AI Impact on Legal Fees: Tenth Circuit Refuses to Cut $114,663 Award

What the Tenth Circuit decided

The Tenth Circuit affirmed three District of Colorado orders: a dismissal for lack of personal jurisdiction, the initial fee award and a supplemental fee award. Judge Carolyn McHugh wrote for the panel, sitting with Judges Matheson and Federico. Steven J. Miller of The Miller Law Offices appeared for the plaintiffs; Christopher L. Ottele and Ruth A. Turley of Brownstein Hyatt Farber Schreck in Denver represented the defendants.

Flux Drive and its affiliated plaintiffs alleged a conspiracy to pass their trade secrets to a Chinese manufacturer of knockoff products. They pleaded six claims against John Qiang Rong, his wife Leigh Wang and their Illinois partnership Zyrcon Global Strategies, including misappropriation under the Colorado Uniform Trade Secrets Act and the federal Defend Trade Secrets Act. Their injuries, the court held, did not arise out of the defendants' limited Colorado contacts.

Stage	Date	Outcome
Dismissal of the Rong defendants	11 July 2025	No specific personal jurisdiction in Colorado
Initial fee award adopted	10 December 2025	$114,663.11 awarded in full
Supplemental fee motion filed	26 December 2025	Timely, as 25 December was a legal holiday
Supplemental fee award adopted	1 July 2026	$68,990.50, after removing a 2.5% administrative fee
Tenth Circuit opinion	30 October 2026	All three orders affirmed

The fee basis: Colorado's mandatory statute, not the DTSA

The fees were awarded under Colorado's fee-shifting statute, Colo. Rev. Stat. § 13-17-201, not under the bad-faith fee provisions of the federal or state trade secrets acts. Section 13-17-201 says that where a tort action is dismissed on a defendant's motion before trial under rule 12(b), the defendant shall be awarded its reasonable attorney fees. Because the statute is substantive state law, the panel held that a federal court hearing pendent state claims must apply it.

The plaintiffs argued that their case was essentially statutory, so the tort-based statute did not apply. The panel disagreed: section 13-17-201 does not distinguish between common law and statutory torts, and courts consistently treat trade secret misappropriation as a tort even when it is brought under a statute. Arguments that the Colorado statute was displaced by the state trade secrets act's own fee provision, or preempted by the DTSA, were never raised below and were treated as waived. Those questions remain open for another case.

How the court tested the hours: the lodestar

The court tested the fee using the lodestar: the hours reasonably expended multiplied by a reasonable hourly rate, which is presumed to be a reasonable fee. The applicant must document its hours and rates, and the trial court then checks billing judgment, trimming unnecessary, duplicative or poorly recorded hours.

Here the magistrate judge had done that work. He found that defence counsel recorded time to the tenth of an hour, did not block bill, reduced hours where appropriate and faced extra work because the plaintiffs amended their pleading. He also found the hourly rates in line with prevailing Colorado market rates.

Why AI use did not cut the fee

The panel refused to cut the fee because the plaintiffs pointed to no evidence that AI use inflated the bill. It accepted that AI and online research tools may reduce the hours needed for research and so lower the lodestar, citing the Second Circuit's 2004 Arbor Hill decision on online research services. But it added that ethical rules require counsel to verify cited cases and ensure every argument is grounded in real authority, pointing to its own February 2026 sanctions order in Amarsingh v. Frontier Airlines, where a lawyer representing herself was ordered to pay $1,000 after filing a ChatGPT-drafted brief without checking it. Our report on AI hallucinations in court filings tracks how courts are sanctioning that failure.

The key sentence is short: "Plaintiffs have not shown that defense counsel's use of AI rendered the hours that they actually expended unreasonable." Objections to serial billing and partner time failed for the same reason: no specific entries were identified. Ottele told Reuters, as reported by the ABA Journal, that AI use "is not a substitute for the judgment and analysis that attorneys still must exercise."

What the ruling does not decide

The ruling does not decide that AI-assisted work is worth the same as manual work. It turns on burden and evidence, and the court left room for AI efficiency to reduce reasonable hours where a challenger proves it entry by entry.

The verification point is also hardening into rules. In September 2026 the Tenth Circuit published proposed 2027 rule changes for comment. The redline of Rule 46.5 would have every filer certify that any document prepared with generative AI was reviewed by a human who independently verified the existence of all cited authorities. If time spent verifying is mandatory, it is hard to call it unreasonable. For who answers when checks fail, see our analysis of legal AI liability for law firms.

What it means for billing, fee applications and clients

The practical AI impact on legal fees is that records, not assumptions, decide recovery. Ethics guidance points the same way: ABA Formal Opinion 512 says hourly billers "must bill for their actual time", so a lawyer who drafts with AI in 15 minutes may charge those 15 minutes plus review time, and the opinion warns that the same flat fee may be unreasonable if AI makes the work much faster, according to a Thomson Reuters Institute analysis.

• Fee applicants. Record time in tenths, avoid block billing, show write-offs and log verification of AI output as its own task.
• Parties opposing fees. Generic arguments about AI will fail. Identify specific entries, explain why they are excessive and raise every objection before the magistrate judge, as unraised points were treated as waived.
• Deadlines. A supplemental motion for fees on fees must still meet the 14-day limit in Federal Rule of Civil Procedure 54(d).
• Clients. Ask outside counsel how AI is used, how verification time is recorded and whether fixed fees reflect any efficiency.

Fees on fees were also recoverable, taking the awards above $183,000; our explainer on litigation funding in the UK covers how that risk is shared.

The UK angle: costs assessment and verification

An English costs judge would ask a similar question in different words. Under CPR 44.3, the court will not allow costs that were unreasonably incurred or are unreasonable in amount, and on the standard basis it allows only proportionate costs and resolves any doubt in favour of the paying party. Rule 44.4 lists the time spent and the skill, effort and specialised knowledge involved among the factors. Nothing in Part 44 singles out AI, but the standard-basis tilt towards the paying party means a credible challenge to AI-era hours may get further in England than the generic one that failed in Denver.

The verification duty is just as firm. In Ayinde v Haringey the Divisional Court said lawyers using AI for research have a professional duty to check it against authoritative sources. The Pinsent Masons filing error and Garfield AI's first county court case show both sides of that shift. Parties facing a fee or costs dispute can find dispute resolution specialists in the United States and the United Kingdom through our directory.

Frequently asked questions

What did the Tenth Circuit decide about AI and legal fees?

On 30 October 2026 the Tenth Circuit upheld a $114,663.11 fee award in Flux Drive Inc. v. Rong. It held that the plaintiffs had not shown that defence counsel's use of AI made the hours actually billed unreasonable, so there was no basis to cut the award.

Does using AI mean lawyers must charge less?

Not automatically. The court accepted that AI may reduce the hours reasonably needed in some cases, but a reduction needs evidence about specific billing entries. Verification of AI output is required work, and ABA guidance says hourly billers must bill only for their actual time.

Under what law were the fees awarded?

Under Colo. Rev. Stat. § 13-17-201, which requires a fee award to a defendant when a tort action is dismissed on its motion before trial under rule 12(b). The court held that trade secret claims under state and federal statutes sound in tort, so the statute applied.

Were the defendants also paid for the fee dispute itself?

Yes. The district court later awarded a further $68,990.50 for work after the first fee motion, including the fee litigation and appeal, and the Tenth Circuit affirmed it. Colorado courts allow recovery of fees incurred in obtaining or defending a fee award under section 13-17-201.

Would an English court treat AI use differently on costs?

There is no AI-specific costs rule. Under CPR 44.3 and 44.4 the court disallows unreasonable or, on the standard basis, disproportionate costs and resolves doubt in favour of the paying party, weighing the time spent and the skill involved. Lawyers must still verify AI-assisted research.

Sources

1. US Court of Appeals for the Tenth Circuit, Flux Drive Inc. v. Rong, Nos. 25-1308, 26-1013 and 26-1292, opinion filed 30 October 2026: ca10.uscourts.gov
2. US Court of Appeals for the Tenth Circuit, Amarsingh v. Frontier Airlines, Inc., No. 24-1391, order and judgment, 9 February 2026: ca10.uscourts.gov
3. Tenth Circuit, Public Comment Period Open for Revisions to the 2027 Tenth Circuit Rules, 18 September 2026: ca10.uscourts.gov
4. Tenth Circuit, Full Redline of 2027 Rules (Rule 46.5): ca10.uscourts.gov
5. Federal Rules of Civil Procedure, Rule 54, Legal Information Institute: law.cornell.edu
6. Civil Procedure Rules, Part 44, General rules about costs: justice.gov.uk
7. R (Ayinde) v London Borough of Haringey [2025] EWHC 1383 (Admin), 6 June 2025: caselaw.nationalarchives.gov.uk
8. ABA Journal, "Lawyers' AI use doesn't justify slashing $115K fee award, appellate court says", 4 November 2026: abajournal.com
9. Thomson Reuters Institute, "Is ABA Formal Opinion 512 off the mark?", 2 April 2025: thomsonreuters.com

About this article

Researched and written by The Corporate INTL Newsroom from the Tenth Circuit's published opinion and court records, the Tenth Circuit's proposed 2027 rules, the Civil Procedure Rules, English case law and contemporaneous reporting. It is general information, not legal advice. Last reviewed 5 November 2026. For more analysis visit our newsroom or subscribe to our newsletter.