WV Wine Distributors Sue Johnson Brothers, Say It Seeks Monopoly

Six West Virginia wine distributors sued Johnson Brothers Liquor Co. and its West Virginia operation, Mountain State Beverage.   This according to the attorney representing the distributors in the suit, Steve Ruby of Bailey & Glasser, LLP.

The distributors’ lawsuit alleges that Mountain State, over a span of six years, used anticompetitive practices to acquire more than half the wine distribution market in West Virginia.

Johnson Brothers took majority control of Mountain State in late 2016 and almost immediately pressed its remaining competitors to sell it the bulk of their businesses at token prices–a move that would cement its wine monopoly. Johnson Brothers representatives indicated that competitors who refused to sell could expect to have most of their business taken from them with no compensation at all.

One major West Virginia distributor, Atomic Distributing Co. of Huntington, saw its business gutted earlier this year when E&J Gallo Winery, one of the nation’s largest wine suppliers and a major partner of Johnson Brothers, suddenly refused to do business with Atomic after a 35-year business relationship.

The lawsuit, filed in Hancock County circuit court, asserts that Johnson Brothers’ and Mountain State’s bid to consolidate West Virginia wine distribution is attempted monopolization, which violates state law.

The suit also seeks compensation for sales lost to Mountain State’s alleged unlawful, anticompetitive practices. Those practices include operating at a loss to drive competitors out of business; paying fees and employing other tactics to induce suppliers to refuse to do business with competitors; telling other distributors’ customers that those distributors would soon be driven out of business, to pressure them to end their relationships with those distributors and switch to Mountain State; and putting similar pressure on other distributors’ employees to quit their jobs.

These tactics have already forced one local wine distributor out of business: Jay Shifflett, owner of J.C. Distributing in Elkins. In or around 2013, an official affiliated with Mountain State told Shifflett he intended to “take” his business from him. Two years later, in 2015, Mountain State allegedly destroyed Shifflett’s business through a combination of the practices described in the lawsuit.

Besides Shifflett, the other distributors filing suit are Weirton-based Wine & Beverage Merchants of West Virginia; Atomic Distributing Co., of Huntington; Beverage Distributors, Inc., of Clarksburg; Jo’s Globe, Inc., of Morgantown; and Martin Distributing Co., of Martinsburg.

Defendants are Johnson Brothers and Mountain State, along with Northern Eagle, Inc., of Romney, which is a Mountain State affiliate; Mountain Eagle, Inc., a Beaver beer distributor that owned Mountain State Beverage until Johnson Brothers bought it in late 2016; William Rucker Jr., the owner of Mountain Eagle and a part-owner of Mountain State and Northern Eagle; and Scott Parkes, a part-owner of Northern Eagle and an executive of Mountain State.

West Virginia, like most states and the federal government, has laws that prevent monopolies and prohibit unreasonable restraints of trade. These laws exist to protect consumers from the effects of monopolization and trade restraints, which include higher prices and diminished quality of goods and services.

The lawsuit also asserts that Johnson Brothers’ acquisition of Mountain State violated West Virginia wine laws. Those laws, enacted to discourage alcohol abuse and improve state control of alcoholic beverages, prohibit a wine manufacturer from also owning a licensed wine distributor. To prevent circumvention of the law, the prohibition extends to ownership by the same immediate family. The family that owns Johnson Brothers also owns Prestige Wine & Spirits Group, a wine manufacturer whose wines are sold in West Virginia by Mountain State. The family’s recent acquisition of majority ownership of Mountain State violates the prohibition on so-called “tied houses.”

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