Offshore Document Review Poised for Growth Amidst Financial Crisis

Legal departments can deliver winning results while tightening the belt.

By Mike Dolan and John Thickett, Tusker Group

Since there is a proven correlation between a slowing economy and increased litigation, we can expect to see a surge of litigation due to the financial crisis. A recent study by Navigant Consulting noted that 170 sub-prime federal lawsuits were filed in the first quarter of 2008, the same as in the last six months of 2007. Across most industries, as the economy slows and more cases are filed, companies can expect greater litigation expenses.

Fulbright and Jaworski's Second Annual Litigation Trends Survey Findings notes that total legal expenses can average 1.34 percent of total revenues for major corporations. For document-intensive industries, litigation is often the largest portion of overall legal expenses. For Fortune 1000 companies, KPMG estimates that the review of discoverable documents encompasses 58 to 90 percent of total litigation expenses.

The rising tide of legal costs is impacting the bottom-line more than ever and leadership is looking for new ways to reduce expenses without jeopardizing legal strategies. Innovative companies have found that "unbundling" legal services can be a key strategy in decreasing costs.

Ethics Opinion

The financial crisis, coupled with the 2006 amendments to the Federal Rules of Civil Procedure and the American Bar Association's recently Ethics Opinion 08-451, are pivotal in the growing demand for offshore document review.

The 2006 amendments to the Federal Rules of Civil Procedure significantly opened the corpus of discoverable documents for new legal actions. All forms of electronically-stored information, including emails, computer files, text messages, and instant messages are now open to scrutiny. As a result, it's not unusual to see 100 million pages of discoverable data in document-intensive industries such as finance.

The American Bar Association's Ethics Opinion 08-451 confirms that offshore document review is a catalyst in decreasing costs for clients and enabling smaller law firms to work on larger, more labor-intensive cases at more favorable rates.

Savings Can be Realized

Leaders are reducing outside counsels' billings by unbundling document review similar to the trends of moving corporate IT to IBM in the 1980s, EDS in the 1990s and Infosys in the 2000s.

Three approaches to unbundling document review are gaining traction:

1. Retain a relatively permanent group of document reviewers in-house. Advantages include good productivity and quality due to a stable workforce and a common, electronic repository that retains knowledge. The approach requires additional time and management bandwidth to implement and control. For most companies, there are utilization and flexibility challenges.
2. Hire contract attorneys on a matter-by-matter basis. However, high turnover rates can pose significant challenges and the time needed for hired guns to get up to speed can impact the pace and consistency of the review.
3. Hire a company that specializes in document review. Dedicated document review firms often implement continuous quality improvement processes for maximizing each project. Staff usually has broad case exposure and experience with multiple software platforms that allow them to identify and use the best tool for each review.

Globalization of Legal Work

While high-level legal work will most likely remain in the U.S., proactive general counsel and forward-thinking law firms are evaluating and implementing international options in document review firms.

Recently, Scott Rickman, the associate general counsel of San Francisco-based Del Monte Foods told The Recorder, a California law magazine, that "it doesn't make sense to pay $150 or $250 dollars-an-hour at some of the larger firms to do document review -- it just seems like overkill." Technology firms which already rely on a global workforce, such as Microsoft and Cisco Systems, are wondering why they need to pay high hourly rates for "grunt work" that can be effectively sent to India for $25 an hour.

Initially, the waiver of attorney-client-privilege and the unauthorized practice of law were the leading objections that U.S. law firms raised against offshore document review. Recent favorable opinions by the American Bar Association and other legal ethics committees in New York (New York City), California (Los Angeles and San Diego Counties) and Florida have clarified the role of offshore review teams and have addressed these objections.

A larger concern had been for the security of the information once it was sent to the review team. Today, international review firms often do not store the data onsite; instead, reviewers work directly on their clients' servers through a secure internet connection. In many cases, reviewers work on computers with inoperable USB ports, disabled CD burners, no printers and no internet access. Finally, it is a common practice to prohibit cameras or memory devices such as flash drives to enter or leave a review center.

It is the people, processes and technology that ultimately make a difference in offshore document review results. When these three areas are effectively managed, world-class results can be achieved.

It's About Reducing Total Cost, Improving Quality, and Meeting Objectives

All parties involved in litigation realize that the real issue is the reduction of total cost and time and the minimization of future liabilities. Well-executed document review can impact work quality, garner higher client confidence and significantly lower total costs. Unbundling document review from outside counsel also provides leading in-house legal departments with the flexibility to retain the best outside counsel for the specific needs of each matter.

About Mike Dolan and John Thickett

CEO Mike Dolan and CFO/CMO John Thickett founded Tusker Group in 2002 to specialize exclusively in advanced legal document review options to in-house and outside legal counsel. Harvard Business School graduates, each has helped multi-national businesses drive profits by integrating operations in low-cost countries like China and Mexico. More information can be found at www.TuskerGroup.com

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