Oklahoma had hoped to collect more than $611 million from companies it claims polluted the Illinois River watershed with bird waste.
But the 1-million-acre river valley lies in an area set aside by the federal government for the Cherokee Nation, and Oklahoma doesn't have the authority to seek damages on the nation's behalf, U.S. District Court Judge Gregory K. Frizzell ruled.
He said the state could continue to pursue the lawsuit to stop poultry companies from disposing of what Oklahoma claims are excessive amounts of chicken waste on farmland in the watershed.
The case set for trial Sept. 21 has drawn national attention because other states could file similar suits. But some said Wednesday that other lawsuits were unlikely without the possibility of damages.
"This ruling is devastating to the state of Oklahoma's case," Arkansas Attorney General Dustin McDaniel said.
Oklahoma Attorney General Drew Edmondson, who filed the lawsuit in 2005, said it was never about the money but protecting the watershed from pollution.
"If we prevail ... at trial, we accomplish our goal of stopping these companies' reckless waste dumping practices," he said.
Jackie Cunningham, a spokeswoman for the poultry industry, said Wednesday the ruling might bring both sides closer to an out-of-court settlement.
The poultry companies had asked Frizzell to dismiss the lawsuit because Oklahoma didn't have the authority to seek damages without the Cherokee Nation.
Gary Mickelson, a spokesman for Tyson Foods Inc., one of the 12 companies name in the suit, said Wednesday's ruling proves the motion wasn't "the 'legal gimmick' or 'scheme' the attorney general's office claimed it was."
More than 55,000 people in Oklahoma and Arkansas work in the poultry industry in one of the largest areas in the U.S. for producing broilers, or birds raised for meat. The watershed that spans the two states has 1,800 poultry houses.
Edmondson claims the estimated 345,000 tons of poultry waste produced there each year has wreaked environmental havoc on the land, as runoff carries bacteria into lakes and streams, threatening the health of tens of thousands of people who boat and camp in the valley every year.