Reimagining 'Reasonableness' Under Section 330(a) in a World of Technology, Data, and Artificial Intelligence.

AuthorRapoport, Nancy B.

By 2030 we will see significant legal work being done by machines. As exponential growth of technology consumes the world, the legal industry is especially appetising. As a result, legal services will be fundamentally different than today in terms of both job function and the way legal services are provided. (1)


Inigo Montoya: You keep using that word. I do not think it means what you think it means. (2)

TABLE OF CONTENTS INTRODUCTION: SECTION 330(A) AND REASONABLENESS WHY HOW WE DO WHAT WE DO MATTERS PART 1: SECTION 330'S LEGISLATIVE HISTORY PART 2: JUDICIAL INTERPRETATION OF REASONABLENESS PART 3: MODERN LEGAL PRACTICE, REASONABLENESS, AND SECTION 330 A. Reasonableness and the Concept of Billing Judgment B. The World of Artificial Intelligence in the Practice of Law C. When Worlds Collide: Does Artificial Intelligence Change the Meaning of "Reasonable"? D. Should "Reasonable" Mean Something Different in Consumer Cases? Part 4: WHICH PLAYERS IN OUR BANKRUPTCY ARENA SHOULD CALL FOR CHANGE? PART 5: WHY REIMAGINING REASONABLENESS IS (MOSTLY) A GOOD IDEA A. Connecting the Overriding Law and Policy of [section] 330 with 21st Century Technology B. A Proposed Analytic Construct For Bankruptcy Courts Under a Reimagined [section] 330 CONCLUSION INTRODUCTION: SECTION 330(A) AND REASONABLENESS WHY HOW WE DO WHAT WE DO MATTERS

Transformations in the legal industry's supply chain caused by legal technology and innovative service delivery models have triggered the need for courts to reimagine how to assess the reasonableness of legal fees under 11 U.S.C. [section] 330. In nearly every other industry, when there are changes or fluctuations in supply chain costs, it is typical for the market price paid by end-users or consumers to fluctuate as well. Market forces organically dictate the reasonableness of the market prices in light of current production cost and demand. In contrast, the legal industry hasn't kept up with a unified, market-driven supply cost and demand approach when deciding how to use technology to serve client needs. To date, clients haven't consistently forced lawyers to evaluate the cost of new technology against the efficiency benefits that the technology may have when compared to human labor. This article posits that it's time to factor in the choice to use, or not to use, technology when determining the reasonableness of fees and expenses under 11 U.S.C. [section] 330. We believe that the newest technology should be part of our toolbox--in particular, artificial intelligence (AI).

When we talk about the use of AI in the law, what do we mean? Both of us like Professor Harry Surden's definition:

What is AI? There are many ways to answer this question, but one place to begin is to consider the types of problems that AI technology is often used to address. In that spirit, we might describe AI as using technology to automate tasks that "normally require human intelligence." This description of AI emphasizes that the technology is often focused upon automating specific types of tasks: those that are thought to involve intelligence when people perform them. (3) The real questions in today's legal industry are when a bankruptcy professional should start a task by turning first to AI and, when a lawyer uses AI, how does that choice affect a reasonable fee under [section] 330 for that work?

Ever since the arrival of email, (4) technology has changed the way that lawyers communicate and deliver work product. Legal research previously entailed poring through heavy books in a law library. Now legal research relies on the likes of Lexis/Nexis, Westlaw, and Fastcase. Document review relies more on search terms entered in an e-discovery tool (5) than on battalions of associates in document production rooms. Mergers and acquisitions use data rooms and digital signature technology. Manilla folders and accordion racks (6) lined up on conference room tables for manual signatures are just so yesteryear. Gone, too, is the luxury of ample time to complete tasks. (7) Legal artisans now operate in a world in which the practice of law has become the business of delivering legal services. (8)

The mandate to use advanced technologies: Model Rule 1.1 comment 8. When delivering advice, services, and work product to clients nowadays, lawyers are using technology continuously and at every step of the service delivery chain. (9) If the need for lawyers to inject technology into their daily practice was ever in doubt, all doubt has been removed by the fact that almost all states now impose on lawyers a duty of technological competence. (10) No state bar has specified the types of technology that lawyers must know how to use or the exact technological acumen required, other than the famously vague comment 8 to Model Rule 1.1: "To maintain the requisite knowledge and skill, a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject." (11) Legal industry commentators have offered guidance, stating that lawyers should be proficient in "case management software with a calendaring system; document management software; research tools; billing software; email and other communication systems; a PDF system with redacting capabilities; and the MS Office Suite, particularly MS Word." (12)

The dilemma: Will increasing the use of technology cost lawyers some income? Today's conventional wisdom recognizes that technology facilitates better lawyering. Technology has made the practice of law today faster, advice more accurate, and deliverables more efficiently produced than ever, freeing lawyers to focus their time and energy on high-level strategic advice and high-value work rather than on recurring and mundane tasks. (13) With the increased use of technology, it stands to reason that the amount of time and resources that lawyers need to spend on certain types of tasks should shrink. But if the time and resources that a lawyer needs to get the work done are decreasing while lawyers are charging by the hour, shouldn't the cost of at least some of those more mundane legal services decrease? (14) Based on the recent 2021 profitability reports from law firms, that reasonable inference does not seem to be the case. (15) It's possible that that law firms are making the same or more money-even in the face of adopting technology that makes them more efficient--because the increasing hourly rates (16) are outpacing the time savings in the "time x rate" economic model. (17) Make no mistake: we are not advocating for the proposition that lawyers should make less money. We see no reason why lawyers who work more efficiently by leveraging technology should be paid any less than lawyers who rack up the hours as a result of not leveraging technology efficiently. But this leaves us with an interesting dilemma: Why should lawyers who leverage technology to be efficient be compensated less than their counterparts who don't? (18) And how should bankruptcy professionals find the right balance between humans and computers? Section 330 focuses on the reasonableness of fees and expenses, but doesn't yet focus our attention on the human-computer split. It's time to revisit what "reasonable" means. Just as the standard of care in negligence has evolved with respect to technological advancements, so too should [section] 330's reasonableness assessment. (19)

To provide a more robust picture of [section] 330 and its roots, Part 1 discusses the legislative history of [section] 330. Part 2 maps the evolution of the case law since the enactment of [section] 330. Part 3 highlights how technological advancements and innovations in today's legal industry call for a change to a court's current [section] 330 assessment. (20) Part 4 discusses how various constituents in the legal industry might call for change to make it a reality. Finally, Part 5 talks about how the practice of bankruptcy law will benefit if courts' [section] 330 analysis starts account for advancements in legal technology.


First, let's put [section] 330 in perspective. In the normal attorney-client relationship, the client can evaluate the cost of legal services and set rules to make sure that law firms are using technology and other innovations (21) to ensure that the client is getting full value for every dollar paid. (22) The client can always push the bill, metaphorically speaking, back across the table to the lawyer while asking for reductions. But what happens in the context of estate-paid professionals in a bankruptcy case? (23) Those professionals submit their fee applications to the court for the court's approval under [section] 330. (24) But other than the court (and maybe the United States Trustee, and maybe a fee examiner (25)), there's no one source monitoring the burn rate of professional fees. (26) Unless the court pushes the bill back across the table to the professional as part of the [section] 330 analysis, there's no easy way for the parties in interest to put "reasonableness" in context. (27) But [section] 330 was enacted in 1994, nearly thirty years ago and well before the advent of today's technology. (28) Notwithstanding technological innovations, bankruptcy courts have not established new standards for what constitutes "reasonable" fees in light of the technological innovations that have happened since the enactment of the Bankruptcy Reform Act. (29)

When thinking through whether Congress or the courts should revisit [section] 330 in light of technological advances, we started with an analysis of [section] 330 (30) and its legislative history. Before the Bankruptcy Reform Act of 1978, bankruptcy professionals were paid on a quantum meruit basis. Generally speaking, the quantum that was...

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