The 11th Judicial Court dismissed the lawsuit filed against the University of Houston by Michael Young, the school's former director of basketball operations.
Harris County Judge Mike D. Miller said in his ruling he dismissed the case because of "want of jurisdiction."
Young's attorney, Reginald McKamie, said his client will appeal to the 1st or 14th Court of Appeals.
"The judge is saying he cannot execute against the state," McKamie said.
"It's called sovereign immunity. In other words, you can't sue the state. We believe in Texas law if the state or the school is committing a bad act, there's an exception where you don't need permission, that they should be held accountable just like anyone else."
Young, who filed the lawsuit in July, accused the UH athletics department of asking him "to engage in fraud and to engage in the illegal act of accepting money without performing a service and to violate NCAA rules."
The school issued a statement on Wednesday:
"The University of Houston is pleased with the decision by the 11th Judicial District Court to dismiss Michael Young's lawsuit in its entirety. We believe the Court's ruling is a confirmation that the University's actions with regard to Michael Young have been appropriate and consistent with applicable law. We do not intend to comment further on this lawsuit."
Young, who was employed by the school for 16 years, was a star with the University of Houston famed basketball teams known as Phi Slama Jama in the early 1980s, and he was inducted into the school's Hall of Honor in 2004.