Yetter Coleman secured affirmance of a complete defense victory for the San Jacinto River Authority, rejecting Sherman Act claims by Quadvest, L.P. that its contract violated the antitrust laws.
Dispute.
To stop Montgomery County’s groundwater aquifers from being over pumped, the Lone Star Groundwater Conservation District implemented regulations requiring the county’s largest groundwater users to cut their pumping 30% by 2015. These users could comply individually or jointly, where they could band together as a group to achieve the 30% reduction collectively.
The River Authority offered such a group. Under its joint groundwater reduction plan, some of the county’s largest producers would convert to treated surface water so that other users—including Quadvest—could keep pumping groundwater and still comply with the regulations. Only some in the group would receive surface water, but all would benefit. Quadvest signed a contract with the River Authority in 2010 to join this group, calling it “the most economical way to reduce groundwater pumpage” and “the best option available.” The River Authority then issued roughly $500 million in bonds to build the surface water treatment plant used to deliver the compliance that Quadvest and others had bought. These bonds were backed by the fees Quadvest and all members of the group promised to pay under their contracts.
But nearly a decade later, Quadvest undid the Conservation District’s regulations that required reduced groundwater pumping, then sued the River Authority to escape its contract. Quadvest alleged that the River Authority’s group was part of a scheme to monopolize the water market in Montgomery County and that Quadvest’s contract with the River Authority was an illegal price-fixing, market-allocation, and tying agreement. We countered by explaining that these claims had nothing to do with antitrust law and were instead a contract and policy dispute dressed up as an antitrust claim. After a ten-day bench trial, the district court agreed, holding that Quadvest failed to prove any of its claims.
The appeal.
Quadvest appealed to the U.S. Court of Appeals for the Fifth Circuit, asking the court to condemn its contract outright as a price-fixing and market-allocation agreement between competitors, and argued in the alternative that the contract’s alleged restraints failed the “rule of reason.” (Quadvest did not appeal its losses on its monopolization or tying claims.) We showed the Fifth Circuit that the district court got it right. Although antitrust law condemns some agreements as per se illegal when they are between competitors, we explained that this contract was between a buyer and a seller. That proved dispositive, as the Fifth Circuit held that the River Authority “is acting as a supplier of an input into the production of” Quadvest’s groundwater services, namely regulatory compliance, and that “[t]hey are not and have never been competitors.” The court therefore agreed with us that per se rule of illegality did not apply.
That left the rule of reason, which required Quadvest to define a relevant antitrust market. But we had already dismantled their alleged market at trial so thoroughly that Quadvest did not even try to revive it on appeal. The Fifth Circuit noted that failure and therefore affirmed the judgment, protecting this $500 million public-infrastructure project from an existential threat. The Fifth Circuit denied Quadvest’s petition for en banc review.
The Yetter Coleman team included Constance H. Pfeiffer, R. Paul Yetter, James E. Zucker, Justin S. Rowinsky, and Luke A. Schamel.