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In <a href="https://admin.bakerlaw.com/wp-content/uploads/2026/04/Megatel-Homes-LLC-v-City-of-Mansfield-Texas.pdf" target="_blank" rel="noreferrer noopener">Megatel Homes, L.L.C. v. City of Mansfield, Texas</a>, the U.S. Court of Appeals for the Fifth Circuit revisited the limits of municipal immunity under the state action doctrine as it relates to regulated utility monopolies where immunity arguments are routinely asserted and often accepted. The court reversed the dismissal of Sherman Act claims against the City of Mansfield, holding that even where state law unmistakably endorses monopoly regulation, Parker immunity does not attach unless the state has delegated anticompetitive authority to the specific municipal actor claiming the defense. 170 F.4th 954 (5th Cir. 2026).

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The dispute arose from Megatel’s effort to develop approximately 517 acres of land, known as the Cipriani Property, located outside the City of Mansfield’s limits but within its extraterritorial jurisdiction into a large residential, mixed‑use and commercial development. Access to retail water service was a prerequisite not only for occupancy but also for foundational development steps such as platting. The Texas Public Utility Commission had already granted a certificate of convenience and necessity (CCN) for the property to the Johnson County Special Utility District (JCSUD), which ordinarily would confer the exclusive right and obligation to serve the development. But a contractual arrangement between Mansfield and the JCSUD prohibited the JCSUD from providing water service within Mansfield’s extraterritorial jurisdiction without the city’s prior written consent, which Mansfield could withhold in its sole discretion. As negotiations dragged on for more than two years, Mansfield allegedly conditioned its consent on Megatel’s agreement to annexation, municipal control and taxation, and payment of development fees untethered to the provision of water service, even as the city ultimately refused to execute the proposed development agreement. As one city representative allegedly put it, “[i]f you control the tap you kinda control the world.” 170 F.4th at 956-57. After Mansfield’s refusal to authorize service, Megatel sued the city under sections 1 and 2 of the Sherman Act. A magistrate judge recommended dismissal on state action immunity grounds, reasoning that Texas had clearly displaced competition in retail water service. The district court adopted that recommendation and also dismissed on the alternative ground that Megatel failed to plead a viable antitrust violation. The Fifth Circuit reversed solely on the immunity question, holding that the lower courts failed to ask whether Texas had delegated monopoly authority to Mansfield itself, rather than to the JCSUD, and remanded for further proceedings.

The Fifth Circuit began by situating the case within the settled taxonomy of the state action doctrine. The state‑action doctrine holds that the federal antitrust laws do not apply to anticompetitive restraints imposed by a State acting as sovereign, or by its political subdivisions when they act pursuant to a clearly articulated and affirmatively expressed state policy to displace competition.

There are “three contexts in which state‑action immunity may be asserted”: (1) where a state “clearly exercises its sovereign powers”; (2) where a municipality or state agency acts pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition; and (3) where private actors or market participant‑controlled entities satisfy both clear articulation and active state supervision. 170 F.4th at 958.

Because Mansfield is a municipality, only the second category was at issue, and Mansfield therefore bore the burden to show that “its anticompetitive activities were authorized by the state.” Id. (citing Town of Hallie).

Critically, the Fifth Circuit treated FTC v. Phoebe Putney Health System, Inc. as controlling. In Phoebe Putney, the Supreme Court rejected immunity when the state of Georgia authorized hospital authorities to acquire hospitals but had not clearly delegated authority to make acquisitions that substantially lessened competition. The Court emphasized that Parker immunity requires a deliberate state decision to displace competition, not merely a foreseeable anticompetitive effect from a general grant of power. Echoing that principle, the Fifth Circuit stressed that the immunity inquiry begins with whether state law authorizes the defendant “to engage in the challenged conduct,” not whether the state generally tolerates monopoly in the field. 170 F.4th at 958-59 (citing Phoebe Putney).

The Fifth Circuit agreed that Texas law clearly displaces competition in retail water service. The Water Code declares that “retail public utilities are by definition monopolies in the areas they serve” and rejects market competition as inconsistent with the public interest. Id. at 959. But that concession resolved only the second step of the inquiry. Texas implements its monopoly policy through CCNs, which grant the holder the “exclusive right to provide water service in a designated geographic area.” Id. The CCN covering Megatel’s property belonged to the JCSUD, not Mansfield. As the court emphasized, Texas law “clearly articulates and affirmatively expresses” monopoly authority for the utility but “does not grant Mansfield the same power.” Id. at 960.

Because the state never delegated monopoly authority to Mansfield, the city failed at the threshold clear articulation step and was not entitled to state action immunity, even though it operated within a monopoly‑regulated market. The Fifth Circuit therefore reversed the dismissal and remanded, underscoring that Parker immunity is both “disfavored” and defendant‑specific. Megatel thus stands as a straightforward but important application of Phoebe Putney: A municipality cannot bootstrap immunity from a state‑created monopoly unless the statute affirmatively empowers that municipality, in that territory, to restrain trade.

State Action Update: ‘Megatel Homes, L.L.C. v. City of Mansfield, Texas’

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