A California appeals court has thrown out a $34.5 million malpractice verdict against Holland & Knight, finding against investors who accused the firm of facilitating a Ponzi scheme by a real estate promoter.

Holland & Knight secured the appellate court win on Monday, when a three-judge panel in the California Court of Appeal's Second Appellate District ruled that the investors—plaintiffs Rahim Sabadia, the Sabadia Family Trust and the Sabadia Family Irrevocable Trust—didn't adequately show that the law firm's conduct caused them to lose money.

The appeals court overturned a jury verdict that had put the firm on the hook for $34.5 million, ordering a lower court to enter judgment in Holland & Knight's favor on the irrevocable trust's claims and to hold a new trial on claims brought by Sabadia individually and by his other family trust. A Gibson, Dunn & Crutcher team comprised of partners Kevin Rosen, Daniel Kolkey and Bradley Hamburger, alongside Horvitz & Levy and Klinedinst PC, represented Holland & Knight.

Monday's decision comes in one of at least two cases that arose from the same Holland & Knight representation, in which former partner W. Reeder Glass provided legal counsel to an Atlanta-based real estate promoter named M. “Shi” Shailendra in connection with several real estate transactions between 2002 and 2009. Sabadia alleged that he and his family trusts invested some $16 million with Shailendra, and guaranteed another $18 million worth of loans, according to the appeals court decision. The investments related to 10 real estate deals involving properties in Florida and Georgia.

Shailendra later drew scrutiny from the U.S. Securities and Exchange Commission for allegedly defrauding investors, and in 2014 the real estate promoter settled with the SEC, agreeing to pay disgorgement and interest of more than $2.5 million without admitting any wrongdoing. Sabadia's malpractice suit alleged that Shailendra's dealings with investors bore a resemblance to a Ponzi scheme and accused Holland & Knight of fraud and malpractice for allegedly furthering Shailendra's conduct.

However, in Monday's decision the California appeals court found that there wasn't enough evidence presented at a 2012 trial to establish a causal link between Holland & Knight's legal work and Shailendra's alleged investor fraud.

“The record contains no substantial evidence that H&K knew, or should have known, that Shailendra was likely to divert funds away from the transactions,” the three-judge panel wrote.

A judge in Georgia dismissed a separate malpractice case against Holland & Knight over its work for Shailendra, finding in 2015 that the claims came after the statute of limitations had run out. The Georgia case was pursued by Sabadia's brother-in-law, Dr. Ishtiaq Khan—an orthopedist who was also involved in the California suit as a trustee for the Sabadia Family Irrevocable Trust.

David Ribakoff of Ribakoff Law Firm, a former name partner at the firm now known as Enenstein Pham & Glass, represented the investors in the California malpractice action, which began in 2010. Ribakoff didn't immediately respond on Wednesday to a request for comment on the appeals court ruling.

Holland & Knight managing partner Steven Sonberg said in a statement Wednesday that the firm is pleased with the appellate court's ruling and its “careful effort to analyze the extensive record and multiple issues” involved in the appeal.

“We look forward to a new trial on any remaining claims during which the plaintiffs will be held to the correct legal and evidentiary standards they failed to satisfy during the first proceeding,” he added.