Corporate Counsel Daily, Fifth Circuit pours cold water on appeal of trial judgment in long-running utility dispute, (Aug 19, 2026)

By Justin Marcus Smith, J.D.

The only contract at issue did not allocate the market, and as for the rule of reason, the water utility failed to define a relevant market and forfeited any arguments to the contrary on appeal.

A private water utility failed to prove Sherman Act Section 1 claims against a Texas river authority, held the U.S. Court of Appeals for the Fifth Circuit, in affirming a bench trial judgment for the defendant river authority. The groundwater reduction contract at issue was not unlawful per se because it was neither horizontal nor price fixing. And, because the contract also did not involve market allocation, it was not subject to the per se rule. Next, because the private water utility did not challenge the district court adverse fact finding on the relevant market, the water utility plaintiff forfeited any arguments to the contrary and failed to carry its burden of proving a relevant market. Having failed to prove a relevant market, the plaintiff water utility also failed to prove that the groundwater reduction contract was an unlawful restraint of trade under the rule of reason (Quadvest, L.P. v. San Jacinto River Authority, No. 25-20415 (5th Cir. Aug. 18, 2026)).

Background. Private utility plaintiffs Quadvest, L.P. and Woodland Oaks Utility, L.P. alleged that San Jacinto River Authority (SJRA), a 1937 creation of the Texas legislature, worked with a 2001 creation of the Texas legislature, Lone Star Groundwater Conversation District (Lone Star), to monopolize the supply of all raw water in Montgomery County. The plaintiffs said SJRA would use pumpage fees under certain Groundwater Reduction Plan Contracts (GRP contracts) to finance an SJRA water treatment plant project and that SJRA had the contractual right to dictate how much water participants could use and at what cost. They also contended that SJRA struck a deal with the other providers of surface water to maintain an absolute hold on wholesale raw water in Montgomery County. The complaint included claims under section 1 of the Sherman Act and sought declaratory and injunctive relief. The district court issued an initial ruling that the plaintiffs alleged plausible claims for declaratory and injunctive relief.

The court later denied an SJRA motion to dismiss on the basis that it did not have immunity under the state action doctrine, and the Fifth Circuit affirmed on interlocutory appeal. The Fifth Circuit reasoned that where a legislative grant of authority is not expressly anticompetitive, whatever authority the legislature granted must be inherently anticompetitive for state-action immunity to attach. Interlocutory appeal was proper because SJRA would have otherwise forfeited all right to appeal the justiciability of state immunity had it waited to appeal until after entry of a trial judgment.

The district court ultimately sided with SJRA after a ten-day bench trial, but Quadvest appealed. The “cost equalization” and “mandatory connection” provisions of the GRP contracts were central to the appeal. The GRP contracts established a pumpage fee assessed on each participant’s groundwater production and a delivery fee charged for treated surface water delivered by the SJRA to the participant. Each fee was a function of the quantity of water pumped or delivered and a prevailing rate for it. The fees helped SJRA repay its debt and also ensured that groundwater and surface water production costs are equal. The GRP contracts also provided that SJRA “shall” decide when participants must connect and take surface water. That provision ensured that some participants would actually convert to surface water. Without it, the joint GRP could not compel any member to convert, and it could not achieve a mandated 30% reduction in groundwater use by large volume groundwater users.

However, after Quadvest sued the Conversation District in state court challenging the validity of its groundwater reduction rule, a new board for the Conservation District approved a settlement agreement that it was without legal authority to limit groundwater pumping. Presently, the Conservation District only has a guideline about maximum groundwater pumping and does not have a regulation to force a reduction in groundwater pumping.

With the underlying groundwater reduction rule gone, Quadvest brought the instant challenge to the SJRA GRP contracts. After trial, it only appealed the price-fixing and market-allocation claims, not the tying and attempted monopolization claims. Crucially, Quadvest did not challenge any other joint GRP contracts between the SJRA and other large volume groundwater users (LGVUs).

On appeal, Quadvest presented seven points of error that essentially boiled down to three: (1) the district court erred in concluding that Quadvest failed to establish an antitrust injury; (2) the GRP Contract is a per se illegal horizontal price-fixing or market allocation agreement in violation of § 1 of the Sherman Act; and, (3) even if the GRP Contract is not per se illegal, it fails the rule of reason.

Applying clear error review to the facts adjudicated at the bench trial and de novo review to questions of law, the Fifth Circuit affirmed the trial judgment.

Interstate commerce. First, the Fifth Circuit ruled that the district court erred by examining the wrong conduct. The district court found Quadvest did not meet its burden of showing that the alleged Sherman Act violation, the SJRA GRP contract with Quadvest, affected interstate commerce. It must be the SJRA’s commercial activity, not the violation of antitrust law, that must affect interstate commerce.

Having relied on that error, the district court made no factual findings related to interstate commerce effects of SJRA commercial activities. That would ordinarily be a reason to remand, but the record called for only one resolution: a finding of ample connection with interstate-commerce. The record showed vast sums of money crossed state lines in furtherance of the joint GRP in the name of the SJRA. The SJRA issued a half billion dollars in bonds. The depository bank for the bond funds was in New York. Funds circulated and were used to build infrastructure in Texas. Accordingly, the Fifth Circuit ascertained Sherman Act jurisdiction.

Sherman Act. The Fifth Circuit decided next that the district court erred in concluding that the challenged conduct was “unilateral conduct” beyond the reach of Section 1 of the Sherman Act. The challenged conduct was concerted action between SJRA and Quadvest, so Section 1 applied.

Restraint of trade. Perhaps most importantly, the GRP contract was a vertical agreement, so Quadvest failed to show that it was an unreasonable restraint of trade. Quadvest claimed the GRP contract was illegal per se or else would fail rule of reason scrutiny. The Fifth Circuit ruled to the contrary that the GRP contract was not subject to per se condemnation because it was neither a horizontal agreement nor an agreement to fix prices or allocate markets. The Fifth Circuit further concluded the GRP contract survived the rule of reason.

The district court held for a vertical agreement on the basis that Quadvest was an SJRA customer, but Quadvest disagreed on the basis that they were both water wholesalers. The Fifth Circuit held the agreement was vertical for two reasons. First, the specific transaction at issue was vertical because SJRA acted as a supplier of input for production of Quadvest groundwater services. Second, and more fundamentally, the impact of an agreement on competition is assessed as of the time of adoption.

The district court specifically found, and Quadvest did not dispute, that Quadvest did not have any wholesale water customers when it signed the GRP contract. It would not have one until 2012, but even now, Quadvest and the River Authority did not compete. Mere provision of the same services at a later point was not enough because purported competitors must provide the same services, in the same market, to the same pool of customers, but the district court found this was not the case. In short, there was no history of competition before the allegedly anticompetitive agreement and nothing to suggest that Quadvest was even a potential SJRA competitor. It took two years after the GRP contract for Quadvest to secure its first wholesale contract. The local nature of water utility services further underscored the failure of proof.

The Fifth Circuit continued that even if the GRP contract were a horizontal agreement, it still would not have pertained to price-fixing. Nothing in the GRP contract set wholesale water prices or affected the ability of Quadvest to negotiate with potential customers. Quadvest even entered into a wholesale contract in which it expressly agreed not to pass along the pumpage fees charged under the GRP contract.

While Quadvest was correct that the purpose of the GRP contract was to raise and lower the respective production costs of the different waters, there was no support for a logical leap to conclude that the purpose, not just the effect, was to manipulate market price. No provision set a cost floor for the water, and nothing required Quadvest to pass on pumpage fees.

Instead, the joint GRP was “agnostic as to the market price.” Since the joint GRP did not evince a purpose of market price manipulation, it was not a price-fixing agreement.

Market allocation. Next, the Fifth Circuit disagreed with the district court that the market-allocation claim was moot. The Firth Circuit held instead that the GRP was not a market-allocation agreement.

The district court found mootness insofar as SJRA represented to the court multiple times that it would not and could not force Quadvest to connect to the surface water treatment system now that the Conservation District had rescinded the groundwater pumping limits. That was error. Quadvest did not claim that SJRA may force Quadvest to connect to the surface water treatment system. The claim was that the SJRA forced other GRP participants to do so, thus allocating a part of the wholesale market to itself and depriving Quadvest of potential customers. Whether the SJRA was bearing down on Quadvest had no bearing on whether the SJRA forced others to connect. This was especially true where the district court found that SJRA delivery of treated surface water had not changed since 2016. The case was not moot.

Even so, the Quadvest claim failed on the merits. The Quadvest case was only about itself. The plain language of the GRP contract allowed SJRA to require Quadvest, and only Quadvest, to take water. It did not hold Quadvest’s potential customers captive. Far from allocating the market, the only contract at issue merely allowed SJRA to sell Quadvest surface water. There was no market-allocation; therefore, the GRP contract was not subject to the per se rule.

Rule of reason. Without the per se rule, Quadvest was left with the rule of reason, but this, too, did not apply. Quadvest could not carry its initial burden because it failed to define the relevant market at trial and forfeited any arguments to the contrary on appeal.

The district court found Quadvest did not prove either a relevant product market or the relevant geographic market. Quadvest excluded from the proposed product market several commodities, like water from the Catahoula aquifer, even though its own expert acknowledged that joint GRP participants used those commodities. The district court also found the product market evidence was not clear, credible, or reliable, because Quadvest pointed only to joint GRP participants whose substitution choices were constrained not by market forces, but by their contractual obligations under their GRP contracts.

As for the geographic market, again, Quadvest’s own expert showed that high water transport costs made the proposed geographic market of Montgomery County “far too large.” Moreover, SJRA did not operate in most of the county. Quadvest did not address these issues.

The Case is No. 25-20415.

Judge: King, C.

Attorneys: Kurt Howard Kuhn (Kuhn Law, P.L.L.C.) for Quadvest, L.P. Justin Spieker Rowinsky (Yetter Coleman, L.L.P.) for San Jacinto River Authority.

Companies: Quadvest, L.P.; San Jacinto River Authority

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