A Maryland court has dealt a potentially fatal setback to activist hedge fund Costa Brava’s battle with defense contractor Telos Corp.

Baltimore City Circuit Court Judge Albert Matricianni dismissed two shareholder derivative claims, filed by Costa Brava Partnership III two years ago, seeking $79 million in accrued but unpaid dividends on preferred shares of the company. Matricianni ruled that Costa Brava “failed to prove” that Telos, its CEO John Wood and largest shareholder John Porter have wrongfully withheld the dividends and are misusing company funds. Telos had countered that Maryland law prohibits it from paying dividends while it is insolvent.

Matricianni ruled that a pair of special litigation committees set up by Telos to review Costa Brava’s claims “were independent, disinterested and performed their duties in good faith.”

“We are gratified, but not surprised, that the Court ruled in our favor,” Wood said. “Costa Brava’s attempt to litigate a change in the nature of their stock agreement—and to position themselves improperly ahead of other Telos shareholders—has failed.”

Costa Brava, which owns 16% of Telos, isn’t done fighting just yet. Last year, it won two seats on Telos’ board in a proxy fight, and two other counts—seeking to have Telos put into receivership and dissolved—are set to be heard at trial in April, and can still appeal Matricianni’s decision. But Telos expressed confidence that those two counts would also be dismissed.