Ovasapyan's attorneys could not be reached on Monday.
City Atty. Scott Howard declined to discuss the court's decision in detail, but he planned to discuss the decision with the City Council during closed session to determine the city's next move.
"Obviously, I'm disappointed," he said.
Ovasapyan was awarded the money in February 2009 after the jury determined that he had been wrongly locked up for eight months while the Los Angeles County district attorney's office decided whether to move forward with his case in the shooting death of a 21-year-old Glendale resident, Christopher Shahanzari, on Nov. 1, 2005.
He was incarcerated on suspicion of shooting Shahanzari after he interrupted a robbery at his home in the 1300 block of Bruce Street.
The appellate court cited testimony given during the trial that Shahanzari's mother, who was home at the time of the incident, said Ovasapyan was not one of the perpetrators, but looked like one of them.
"The totality of the remaining evidence did not compensate for Mrs. Shahanzari's non-identification," the opinion stated. "It was not reasonable for the officers to believe they had probable cause to arrest Ovasapyan."
At the time of the murder, police determined there was enough probable cause to arrest him, and turned their case over to the county district attorney's office, which decided to file murder charges.
Ovasapyan was held in a county jail while he awaited a preliminary hearing.
But Glendale Police Lt. Ian Grimes and Det. Arthur Frank eventually collected DNA evidence at the scene of the shooting that led to another suspect, who was identified by Shahanzari's mother as the alleged shooter. Those pieces of evidence eventually exonerated Ovasapyan.
He sued the city in 2007 after his release, alleging his civil rights were violated.
As part of the jury's settlement, Grimes and Frank were ordered to pay $75,000 each in punitive damages. In October, the City Council agreed to pay the damages on their behalf.