James Nichols was arrested six days after the April 1995 Oklahoma City bombing that killed 168 people. He was released after 32 days and charges of possession of unlicensed firearms were later dismissed. His brother, Terry, was convicted of being a co-conspirator and is serving life in prison without parole.
James Nichols filed suit in 2003, claiming he was libeled and defamed in Moore's Oscar-winning documentary, "Bowling for Columbine."
But U.S. District Judge Paul D. Boreman dismissed the suit Thursday, saying the movie was "factual and substantially true," the Detroit News reported.
In his ruling, Borman said James Nichols has "all but admitted he was arrested in connection to the Oklahoma City bombing."
James Nichols' lawyer said his client may appeal.