Judge MB Mukasey ruled that the government's case alleging conspiracy, fraud and negligence in the way Arthur Andersen audited De Lorean's accounts could not proceed in the Southern District Court of New York. He added that the Government could still pursue some of its claims in a lower state court but if it does so it cannot claim its costs, which are estimated at pounds 10m to pounds 15m.
The Government began the lawsuit in 1985 - three years after the Belfast plant collapsed after having had pounds 70m of taxpayers money pumped into it to build John De Lorean's gull-winged sports car.
In April last year the judge dismissed the Government's claim that Arthur Andersen had violated the Racketeer Influenced Corrupt Organisations Act, under which courts can award triple damages. Then four months later it ruled sensationally that confidential Cabinet papers relating to the De Lorean affair should be made open to public inspection.
The papers showed the De Lorean project had first been approved by a Labour government and then kept alive by the Conservatives for political reasons.
In dismissing the Government's claim, the judge noted that in one memorandum, the Secretary of State for Northern Ireland had said it would be "disastrous both politically and commercially to pull the plug on the company at this stage".
The papers revealed Labour's Northern Ireland Secretary Roy Mason had pushed the project through Cabinet believing the investment would deal a "hammer blow" to the IRA.
Successive Conservative Secretaries of State kept the plant going, fearing that to pull out would raise question marks over continued state aid for British Leyland and the Belfast shipyard Harland and Wolf.
The judge said that the long-running lawsuit had created a "Niagara of paper" in which the Northern Ireland Department of Economic Development had shown itself to be "a singularly intractable participant".