Tuesday, February 07, 2012

Multi-jurisdictional Safe Harbor Document Review: A New Off-Shore Paradigm

The legal document review industry is going through a rather tumultuous period. Some companies have made out rather well as they have been gobbled up by service providers seeking to round out the spectrum of services offered to corporations and law firms. Other companies are looking to reinvent themselves as one stop managed review services shops by expanding into areas beyond their traditional core competencies. Many legal services pundits consider this to be a risky strategy, but it may well be the only strategy available for companies locked into the diminishing hourly rate model of domestic document review. Let’s face it, the number of attorneys that are available to do document review has exploded over the past few years. You don’t have to have gotten an A in Economics 101 to know that burgeoning supply is putting U.S. document review attorneys on track for pay parity with their counterparts in India. As the rates paid to reviewers continue to slide, the labor arbitrage benefits and the associated legal spend cost savings, the primary impetus of shipping work off-shore, diminish precipitously which effectively supports arguments to bring work back on-shore.  

As services vendors do the scramble and do the services shuffle to get their teeth into the next best thing, something interesting has been developing in the Caribbean. Last month, at the request of a of an attorney friend of mine, I recently visited two islands to gauge their infrastructure and human capital readiness for off-shore document review. I looked at a whole host of metrics ranging from literacy stats, attorney pool size, specializations, facilities cabling (for gig-ethernet networks), internet speed, disaster recovery, etc. My findings were to be compiled to help my friend develop a comprehensive report and solid business plan for Island based document review. As I met with Island government agencies that were tasked with promoting and providing incentives for companies to do business on the Islands, it rapidly dawned on me that labor arbitrage, a high quality workforce and infrastructure were just a piece of what made these places attractive.

What also made these places stand out like pink polar bears on the Arctic tundra were the tax benefits that could accrue to companies that setup and operate document review facilities there - tax holidays on profits generated by certain entity types and no restrictions on the repatriation of foreign currency provided the business activities met certain requirements. In conjunction with the tax benefits are significant financial incentives for U.S. and Canadian companies that build out space and infrastructure for Caribbean operations which greatly reduce both cap-ex and op-ex. Several top U.S. and Canadian insurance companies have already established “captive” entities in non-traditional Caribbean jurisdictions to take advantage of the domestic entity legal spend, off-shore captive entity revenue off-sets to be had.

To make a long story short, as I delved further into how to structure a document review company in order to take advantage of these benefits, my friend (now my partner) and I developed a turn-key model which we call a Multi-jurisdictional Off-Shore Safe Harbor Document Review (MOSH for short). As someone who has developed document review practices in Asia and the U.S., I am acutely aware of the data privacy and jurisdictional issues that often arise when data from foreign jurisdictions is the subject of U.S. based discovery and subpoenas. In addition to benefits applicable to non-discretionary document review and production scenarios, the MOSH model provides entities with low cost data remediation and contract management discretionary services delivery capability. In educating prospective clients about this service, we came up with tag line from the pages of Johnny Cochran – Alienation, Remediation and Repatriation; Alienate the data, send it off-shore. Remediate the data with contract lawyers and predictive coding. Then Repatriate the information of business value.

In a few weeks, Rob Miller, former Discovery Counsel for BP (who I had the pleasure of working with on the Deep Horizon matter) and I will head back down to the Caribbean and it’s not going to be for rum and sandy beaches!