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Anti-Trust Laws And The Virgin Valley Water Board

Mesquite, NV. May 1, 2018

The practice of the Virgin Valley Water Board (VVWB) in Mesquite, NV seems to violate, at least, the intent of Federal and State antitrust laws. But can anti-trust statutes apply to them?

Decades ago the United States Supreme Court held in Parker v. Brown [i] that the Sherman Antitrust Act [ii] does not apply to the activities of state governments.[iii]    In 1978, the Court held that the antitrust immunity granted to state governments in Parker does not automatically extend to local units of government. However, in City of Lafayette v. Louisiana Power & Light Co.,[iv]  and more clearly in Community Communications Co. v. City of Boulder[v] the Court held that municipalities[vi] can be proper defendants under the Sherman Act.

The Court was, however, careful not to place municipalities in the same position as private antitrust defendants. [vii] It reserved the possibility that municipalities would not be subject to treble damages.[viii],  [ix]   It also allowed local governments in certain limited circumstances to share their states’ immunity.[x]   However,  the Court suggested that antitrust restrictions might be less stringent when applied to local government.

Bienstock (1985) argues for two methods of analysis govern whether the Sherman Act applies to municipalities: 1) the per se rule and 2) the rule of reason.[xi]

If the activity under question falls under the rule of reason, it is further analyzed to determine its effect on competition. But if it falls under the per se rule, it is assumed to be anti-competitive and is held illegal without further analysis.

According to Bienstock, the purpose of any per se rule is to simplify litigation in cases which present familiar fact patterns.  The Supreme Court places a challenged activity in the antitrust per se category when courts have had sufficient rule of reason experience[xii]  to determine that the activity is categorically anti-competitive, or when any pro-competitive benefit encompassed by the activity is sufficiently rare that the costs of identifying it exceed the benefit gained thereby.  Essentially, the per se rule is one of judicial efficiency.[xiii]

The rule of reason analysis focuses on a narrow issue: “whether the challenged agreement is one that promotes competition or one that suppresses competition.”[xiv]    The effect of this formulation is to preclude arguments about whether, in a case, competition is in the public interest.

The courts recognize that municipal activities promote safety, health, and public welfare; this often requires market manipulation.[xv] Therefore, Interferences with the markets are inherently anticompetitive, and few such activities will have to counterbalance pro-competitive effects.[xvi]

However, The Court has hinted that a broader inquiry may be appropriate when the anticompetitive activity has public welfare goals.  The Court has indicated approval of at least one lower court decision upholding private marketing restraints aimed at protecting public safety. [xvii]

Further, the Supreme Court’s decisions in Goldfarb v. Virginia State Bar [xviii] and National Society of Professional Engineers v. the United States [xix] suggested that the usual rule of reason analysis might be broadened to consider institutional ethical [unethical] norms.[xx]   Further, the majority of the Court found that simply asserting public service goals of local governments do not warrant immunity from antitrust law.

The VVWB holds a monopoly on all water including irrigation water.  When it comes to leasing (shareholder) irrigation the Board, in the Conestoga Golf Course Case hold that:  ‘the District shall have right (sic) to set the lease rate at whatever price the District may determine in its sole and absolute discretion and the parties expressly agree that in setting such rate the District shall not be constrained or limited in any manner whatsoever. In the event Conestoga is unwilling to pay the rate set by the District, all lease and other rights and obligations of every kind shall automatically terminate.”

There are competitive alternatives to the issue of shareholder river water.  Development of a holding reservoir for public water flowing from the Virgin Mountains is one alternative. Another is the use of public underground water. The development of a reservoir was explored and rejected.  The use of underground water depends upon a study of the basin, which has also been rejected.

It appears that the VVWB is intentionally suppressing competition between the use of public sources of water (reservoir, underground) in favor of shareholder water.

By restraining competition, the VVWB sets market rates for water that far exceed that normally paid in Nevada for irrigation water.

Equally disturbing is their position to send irrigation water downstream to Las Vegas without considering the potential impact of water shortfalls in their arid service community.

As hinted by the Courts, a broader inquiry into the practices of the VVWB may be appropriate given their anticompetitive activity against the public welfare.

Endnotes:

[i] 317 u.s.341 (1943).

[ii] 15 u.s.c. §§ 1-7 (1982).

[iii] . Parker, 317 U.S. at 350-52.

[iv] 435 u.s. 389 (1978).

[v] 455 u.s. 40 (1982).

[vi] This Comment employs the terms “municipality” and “city” to refer to all units of local

government, such as counties, special districts, cities, townships, and parishes.

[vii] Bienstock, Eisig, Robert, “Municipal Antitrust Liability: Beyond Immunity, December 1985, California Law Review, Article 3, Volume 73, Issue 6.

[viii] City of Boulder, 455 U.S. at 56 n.20; City of Lafayette, 435 U.S. at 401-02. Congress has since if money damages may not be assessed against governmental antitrust defendants. Local Government Antitrust Act of 1984, Pub. L. No. 98-544, 98 Stat. 2750 (1984) (codified at 15 U.S.C. §§ 34-36 (Supp. II 1984)).

[ix] Treble damages, in United States law, is a term that indicates that a statute permits a court to triple the amount of the actual or compensatory damages to be awarded to a prevailing plaintiff. Treble damages are a multiple of, and not an addition to, actual damages.

[xi] Bienstock, pg. 1837

[xii] Arizona v. Maricopa County Medical Soc’y, 457 U.S. 332, 349 n. J9 (1982).  If the Court has insufficient experience with an activity, it will use rule of reason analysis.  Broadcast Music v. CBS, 441 U.S. 1, 24-25 (1979).

[xiii] Continental   T.V., Inc.  v. GTE Sylvania Inc., 433 U.S. 36, 50 n. l6 (1977).  See L.SULLIVAN, supra note 38, § 70, at 193.

[xiv] National Soc’y of Professional Eng.’s v. United States, 435 U.S. 679, 691 (1978) (rejecting public safety justifications for ban on competitive bidding for engineering services); accord NCAA v. Board of Regents, 104 S. Ct. 2948, 2962 (1984).  But cj Copperweld Corp. v. Independence Tube Corp., 104 S. Ct. 2731, 2741 (1984) (suggesting in dictum a broader rule of reason analysis).

[xv]Posner, The Proper Relationship Between State Regulation and the Federal Antitrust Laws, 49 N.Y.U. L. REV. 693, 697 (1974); see also Fisher v. City of Berkeley, 37 Cal. 3d 644, 672, 693 P.2d 261, 284, 209 Cal. Rptr. 682, 705 (1984), prob. juris. noted, 105 S. Ct. 2653 (1985) (No. 84-1538).

[xvi] See City of Boulder, 455 U.S. at 66-67 (Rehnquist, J., dissenting).

[xvii] The Court has twice cited with approval Tripoli Co. v. \Vella Corp., 425 F.2d 932 (3d Cir.) (en bane), cert. denied, 400 U.S. 831 (1970), in which public safety considerations were held to justify vertical nonprice restraints under the then-governing Schwinn per se rule.   Tripoli was cited in a footnote to National Soc’y of Professional Eng’rs v. United States, 435 U.S. 679, 696 n.22 (1978), as a possible limit to the narrowly drawn rule of reason.  Tripoli also had been cited in Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977), as an example of a legitimate justification for vertical non-price restraints in connection with that case’s restoration of rule of reason analysis for such restraints.  /d. at 55 n.23.

[xviii] 421 u.s. 773, 786-87 (1975).

[xix] 435 u.s. 679 (1978).

[xx]See, e.g., Goldfarb, in which the Court wrote: The fact that a restraint operates upon a profession as distinguished from a business is, of course, relevant in determining whether that restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas.  The public service aspect, and other features of the professions, may require that a practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently.

About Author

Michael McGreer Mesquite, Nevada
Dr. Michael Manford McGreer is managing editor of Nevada-today.com and writes on issues that impact public policy.

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