Quadvest v. San Jacinto Riv Auth
7 F.4th 337
| 5th Cir. | 2021Background:
- San Jacinto River Authority (SJRA) is a Texas state-created political subdivision that owns surface- and groundwater rights and supplies wholesale water in Montgomery County.
- Lone Star Groundwater Conservation District adopted a Groundwater Reduction Rule requiring large-volume groundwater users (LVGUs) to reduce groundwater use, and SJRA and Lone Star executed an MOU to implement a countywide conversion to surface water.
- SJRA formed a Joint Groundwater Reduction Plan (GRP) and entered contracts with many LVGUs (including plaintiffs Quadvest and Woodland Oaks) imposing: a Groundwater Pumpage Fee, a Surface Water Put Option (to require purchases when surface facilities completed), and a Water Importation Fee.
- Plaintiffs (investor-owned utilities that rely on groundwater) sued SJRA under Sherman Act §1, alleging the GRP contracts unreasonably restrain trade and fix prices; SJRA moved to dismiss asserting state-action antitrust immunity; the district court denied dismissal.
- On interlocutory appeal, the Fifth Circuit (1) found jurisdiction under its collateral-order precedent treating SJRA as a state entity for appealability, and (2) affirmed the denial of state-action immunity, holding the enabling statute did not clearly authorize displacing competition in the wholesale raw water market.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether interlocutory denial of state-action immunity is immediately appealable | SJRA acts as a market participant so appealability should be treated like a private party (no collateral-order review) | SJRA is a state-created entity entitled to immediate review under Fifth Circuit collateral-order precedent | Appeal permitted under Fifth Circuit precedent; SJRA treated as a state entity for jurisdictional purposes |
| Whether SJRA's enabling statute clearly authorizes the challenged anticompetitive contract provisions (clear-articulation/authorization) | Statute does not authorize agreements that fix prices or displace competition in the wholesale raw water market | Statute authorizes contracts, rates, and related charges and thus authorizes the GRP provisions; displacement of competition was foreseeable | Statute is too general; it authorizes participation and rates but not a clear, market-specific authorization to displace competition; immunity denied |
| Whether the anticompetitive effects were the foreseeable result of the state authorization (market‑specificity/foreseeability) | Anticompetitive displacement is not a foreseeable, ordinary result of the general statutory powers | Supplying surface water and contracting to equalize costs foreseeably displaces groundwater competitors | Foreseeable displacement not established; general authority to sell water is not sufficient to show intent to supplant competition |
| Whether SJRA needed to show active state supervision because it participates in the market | Plaintiffs: SJRA functions as a market participant and active-supervision is required | SJRA: not controlled by private market interests and invokes immunity as a state entity | At pleading stage plaintiffs have not shown SJRA is controlled by private interests; active-supervision requirement not applied here |
Key Cases Cited
- Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (U.S. 1980) (establishes the two-part clear-articulation and active-supervision state-action framework)
- Parker v. Brown, 317 U.S. 341 (U.S. 1943) (sovereign-state actions immune from federal antitrust laws)
- North Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494 (U.S. 2015) (boards dominated by active market participants require active state supervision)
- FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216 (U.S. 2013) (antitrust immunity requires that anticompetitive effects be the foreseeable result of state authorization)
- Town of Hallie v. City of Eau Claire, 471 U.S. 34 (U.S. 1985) (rejects purely formalistic inquiry; risk of private influence relevant)
- La. Power & Light Co. v. City of Thibodaux, 435 U.S. 389 (U.S. 1978) (statutory authorization must be market-specific to displace competition)
- Will v. Hallock, 546 U.S. 345 (U.S. 2006) (limits on collateral-order doctrine and immediate appealability)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading standard for plausible claims under Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (affirmation of plausibility pleading standard)
- Martin v. Mem’l Hosp. at Gulfport, 86 F.3d 1391 (5th Cir. 1996) (Fifth Circuit precedent treating denials of state-action immunity as collateral orders)
- Surgical Care Ctr. of Hammond, L.C. v. Hosp. Serv. Dist. No. 1 of Tangipahoa Par., 171 F.3d 231 (5th Cir. 1999) (en banc) (discusses limits and proper role of Parker/state-action analysis)