Justin Baldoni's $400 million defamation countersuit against Blake Lively has been dismissed, marking a critical blow in the high-profile legal feud tied to their movie, "It Ends With Us."

According to a source close to the situation, the 41-year-old actor-director is reeling from the court's decision—but he's not giving up the fight just yet.

"It is a tale of two worlds right now," a source told the Daily Mail, describing the stark contrast in how both camps have responded to the judge's ruling. "Justin feels this is a huge kick to the guts."

The "Gossip Girl" alum filed a lawsuit in December 2024, claiming Baldoni sexually harassed her while on set. Baldoni denied the accusations and counter-sued Lively, her husband Ryan Reynolds, her publicist Leslie Sloane and the New York Times, which covered the case. He alleged defamation, extortion and damage to his reputation as a result of what he described as "false and privileged" allegations.

But on June 9, US District Judge Lewis J. Liman dismissed the countersuit in its entirety, ruling that the claims made by Lively were protected because they were made in court documents.

Although the ruling is a significant defeat for Baldoni and his legal team, he may still have a legal path forward. The court has granted him permission to amend his contract-related claims by June 23.

"Even though it is a stumble, Justin still has full trust with his legal team," the outlet's source said. "He is looking to figure out how to move forward from this current setback."

The judge noted that the Times had no apparent motive to favor Lively's version of events and emphasized that its reporting was based on available evidence.

Lively Celebrates Legal Win, 'Cried With Relief'

The actress issued a public statement on social media following the dismissal, expressing solidarity with women who've experienced retaliation after speaking out.

"Last week, I stood proudly alongside 19 organizations united in defending women's rights to speak up for their safety," Lively wrote in an emotional statement. "Like so many others, I've felt the pain of a retaliatory lawsuit, including the manufactured shame that tries to break us."

"While the suit against me was defeated, so many don't have the resources to fight back," Lively continued. "I'm more resolved than ever to continue to stand for every woman's right to have a voice in protecting themselves, including their safety, their integrity, their dignity and their story."

Privately, Lively was reportedly emotional after learning the judge's decision.

"Complete elation from Blake's world and a monkey off her back," another source told the Daily Mail. "Blake is breathing a sigh of relief right now, and all tears are happy tears."

Court's Rationale and What's Next

In his written opinion, Judge Liman explained why Baldoni's claims could not stand under the law.

"The Wayfarer Parties have not alleged that Lively is responsible for any statements other than the statements in her CRD complaint, which are privileged," he wrote. "The Wayfarer Parties have alleged that Reynolds and [publicist Leslie] Sloane made additional statements accusing Baldoni of sexual misconduct and that the Times made additional statements accusing the Wayfarer Parties of engaging in a smear campaign."

However, Liman said that Baldoni and Wayfarer failed to show that Reynolds, Sloane, or the Times acted with actual malice. "Accordingly, the Amended Complaint must be dismissed in its entirety," he concluded.

Despite the outcome, Baldoni may file a revised complaint—though only on narrow grounds. The court will allow an amended filing related to allegations of tortious interference with contract and breach of implied covenant.

Meanwhile, Lively's legal team is expected to seek attorneys' fees, treble damages, and punitive damages.

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