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The lawsuit was filed by three Nebraska landowners who oppose the pipeline.
"Under the Court's ruling, TransCanada has no approved route in Nebraska," Dave Domina, the landowners' attorney, said in a statement. "TransCanada is not authorized to condemn the property against Nebraska landowners. The pipeline project is at standstill in this state."
Domina said the ruling means that the governor's office has no role to play in the pipeline, and decisions within the state must be made by the Public Service Commission. The decision on a federal permit still rests with President Barack Obama.
The ruling could cause more delays in finishing the pipeline, which would carry oil from Canada to Texas refineries.
Phone messages left with pipeline developer TransCanada were not immediately returned Wednesday afternoon.
Associated Press writer Josh Funk in Omaha, Neb., contributed to this report.
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