How Does Water Flow?

Quadvest, L.P. v. San Jacinto River Authority arose after the Montgomery County conservation district mandated a 30% cut in groundwater use, leading to changes in water production. Smaller water utilities that were negatively affected by the law sued the River Authority that implemented the law,  alleging that the resulting water-production contract violated the Sherman Act.

Among other holdings the Fifth Circuit concluded that the contract at issue was vertical, and not horizontal, for two reasons.

First, even if the parties competed in the wholesale water market generally, the specific transaction at issue was vertical. Here, the River Authority was “acting as a supplier of an input into the production of” the plaintiff’s water services—namely, regulatory compliance services.

Second, and “more fundamentally,” the parties were not competitors at the time the agreement was made. The plaintiff had not yet entered the wholesale water market when it signed the contract, and the record showed the two parties had never competed for the same customers, even after the plaintiff later entered that market. The Court rejected the argument that potential competitor status was sufficient, and distinguished cases cited by the plaintiff by noting that it  lacked the infrastructure and capital to compete, given that water transmission lines cost on average $7.2 million per mile to construct. No. 25-20415 (5th Cir. Aug. 18, 2026).