined comment. Lutfi's attorney, Joseph D. Schleimer, did not immediately return a phone message seeking comment.
Britney Spears remains under the court-ordered conservatorship, which has prevented her from being deposed or testifying in other court cases.