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The 10th US Circuit Court of Appeals has ruled that a law firm's use of artificial intelligence is not, by itself, a reason to shrink the fees a losing party must pay. The Denver-based court left in place a $115,000 award to Brownstein Hyatt Farber Schreck, which defended a trade secrets suit brought by Flux Drive Inc. A three-judge panel found Flux Drive never showed that AI made the firm's recorded hours unreasonable. Under this ruling, a challenge to a legal fee award turns on the hours themselves, not the tools behind them. The decision in Flux Drive Inc. v. Qiang Rong, No. 25-1308, also kept the dismissal of the underlying lawsuit intact.
Plaintiffs have not shown that defense counsel's use of AI rendered the hours that they actually expended unreasonable.
Circuit Judge Carolyn McHugh, 10th US Circuit Court of Appeals
Key takeaways
- Award upheld: The 10th US Circuit Court of Appeals affirmed a $115,000 fee award to Brownstein Hyatt Farber Schreck that Flux Drive Inc. must pay.
- The legal test: Circuit Judge Carolyn McHugh wrote that Flux Drive failed to show defence counsel's AI use made the hours actually worked unreasonable.
- Missing evidence: The defendants said Flux Drive could not point to one inflated entry, redundant task or unreasonable charge in the billing records.
- Duty to verify: The panel stressed that lawyers must check any AI-generated or AI-assisted authorities and arguments before filing them in court.
- Debate still open: Flux Drive Inc. v. Qiang Rong, No. 25-1308, does not rule out lower fees for AI-assisted work; it requires challengers to prove specific charges were unreasonable.
Table of contents
- Key takeaways
- The 10th Circuit Says Hours, Not Tools, Decide Fees
- How Flux Drive Tried to Turn AI Into a Discount
- Why Lawyers Still Own Every AI-Assisted Filing
- What the Ruling Leaves Open for the Billable Hour
- Where the AI fee question goes from here
- What to be careful about
- Frequently asked questions
The 10th Circuit Says Hours, Not Tools, Decide Fees
The appeal turned on a narrow question. Did the defence team's reliance on AI make its billed time excessive, so that the $115,000 owed by Flux Drive should come down? The three-judge panel said no, and upheld the trial judge's view that the billing records justified the full amount.
Writing for the panel, Circuit Judge Carolyn McHugh put the test plainly: "Plaintiffs have not shown that defense counsel's use of AI rendered the hours that they actually expended unreasonable." The court accepted that AI and other research tools can help lawyers work faster. It refused to treat that general point as proof that any particular hour was padded.
The panel also affirmed the dismissal of Flux Drive's lawsuit, so the order that the company cover the defendants' fees survives in full. That leaves the industrial equipment maker on the losing side of both the merits and the costs fight, with nothing trimmed from the bill.
How Flux Drive Tried to Turn AI Into a Discount
Flux Drive makes equipment designed to improve the efficiency of industrial motors. In 2024 it sued, claiming that a former engineer had helped take its proprietary information and pass it to a manufacturer in China. A lower court threw the case out and ordered the company to pay the other side's legal costs.
Flux Drive then went after the $115,000 bill on several fronts. It objected to charges for what it called "ministerial tasks" and argued that software should have shortened the defence lawyers' work, meaning fewer hours ought to have been billed.
The defendants answered that their lawyers had checked every piece of AI-assisted legal research. Their bigger point was about evidence. In their submissions they said Flux Drive "does not identify a single inflated time entry, a single redundant task, or a single unreasonable charge." That gap proved decisive, because a general complaint about technology could not stand in for proof of a specific bad entry.
Why Lawyers Still Own Every AI-Assisted Filing
The judges paired their fee holding with a reminder about professional duty. Whatever tool helps draft a brief, the attorney who submits it answers for the accuracy of its arguments and the authorities it cites. Anything AI produces or helps produce has to be checked by a lawyer before it reaches a judge.
That reasoning sits comfortably with the fee outcome. Time spent verifying AI output is real legal work, which helps explain why the court would not assume AI made the hours redundant. Brownstein Hyatt said its lawyers carried out exactly that verification on every AI-assisted research task.
Christopher Ottele, the Brownstein Hyatt partner who represented the defendants, welcomed the outcome and described AI as "a powerful tool that sophisticated firms must embrace." He went on: "This decision confirms that the use of AI is not a substitute for the judgment and analysis that attorneys still must exercise in every filing with the court." As the winning lawyer, his framing naturally favours firms that bill for that judgment.
What the Ruling Leaves Open for the Billable Hour
Most law firms work on the billable-hour model, invoicing clients for each hour that lawyers and their staff put into a matter. AI tools for research, drafting and sifting through large document collections can shrink how long some assignments take. That creates an obvious tension: if the work gets faster, should the invoice get smaller?
The 10th Circuit did not answer that question in general. Its decision does not hold that AI-assisted work can never support a lower fee. It holds that a party contesting an award has to show which hours or charges were unreasonable, rather than pointing to AI use and stopping there.
For firms, that is useful cover, because AI use does not by itself taint recorded time. For clients, it signals where the pressure will move. They may push for clearer disclosure of whether efficiency gains show up on bills, and anyone challenging a fee award will need entry-by-entry evidence, not an argument about technology.
| Party | Argument on fees | Result |
|---|---|---|
| Flux Drive Inc. | AI should have cut hours; objected to ministerial tasks | Rejected |
| Defendants (Brownstein Hyatt) | All AI research verified; no specific bad entry identified | Award upheld |
| 10th Circuit panel | Hours actually worked must be shown unreasonable | $115,000 affirmed |
Where the AI fee question goes from here
The case for
- Firms using AI have appellate support that the tools alone do not make recorded hours unreasonable.
- Verification time remains billable work, consistent with the court's emphasis on lawyers' responsibility for filings.
- Fee disputes stay anchored to specific billing entries, giving courts a concrete standard to apply.
The case against
- The ruling does not settle whether efficiency gains from AI should lower bills more broadly.
- Clients may still press for transparency over whether faster work is reflected in invoices.
- A future challenger who identifies specific inflated AI-assisted entries could still win a reduction.
What to be careful about
- Firms that skip human checks of AI-generated authorities expose court filings to inaccurate citations and unsupported claims.
- Parties challenging fee awards on AI use alone, without itemised evidence, face the same outcome Flux Drive did.
- Clients billed by the hour may struggle to see whether AI efficiencies reached their invoices.
The bottom line
The Flux Drive appeal gives courts a workable rule for an awkward new question. Using AI does not make billed time suspect, and it does not let a losing party trim a fee award without proof. The $115,000 award stands because the billing records supported it and Flux Drive could not name a single entry that fell short. What the 10th Circuit left unsettled is the larger commercial fight over whether faster work should cost less. That argument now shifts to client negotiations and to future challengers who arrive with specific evidence. Until then, the court's message to firms cuts both ways: AI is acceptable, and the lawyer still answers for everything it touches.
What to watch
- Watch whether Flux Drive seeks further review of the 10th Circuit decision; no date for any such step has been set.
- Watch for the next fee dispute in which a challenger targets specific AI-assisted time entries rather than AI use in general; no such case is scheduled.
Frequently asked questions
Can a client refuse to pay full legal fees because a law firm used AI?
Not on that ground alone, under the 10th Circuit's ruling in Flux Drive Inc. v. Qiang Rong. The challenger must show that specific hours or charges were unreasonable, which Flux Drive failed to do with the $115,000 award.
Who has to check AI-generated legal research before it is filed?
The lawyer does. The 10th Circuit panel stressed that attorneys remain responsible for the accuracy of arguments and authorities in their filings, and Brownstein Hyatt said its team verified all AI-assisted research.
What was the Flux Drive trade secrets case about?
Flux Drive, a maker of industrial motor-efficiency equipment, sued in 2024, claiming that a former engineer had helped a Chinese manufacturer obtain its proprietary information. The case was thrown out by a lower court, which also ordered the company to cover the defendants' legal fees.
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