Fayette County authorities had used a search warrant to raid the "Funk Fest" event held by the Church of Universal Love and Music in August 2009.
They arrested 23 people on various drug charges. Authorities also seized marijuana, LSD and hallucinogenic mushrooms.
But District Court Senior Judge Donetta Ambrose ruled Friday the warrant was unconstitutional because it wasn't supported by probable cause.
The church, its founder and others sued the county and several law enforcement officers following the arrests. Other aspects of the case have yet to be adjudicated.