A state appeals court has reinstated a lawsuit by four residents trying to void the Castaic Lake Water Agency's $63-million purchase of a retail water supplier.
The residents oppose the deal because they fear more water will bring more development.
"We all think this water agency out here has been operating with mischief and absurdity for a long time," said plaintiff Lynne Plambeck. "We're very pleased that the courts found in our favor because we think they've been acting in a cavalier manner and not following the law."
A spokesman for the water agency was unavailable for comment Saturday.
A Los Angeles County Superior Court judge dismissed the case in 1999, saying the agency's purchase was within state law. But the 2nd District Court of Appeal in Los Angeles ruled Friday that the residents have a right to try to reverse the transaction.
The 1999 suit claimed that retail sale of water violated state law, and challenged terms and conditions of the financing arrangement.
A week after residents filed suit, the Castaic agency bought Santa Clarita Water Co. in a cash deal, sidestepping the financing arrangement challenged in the lawsuit.
The purchase went through, and the lawsuit was thrown out after Superior Court Judge Dzintra Janavs agreed with the Castaic agency, finding that a 1990 law allows water agencies to buy water retailers as long as the business operation is regulated by the California Public Utilities Commission.
Residents opposed the transaction because it included an agreement that would allow the agency to sell water directly to consumers.
Residents claimed that if the agency were to suffer financially from its purchase of Santa Clarita Water, or if supplies had to be rationed, their rates would likely be increased.