Sept. 18 (Bloomberg) — Steve Case, the co-founder and former chief executive officer of America Online Inc., didn't use illegal insider information when he bought a Hawaii land company in 2000, a federal judge decided.

U.S. District Judge Robert Jones yesterday ruled in favor of Case in a lawsuit claiming he committed insider trading in the $26 million purchase of Grove Farm Co., a former sugar plantation that owns 22,000 acres on Kauai.

"Despite four grueling weeks of trial, extensive testimony, and massive numbers of exhibits, plaintiffs managed to prove little more, in this case, than possible poor judgment on the part of Grove Farm's board of directors," Jones wrote in an opinion.

Unless the shareholders appeal, the decision ends a case in which a group of former holders sued in 2005 to rescind the sale or to recover as much as $2.5 billion in claimed damages. After a trial that ended in May in federal court in Honolulu, Jones considered the case without a jury.

Jones ruled that there was "a total failure of proof" that Case or two companies he controlled "acted with an intent to deceive, manipulate, or defraud" Grove Farm's shareholders.

"I read the decision with a great deal of pleasure," said Paul Alston, a lawyer for Case. "They spent a lot of time and effort presenting their case, and the judge rejected all their arguments."

Matthew Simmons, who represents the former shareholders, didn't immediately return a voice-mail message seeking comment on the ruling.

In December 2000, shareholders of 98.9 percent of Grove Farm, which had more than $60 million in debt, voted to approve the sale to Case. Later, some of the shareholders filed suits in federal and state courts in Hawaii, claiming they were defrauded in the transaction.

The shareholders are all related by marriage or blood to George Wilcox, who founded Grove Farm in 1864. They claimed that information Case received before the sale gave him an illegal advantage in the negotiations.

Steve Case's grandfather lived on Grove Farm and worked as its treasurer until 1959. Case's father, Daniel, was raised on Grove Farm, which was a sugar plantation until 1974. Later, as a lawyer in Honolulu, Daniel Case represented the company.

Steve Case and his father both testified in the trial.

"The most that came out at trial was that Dan Case had a soft spot for his son and Grove Farm, and wanted Stephen Case to pursue the merger if he so desired," Jones said.

In 2006, a state court jury on Kauai returned a verdict for the defense in a separate suit by former Grove Farm shareholders against the property development company.

Steve Case stepped down as chairman of AOL Time Warner Inc. in May 2003. In April 2005, Case began Revolution LLC, which invests in companies including luxury resorts and health-care information providers.