The 3-to-2 ruling by the NY appellate court enables Summer Zervos, a former contestant on "The Apprentice," to press forward toward a Manhattan trial of her allegation that Trump defamed her by branding her a liar in the weeks before he was elected president. "We reject defendant President Trump's argument that the Supremacy Clause of the United States Constitution prevents a New York State court - and every other state court in the country - from exercising its authority under its state constitution".
While the statute of limitations on such misconduct charges has long expired, Trump's caustic comments during the 2016 campaign that Zervos' claims were "total fiction" and "all false stuff" basically reset the clock.
Ms Zervos has repeatedly accused Mr Trump of kissing her against her will at a 2007 meeting in NY, and later groping her at a Beverly Hills hotel.
In its ruling Thursday, a panel of NY appellate judges rejected that argument, citing the U.S. Supreme Court's ruling in Clinton v. Jones, which established that presidents can be sued while in office for unofficial acts.
Lawyers for Trump had argued that the decision in Clinton v. Jones didn't settle the question of immunity from suit in state court.
The Zervos case has already brought forth dozens of recorded depositions with Trump Organization figures as senior as Allen Weisselberg, the company's CFO, who had been at Mr. Trump's side for decades.
Trump's lawyers have said the case shouldn't go forward while he's in office.
Zervos has said Trump made unwanted sexual advances towards her, which he has denied.
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The appeals court called Zervos' case "materially indistinguishable" from former Arkansas state employee Paula Jones's lawsuit accusing then-President Bill Clinton of sexual harassment.
Justice Jennifer Schecter originally allowed the case to proceed in March of a year ago, arguing that nothing in the U.S. Constitution's Supremacy Clause suggests the president is immune from civil lawsuits.
All five justices found Ms Zervos's defamation claim legally sufficient, without ruling on its merits.
"The current sitting President attempts to shield himself from consequences for his alleged unofficial misconduct by relying upon the constitutional protection of the Presidency", the judges said in an opinion written by Justice Dianne T. Renwick.
Mr Trump also republished on Twitter a post calling Zervos' accusations a "hoax".
Trump has denied Zervos' claims and called her case politically motivated. In a June 2018 lawsuit, the Attorney General claimed the foundation was operated as a "shell corporation that functioned as a checkbook" for Mr. Trump, his campaign and businesses.
"We are very pleased that the First Department has affirmed once again that Defendant is not above the law", Zervos' attorney Mariann Wang said in a statement.