A state law went into force in Nebraska in April that transferred pipeline approval from the Public Service Commission, the agency that controls utilities, to the Nebraska Department of Environmental Quality and Gov. Dave Heineman.
TransCanada aims to build a section of the Keystone XL pipeline through Nebraska. In January, the White House rejected the federal permit needed to build the pipeline because state authorities hadn't settled on the project's route.
The lawsuit, backed by Keystone XL opponent Bold Nebraska and the Sierra Club, claims the April law violates separation of powers clauses and deprives affected parties of due process.
The Nebraska Supreme Court declined to hear the case.
Brian Jorde, a member of the legal team working on behalf of the landowners, told the Lincoln (Neb.) Journal Star that the rejection wasn't the end of the debate.
"Unfortunately, perhaps, for TransCanada, this will drag the ultimate resolution out longer," he said. "But from our perspective, it doesn't say anything about the merits of the case."