Background
Megatel Homes and Cipriani Island Laguna Azure sought to develop land outside the City of Mansfield, Texas, requiring retail water services from the Johnson County Special Utility District. The utility district could not provide services without Mansfield’s permission due to a contractual agreement. Mansfield demanded annexation and development fees, leading to fruitless negotiations and subsequent litigation alleging violations of the Sherman Act and state law.
The court’s reasoning
The court examined whether the Texas Water Code clearly articulated and affirmatively expressed a state policy permitting the City of Mansfield to act anticompetitively. While the code establishes a regulatory system for water utilities and authorizes monopolies for utilities holding a certificate of convenience and necessity, it does not grant the city itself the authority to monopolize or restrict water services in the area. The court concluded that the city failed to demonstrate that state law delegated to it the power to act anticompetitively, thus precluding state-action immunity.
Mansfield has not demonstrated that Texas, through its water code, grants the city—and not JCSUD—the authority to monopolize.
Megatel Homes, L.L.C. v. City of Mansfield, Texas, No. 25-11006 (5th Cir. May 21, 2026)
What it means going forward
The ruling clarifies that municipalities cannot claim state-action immunity for anticompetitive conduct unless state law explicitly delegates the authority to act anticompetitively to that specific municipality.
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