A federal judge in San Francisco overturned the panel's decision in 2007, finding that the arbitrators had failed to give Kinkade's firm a fair chance to dispute the accusations of fraud and had awarded damages that were barred by the gallery owners' contract.

However, the Ninth U.S. Circuit Court of Appeals ruled June 16 that the company "received a fair hearing from the arbitrators" and must pay $860,000 in damages to the former gallery owners--Karen Hazlewood and Jeff Spinello--and more than $1.2 million in attorneys' fees and arbitration expenses, the newspaper reported.

Dana Levitt, a lawyer for Kinkade's firm, declined to discuss the ruling, but said his clients might appeal. "We are confident that before this is over, we'll be vindicated," he told the Chronicle.

The plaintiffs' lawyer, Norman Yatooma, said the ruling was "a breath of life" for Hazlewood and Spinello, who were "lied to and cheated and broken, and (left) broke because of the deceit they endured at the hands of Thomas Kinkade" and his assistants.

Yatooma represents other former gallery owners who have claimed Kinkade ruined them financially. Kinkade has won most of the cases, but has lost two arbitrations--the Hazlewood-Spinello case and a recent $1.4 million award to the owner of four closed galleries in Grand Rapids, Mich.

In their lawsuit, Hazlewood and Spinello--former San Ramon, Calif., residents who operated their art galleries in Virginia and were married at the time--said Kinkade's company had exploited their faith to reel them in, the newspaper reported.

Kinkade could not be reached for comment.