PAINTED POST, N.Y. -- The fight to stop Painted Post from contributing water to a hydrofracking Shell Oil subsidiary in Pennsylvania has reached a standstill -- for now.

A state appellate court upheld a lower court ruling that placed an injunction on the partnership between the village and the fracking company. Residents and activists claimed the village did not properly conduct an environmental impact review.

"There's no law against sending water to Pennsylvania that I know of," said Karen Biesanz, a member of People for a Healthy Environment, one of the organizations that filed the lawsuit. "The problem was that there was no State Environmental Quality Review Act review of this situation."

The village claimed the sale agreement was exempt under the State Environmental Quality Review Act, or SEQRA, but the court sided with activists, saying, "We agree with petitioners that the village's determination that the Water Agreement was not subject to SEQRA review was arbitrary and capricious."

"They have to do an environmental review, but if they do do an environmental review and that review is deemed to be sufficient, then they can sell the water," said Rachel Triechler, one of the attorneys representing the plaintiffs.

The residents who filed the lawsuit say hydrofracking is contaminating the aquifer which supplies the drinking water between Addison and Corning. Environmental activists claim waste products from hydrofracking contaminate the surrounding groundwater, which could eventually make it back to the area.

Painted Post deputy mayor Richard Thorne disagrees, although he isn't entirely sure how the water is being used.

"No, there's no hazard to this community whatsoever," Thorne said. "Does our customer mix chemicals with it? Maybe. I don't know. If you lived in the village and I sold you water, you know, we don't know how your water's being used. Are you washing your car? Watering your garden?"

Thorne says Painted Post stands to gain from this partnership. The village signed a five-year deal with the Pennsylvania company in 2012, and officials anticipated an additional $2.5 million of income each year.

The Shell Oil subsidiary will likely appeal the case again.