I have not read just the LA Times article not the underlying opinion, so my facts are limited.
Based on what I read, the Westlands Water District had a contract (or a contract-like agreement) with the US Bureau of Reclamation for the water and the DID sue when the allocation was cut in 1993. Westlands then dropped the suit in 1995 as part of negotiations to establish the California Federal Bay - Delta Program. That ended the dispute between the two parties to the contract.
Subsequently, two dozen water district customers (individuals and farming associations) sued the Federal government to cover their crop losses.
Why did they sue only the Federal government?
Who did they have a contract with to supply the lost water? With the Federal government or with the Westlands Water District?
Why didn't they also sue the Westlands Water District for breach of contract?
Hmmm...
You can read the whole ruling here:
Orff v. United States, 545 U. S. ___ (2005)
R072; No. 03-1566; 6/23/05. In enacting a provision of the Reclamation Reform Act of 1982, 43 U. S. C. §390uu, Congress did not waive the United States' sovereign immunity from a breach of contract suit brought by petitioners, who purchase water from a local water district that receives its water, pursuant to contract, from the United States Bureau of Reclamation.