Megatel Homes LLC and Cipriani Island Laguna Azure LLC sought to develop 517 acres outside Mansfield, Texas, but needed retail water services from Johnson County Special Utility District to proceed. When Megatel requested water services, JCSUD said it needed Mansfield's permission under a 2022 agreement requiring the city's "prior written consent" for water provision in its extraterritorial jurisdiction. Mansfield told the developers "if you control the tap you kinda control the world" and demanded annexation consent and development fees during 2.5 years of failed negotiations.
Circuit Judge Stephen Higginson ruled that while the Texas Water Code clearly permits water monopolies, it grants that authority specifically to utilities with certificates of convenience and necessity, not to municipalities. "The Texas Water Code grants the state's Public Utility Commission the authority to vest utilities with the exclusive right to provide water through a CCN," Higginson wrote, noting that JCSUD holds the CCN for the disputed property. The judge emphasized that "retail utilities are by definition monopolies in the areas they serve," but Mansfield isn't the designated utility.
Megatel filed Sherman Act antitrust claims and state law violations against Mansfield in September 2024 after unsuccessful negotiations. The district court's magistrate judge had recommended dismissal based on state-action immunity, finding the Texas Water Code sufficient to displace federal antitrust law, and the district court accepted that recommendation while declining supplemental jurisdiction over state claims.
The case returns to district court for consideration of Megatel's antitrust claims on the merits, with the appellate panel explicitly noting it passed "no judgment on the merits of Megatel's Sherman Act claims." The ruling could impact how municipalities attempt to control development through water service restrictions, particularly where they lack direct utility authority but seek to leverage agreements with actual service providers.