Virginia Attorney General J. Marshall Coleman abruptly halted an investigation of an alleged price-fixing conspiracy among the state's wholesale beer distributors and state alcohol control officials last August after an influential Republican lawyer for the wholesalers complained about the probe.
The Republican attorney general took the highly unusual step of cancelling about a half dozen "civil investigative demands," subpoena-like orders for financial records issued last summer by his antitrust unit to distributors who had refused to submit their records voluntarily.
The cancellation came within a day of several phone calls to the attorney general's office from Roanoke lawyer William B. Poff, attorney for a Southwest Virginia wholesalers group, questioning the orders. Poff, who chaired Gov. John N. Dalton's 1973 campaign for lieutenant governor, said today he spoke to lawyers in the antitrust unit and "probably" to Deputy Attorney General Walter Ryland.
Coleman said he first learned from Ryland that the orders, which state law requires be issued by the attorney general "or his designee," had been sent out and said he cancelled them because they were "unauthorized." He said it was office policy that all such orders be approved by him.
Other staff members, who asked not tobe named, said dozens of similar orders previously had been issued by the antitrust section in other investigations without informing Coleman and that none had ever been countermanded.
Coleman, considered the leading contender for the GOP's 1981 gubernatorial nomination, and Poff both denied there were any political implications to Puff's calls and Coleman's subsequent countermanding of the orders.
Coleman also said he ordered the investigation halted because the orders were premature and because antitrust probers had presented no evidence of corrupt conduct by state Alcoholic Beverage Control Commission officials or the wholesalers. He hinted that the investigation may be revived if new evidence of price-fixing emerges.
Members of the antitrust unit, who apparently were stunned to learn of the probe's halt, have refused to comment, citing an office policy against discussing investigations. A series of background interviews and examination of records at the Abc Commission and the attorney general's office provided the following account of the probe:
Antitrust investigators under the direction of Assistant Attorney General Joseph Kaestner, started examining ABC records in early 1979 for evidence of price fixing by beer wholesalers.
The investigators concentrated on ABC Commission Rule 54, adopted in 1972, which requires wholesalers to inform the board and their regional competitors of their prices every six months. The dealers are then given two weeks to adjust their prices to the level of competitors, after which they are allowed to raise, but not lower, prices during the rest of the six-month period.
The commission was heavily lobbied to adopt the rule by the wholesalers, who argued that "cut-throat" competition was destroying their industry and leaving them at the mercy of large out-of-state breweries.
Antitrust investigators pored over ABC records to determine whether the rule and subsequent price-posting had artificially increased the price of beer. They also sought to determine whether the board had, in effect, illegally conspired with the wholesalers by adopting the rule.
The investigators eventualy concluded from a preliminary look at the records that Rule 54 may have added as much as a nickel extra to the price of a six-pack of beer in Virginia, or more than $5 million a year.
In the course of the investigation, the probers also uncovered some evidence suggesting wholesalers in the Roanoke area were agreeing to charge similar prices even before posting them to the commission. They noted alleged patterns of similar prices being mailed to the commission on the same day and wholesalers taking turns offering 14-day discounts allowed under the regulation.
The probers began requesting financial records from wholesalers in the Tidewater and Roanoke areas sometime last summer. When several distributors balked at voluntarily producing their books, civil investigative demands were issued.
Coleman said he had been kept informed about the early progress of the investigation, but said he was unaware the orders were issued.
Younger Coggin, a Warsaw, Va., distributor who is president of the state Beer Wholesalers Association, said he received calls of complaint from wholesalers who had been served the orders. The association's legal counsel, the Alexandria-based firm of Thomas and Sewell, made inquiries to the antitrust unit about the orders, as did Poff and lawyers for a number of individual wholesalers.
It was then that Poff also apparently called Ryland. Ryland said today he remembers receiving calls from "one or more" lawyers, "probably including Poff," who served on the state Board of Education at a time when Ryland was counsel to the board.
Coleman said today that he informed Kaestner that he was cancelling the orders as well as halting the investigation. The message apparently never reached the antitrust probers.
Wayne Lustig, a lawyer for one Virginia Beach wholesaler, said today he called antitrust staff member John Russell after his client heard from the state association that the orders had been countermanded. Russell apparently was unaware of the cancellation and told Lustig he would find out and call back, which he did. Russell refused to comment today.
Coggin and other wholesalers denied the Rule 54 and a subsequent rule requiring brewers also to post their prices have increased the cost of beer in Virginia.
"It's done just the opposite," said Coggin. "It has stabilized our industry and protected the consumer."
Officials of the ABC commission also denied they had conspired with the wholesalers to fix prices.
"Absolutely not," said commission spokesman Charles Davis. "This (Rule 54) was adopted after several public hearings and a period of evaluation fully aired out all above-board and based upon then-attorney general's opinion saying the board had the authority to adopt such a provision."
Coleman said he felt his office should first approach the commission and attempt to convince it to rescind the rule before launching an investigation on the wholesalers.
Coleman said that efforts under his immediate predecessor, Anthony Troy, to convince the ABC Commission to withdraw the rule because it was a potential antitrust violation had not succeeded. A new effort begun last month after the United States Supreme Court struck down a similar price posting law in California, has convinced the board to suspend the regulation pending a hearing next month.
Kaestner, who also refused to comment on the probe, was demoted as chief of the antitrust unit in January and is resigning his post effective Friday. Both he and Coleman have denied the beer investigation was a factor in his demotion and resignation.