The 3-to-2 ruling by the NY appellate court enables Summer Zervos, a former contestant on "The Apprentice," to press forward toward a Manhattan trial of her allegation that Trump defamed her by branding her a liar in the weeks before he was elected president.
Trump had appealed a lower court's ruling a year ago that allowed the case to proceed, arguing that the Constitution's Supremacy Clause bars a lawsuit against a sitting president in state court because it would interfere with his duties. But in their ruling on Thursday, the court said that finding the president in contempt would be a "hypothetical scenario that is highly unlikely to occur in the context of this lawsuit".
Trump's lawyer, Marc Kasowitz, said he planned to appeal to New York's highest court.
The decision affirmed a lower court ruling from last March.More news: Flu season is not over yet
Trump has called Zervos and the other women who made accusations against him "liars", prompting Zervos to file a lawsuit in 2017.
"The case has proceeded in the trial court and discovery continues", Mariann Wang, Zervos's attorney, said in a statement. "There is no federal law that conflicts with the defamation claims that Zervos brought against Trump, the judge wrote". Several other women have also accused Trump of improper sexual conduct.
Zervos, an "Apprentice" contestant in 2005, accused Trump of kissing her against her will at a 2007 meeting in NY, and later groping her at a Beverly Hills hotel. Her resolve to stay quiet changed, she said, after an "Access Hollywood" recording emerged in October 2016 of Trump boasting about groping women. But he singled out Zervos' allegations, calling them a "hoax", and "fabricated and made-up charges".
In 1997, the US Supreme Court let Ms Jones's case go forward.More news: Cyclone Idai to hit Zimbabwe
That paved the way for Mr Clinton's impeachment the following year.
Justice Angela Mazzarelli, one of Thursday's dissenters, said the "all-consuming nature of the Presidency creates a constitutional barrier" against Zervos' lawsuit.
Zervos's legal team hailed the ruling as an affirmation that Trump "is not above the law".
In contrast to Daniels and her attorney, Michael Avenatti, Zervos and her lawyers have taken a low-key approach, a step that may help them negate claims that the suit is politically motivated.More news: Watch leaked footage of Conor McGregor stomping on fan’s cell phone
Defendant's reading of the Supremacy Clause - that it bars a state court from exercising jurisdiction over him because he is the "ultimate repository of the Executive Branch's powers and is required by the Constitution to be "always in function" -- finds no support in the constitutional text or case law.