John Rutter was convicted last year of forgery, attempted grand theft and perjury relating to the topless photos. He is currently serving a nearly four-year sentence.
Rutter argued the conviction should be thrown out based errors in his trial, but a three-justice panel from the 2nd District Court of Appeal disagreed on Monday.
Diaz was a 19-year-old aspiring model when Rutter photographed her in 1992 in leather boots and fishnet stockings. At one point she held a chain attached to a male model's neck.
She wore a top and black vest in some of the photos, which were published in European magazines at the time.
The topless photos have never been published, and a judge has prohibited Rutter from releasing either them or a video of the shoot.
Rutter testified during his two-week trial that he gave Diaz two days to pay him $3.5 million for the photos before he shopped them to prospective buyers for a campaign timed to coincide with the 2003 release of her film "Charlie's Angels: Full Throttle." But he said he was only offering her first right of refusal, not trying to blackmail her.