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It doesn’t happen very often, but once in a while a legal department takes out its pen and scribbles a few “Dear John” letters to its outside counsel. Last year, Albertson’s Inc. printed them out like form letters. After appointing a new general counsel and revising its acquisition strategy, the Boise, Idaho-based food and drug retail chain operator slashed its roster of “primary” law firms and made some significant additions. None of the outside counsel that appeared on the company’s list of primary litigation firms for 2003 — Akin Gump Strauss Hauer & Feld; Christie, Parker & Hale; McDermott Will & Emery; Saul Ewing; Steptoe & Johnson — are on this year’s list. Jones Day is the company’s sole primary litigation firm. Albertson’s also pared down its corporate transactions counsel, again leaving only Jones Day as the company’s primary transactions counsel. Among the losers in this category was Skadden, Arps, Slate, Meagher & Flom, the number one grossing law firm in the country, according to The American Lawyer’s Top 100 listings. Albertson’s has other outside counsel changes in the works. The supermarket chain has begun an ambitious regional counsel program — to oversee a range of litigation matters — that includes about two dozen firms. Albertson’s remains tight-lipped about the details of the program. “It’s hard to comment about this before it’s all done,” says Paul Rowan, Albertson’s group vice president of business law. The outside counsel changes reflect the company’s recent ups and downs. In the 1990s, Albertson’s gobbled up regional grocery chains throughout the country, including, in 1999, the $8 billion acquisition of American Stores Co. The deal made Albertson’s the second-largest grocery retail chain in the country. As the stock market crashed in 2000 and rival Wal-Mart Stores Inc. launched a price war, however, Albertson’s found its 2,300 stores and $5 billion worth of debt too much to stomach. Its share price tanked, from the mid-$60 range in 1999 to around $20 in 2001. Under pressure from investors, Albertson’s hired a new CEO, Lawrence Johnston. Previously chief executive of GE Appliances, Johnston reportedly wanted his own team of senior managers, so executives from the old administration were offered early retirement packages. Thomas Saldin, Albertson’s general counsel, who was only 55 years old at the time, was one of those who left the company. He was replaced by John Sims, who had spent 22 years at Cincinnati-based Federated Department Stores Inc., most recently as the company’s deputy GC. Much of the legal work that goes into the buying and selling of stores is now handled in-house, say lawyers who work closely with the company. Sims himself declined to comment for this story. When it came to outside legal advice for those transactions, Sims re-established an old alliance. “Sims had a very good relationship with Jones Day when he used them at Federated,” says Mark Betzen, a Jones Day partner in Dallas. “Jones Day took Federated through its bankruptcy process in 1992, and that intimately involved [Jones Day] lawyers from a lot of disciplines, including M&A, tax, litigation, and labor, in a lot of geographical areas. At the time, it was the largest U.S. bankruptcy ever, and Jones Day took them through the process in two years when conventional wisdom said it would take five.” Losing a client like Albertson’s clearly leaves a mark. Skadden, for example, didn’t get to participate in the company’s $2.5 billion purchase of the Shaw’s Supermarkets chain earlier this year. Theodore Kozloff, a partner at Skadden’s San Francisco office, blames the shuffle in top management for the switch. “Clients come and clients go, but I was sorry to lose a relationship with good friends I had represented for 15 years,” he says. Sims has instituted other changes. While Jones Day is overseeing the big matters, including representing Albertson’s in an antitrust suit launched by California Attorney General Bill Lockyer, regional counsel will handle routine cases such as small slip-and-fall lawsuits. In the past, says Rowan, the company hired several hundred firms to take those cases, which created an unwieldy management problem. The 44-lawyer in-house legal department really needed “peace of mind,” says another one of Albertson’s in-house attorneys. In late 2002 Charles “Chip” Cole, Albertson’s group vice president of litigation, looked for a simpler system in which in-house lawyers wouldn’t have to spend lots of time matching smaller commercial litigation matters (including product liability, consumer privacy and small tort claims) to outside counsel. By promising steady work in bulk, the legal department also hoped to get discounts. Cole invited several dozen firms from around the country to submit bids. “It was very planned and orchestrated, and lots of homework went into this,” says Rowan. By the end of 2002, Cole had sliced the regional list to a couple of dozen, after which he and his search team hit the road to hear what the firms had to offer. Rowan says the regional counsel project isn’t finished. Some practice areas that weren’t part of the original plan, like environmental work, may be included in the program. “It’s an ongoing effort, and there will be more of it in the future,” he says. In other words, Albertson’s may soon be sending out even more of those dreaded Dear John letters. Eriq Gardner is a staff reporter at Corporate Counsel magazine, an ALM publication affiliated with GC California magazine.

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