January 26, 2010 7:03 PM

Am Law Alums Choose Different Path at Israeli Firm

Posted by Brian Baxter

After five years as a corporate associate at Milbank, Tweed, Hadley & McCloy, Craig Gherman was ready for a change.

Gherman loved working on big deals for the firm--Warren Buffett's acquisition of Fruit of the Loom in 2001 remains a career highlight--and also enjoyed the six-figure paydays during the boom times.

Then in 2006, Gherman (pictured right) decided to leave Milbank for Outside Counsel Solutions (OCS), a small Israeli outsourcing shop owned by Newark, N.J.-based telecommunications company IDT. "Some of my former colleagues looked at me like I was crazy when I told them I was leaving," he says. "But it doesn't seem nearly so crazy now."

Like virtually everyone at OCS, Gherman had religious and ideological reasons for making the move to Israel. But in going to OCS, which was spun off from IDT more than a year ago, Gherman also found himself on the front lines of a shift in the legal industry toward fixed-fee and outsourcing arrangements.

OCS clients range from start-ups to Fortune 500 companies. And while the economic downturn has meant fewer referrals from U.S. firms, the spin-off has created other opportunities, such as advising Israeli clients on U.S. law. (OCS operates the business in English and practices U.S. law.)

With a roster of roughly 20 lawyers from such Am Law 100 firms as Wachtell, Lipton, Rosen & Katz and Paul, Weiss, Rifkind, Wharton & Garrison, the tiny Israeli firm is determined to carve out a niche for itself in the crowded U.S. market.

GETTING STARTED

Dov Schwell, a former corporate partner at McDermott Will & Emery, founded OCS in September 2004 under the auspices of IDT, a longtime McDermott client. While at the firm, Schwell spent roughly half his time handling IDT matters.

Schwell says his professional contacts at IDT knew of the interest he and his family had in moving to Israel, and when he was approached in late 2003 about creating a legal outsourcing operation for IDT there, he jumped at the opportunity. (IDT itself was founded in 1990 by entrepreneur Howard Jonas, who discovered a way to lower international telephone bills after opening a sales office in Israel.)

Before launching OCS--and to determine what kind of legal advice the firm could offer--Schwell sought guidance from a leading Israeli firm and well-regarded University of California law professor Geoffrey Hazard, Jr. OCS was structured more like a placement agency rather than a law firm--individual lawyers could practice law, but the entity itself could not because of IDT's corporate ownership.

"A client would approach OCS, which would manage the relationship to get the billings and assign the engagement to the lawyers with the proper disciplines," Schwell says. "From the client's perspective it all functioned like a law firm, but we made sure we kept within the guidelines of the opinions and ethical rules."

But restrictions remained. While individual lawyers could issue legal opinions, OCS could not. The manner in which OCS lawyers were compensated was also limited by IDT's ownership. OCS lawyers, including Schwell, realized that if the unit were to branch off on its own, many of those restrictions would melt away.

BUILDING THE BUSINESS

In October 2008, OCS formally separated from IDT, which was focusing on its core businesses and cutting back on its presence in Israel.

"The commercial relationship between OCS and IDT is still advantageous to both of us," Schwell says. "And while they're still our largest client, I no longer refer to them as our anchor client."

As opposed to outsourcing firms elsewhere, OCS does not have U.S.-trained attorneys supervising local lawyers. Instead, all of its lawyers are U.S.-qualified, Schwell says, which helps ensure that the quality of legal work remains on par with what U.S. firms can provide at half the cost. The firm's business model and Schwell's connections have enticed U.S. talent.

Michael Charish is one lawyer who followed Schwell to Israel. Charish was a neighbor of Schwell's in Teaneck, N.J., when he heard that Schwell (pictured left) was moving to Israel to start OCS. Charish, who spent nine years as a litigation associate at Wachtell, was intrigued by the move. He left the firm in 2006 to become OCS's head of litigation.

"We have a small group, but we generally do commercial litigation and work with local counsel," Charish says. "I'm flying to New York and Boston for a case on which I'm lead counsel for a tech firm in an international IP dispute with a German company. We're also on the plaintiffs' side in a trade association case in Delaware where we've brought antitrust and breach-of-contract claims."

Charish says OCS's role varies from case to case--sometimes the firm takes on a bigger role, usually in less complex matters given its size; other times it operates in the background,  drafting memos and handling document review. Charish says he generally spends two months of the year working from OCS's New York office, which the firm opened when it was still part of IDT.

"I'm not personally aware of any other outsourcing litigation practice like the one that we've built here," Charish says. "Our biggest challenge is getting clients comfortable with the notion that we can handle a case 6,000 miles away."

OCS bills by the hour but remains open to other arrangements. "It's not Skaddenomics," says Schwell, noting that OCS doesn't charge clients for Lexis searches, photocopies, or secretarial time.

"We're here to make money based on our work and not fleece the client on every source [of income] we can come up with," he adds. "We also have annual and quarterly flat fee assessments that help give clients cash certainty. It's negotiated on a case-by-case basis."

GROWING IN SIZE

Since Schwell launched the business in 2004 with former Cadwalader, Wickersham & Taft associate Daniel Baron and Paul, Hastings, Janofsky & Walker alum Eric Davis (now a client of the firm), OCS has steadily grown.

Expanding its client base beyond IDT enabled OCS to make its biggest gains in 2006 and 2007, Schwell says. The firm also has added depth to its corporate securities practice and has started a derivatives group that supports energy trading by the Hess Corporation.

While the firm does deal with the occasional turnover in personnel--lifestyle adjustments don't always work out for everyone--Schwell says OCS has been holding steady with 20 lawyers on staff for the past two years. Three of those lawyers remain in New York, but most full-time lawyers work out of the firm's main office in Jerusalem.

OCS is looking for lawyers committed to working in Israel. In terms of costs--be it compensation, cost-of-living, or billing rates--Schwell says working from Israel offers the best business model for the firm. It's not uncommon for OCS lawyers to work a full Israeli day and U.S. day for their clients abroad.

"The other night I was on the phone until 1 in the morning," says Meira Schulman Ferziger, an OCS employment lawyer and Seyfarth Shaw alum. "We have to be available for our clients, so we're always reachable, be it on BlackBerry or the U.S. [phone] numbers that jump to our cell phones in Israel no matter where we are."

Ferziger (pictured right) moved to Israel in 2000 when the large multinational company her husband works for relocated him there. She spent three years writing for Westlaw's American Law Reports before joining OCS in 2004. She has no regrets.

"Everybody is just trying to raise a family, no one is cutthroat trying to beat out anyone else," she says. "Providing quality services, not face time, is what makes someone successful here. But you have to be flexible with your clients and business model--we're all people who left behind our careers [in the U.S.] to move halfway across the world and practice law."

Schwell says that OCS has been approached unsolicited by several U.S. lawyers with impressive resumes that in the past might not have considered the firm. OCS now markets its services to big companies with large legal departments (where it competes with alternative agencies like Axiom Legal), smaller companies where OCS lawyers can replace in-house counsel, and law firms where OCS can handle overflow and outsourcing work.

Schwell says OCS traditionally has partnered with small firms and litigation boutiques, which use OCS for back-office functions rather than refer matters to another firm. But the downturn has meant some of that work has dried up.

"We've really expanded the number of clients we have in the last year-and-a-half," Schwell says. "At the beginning of the downturn, there was a nice push towards cost-cutting and alternative fee arrangements. But that's also created additional competition."

Many larger Am Law 200 firms are embracing fixed-fee arrangements, Schwell says; for those that don't there are smaller shops like his willing to fill the void. There is also a growing number of former Am Law 200 partners and associates hanging up shingles of their own--and those are potential OCS competitors.

While some of those same folks have also reached out to OCS for employment, Schwell says the firm doesn't have enough capital to do too much hiring right now.

"I would expect that we'll be adding three to four lawyers over the next year in the right areas, including adding a little depth in corporate," he says.

LOOKING FORWARD

Schwell doesn't foresee OCS expanding into providing advice on Israeli law, noting an abundance of qualified Israeli counsel. Instead, OCS will continue to rely upon the qualified pool of expat U.S. lawyers in Israel able to service U.S. clients.

OCS is in the process of converting to a limited liability partnership, under which all of the lawyers present at the time of the IDT spin-off will get varying stakes of ownership. At the same time, Schwell is skeptical that any opportunities presented by the economic downturn will lead to long-term partnerships between OCS and clients abroad.

"Hopefully there will be lasting effects, such as more openness to different types of fee arrangements and overcoming fears about distance," he says. "But I suspect that as firms move back to their old models as the market improves, clients will let them."

Schwell says he's proud whenever OCS partners up with one of IDT's other outside firms and sees that his firm's bills are comparable to their U.S. counterparts even when OCS has handled 70 percent of the work on a particular engagement. (IDT is currently locked in a $2 million fee dispute with Williams & Connolly in an unrelated matter.)

"That really contrasts our pricing structure in a nice way," Schwell adds. "Maybe I'm a cynic, but we'll see if some of these changes take hold long term."

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