One of the 100 Biggest American Law Firms Pays >$50K Because of AI Hallucinations in Filings

From In re Jackson Hospital & Clinic, Inc., issued by Bankruptcy Judge Christopher Hawkins Thursday, following the court’s earlier observation of “pervasive inaccurate, misleading, and fabricated citations, quotations, and representations of legal authority in the Motion to Reconsider”:

Pursuant to the [court’s] Order, … the Firm filed its Status Report on Pending Motions for Sanctions. In the Status Report, the Firm stated that it agreed to pay—and had paid—the DIP Lender the full amount of attorneys’ fees sought in the DIP Lender’s Motion for Sanctions. In connection with that payment, the DIP Lender agreed not to seek further fees related to the prior filings that were withdrawn or with respect to attendance at the hearing on the Show Cause Order or the Motions for Sanctions, provided that the agreement did not apply to future filings or the renewal of withdrawn motions. The Firm also stated that it had sent to the Debtors the full amount of the fees and expenses sought in the Debtors’ Motion for Sanctions, which counsel for the Debtors was holding pending the hearing….

To the Firm’s credit, it squarely and unequivocally conceded [in a follow-up document] that under Bankruptcy Rule 9011, it was responsible for the conduct of its attorneys. The Firm further acknowledged its lawyers’ duties under the Local Bankruptcy Rules and the Alabama Ethics Rules, and it admitted that one of its lawyers violated those duties. It expressed its willingness to accept “whatever sanction the Court finds appropriate under these circumstances.”

The Firm described several steps it had taken regarding its employees’ use of artificial intelligence, both before and after the Show Cause Order. On June 28, 2023, the Firm adopted and distributed its official policy regarding the use of artificial intelligence…. On July 30, 2025, without knowledge of the issues beginning to surface in this case, the Firm updated its policy on artificial intelligence (the “Updated AI Policy”)…. After learning of the Show Cause Order, the Firm undertook additional remedial and preventive measures. On the remediation side, the Firm paid the fees sought in the Motions for Sanctions—totaling $55,721.20—without haggling with the DIP Lender and the Debtors or otherwise forcing a contested hearing. The Firm also conducted an internal investigation to determine whether any of Ms. Preston’s other filings contained “suspected artificial intelligence hallucinations.” …

In terms of additional preventive measures, on September 19, 2025, the Firm adopted a policy to supplement the Updated AI Policy, this one focused on cite-checking (the “Cite Checking Policy”). The Cite Checking Policy makes it mandatory for all attorneys in the Firm to check pleadings “in their entirety for (i) whether the cases are still good law; and (ii) whether the citations are accurate, in the correct form, and reflect what the cases actually say.” The Cite Checking Policy clarifies that the duty to cite-check—or confirm that another lawyer on the file has performed a cite-check—is non-delegable.

In addition to implementing the Cite Checking Policy, the Firm conducted training on the Updated AI Policy and the Cite Checking Policy at its partner retreat in mid-October, bringing in an outside speaker to discuss the risks of using artificial intelligence and using this case as a cautionary tale. Additional efforts were made through the Firm’s regional oversight partners and office managing partners to ensure all lawyers were made aware of the Updated AI Policy, the Cite Checking Policy, and the events of this case….

As to the lawyer in whose filings the hallucinated appeared,

Ms. Preston accepted responsibility for her actions, explaining that she took on the representation of Progressive in this case at the request of a close personal and family friend. She explained that she “allowed her loyalty and desire to help her friend override the fact that she does not have a great deal of experience in the types of matters which were at issue before this Court.” She admitted that she “did not have the time necessary to spend on the case to compensate for the obvious learning curve.”

Ms. Preston admitted that she misled the Court on August 26, 2025, when she represented that generative artificial intelligence was not used in preparing the Motion to Reconsider. She stated that she did not personally use generative artificial intelligence to prepare the Motion to Reconsider, but she was aware it was used by someone other than an associate at the Firm, contrary to her previous representations….

Like the lawyer in ByoPlanet, Ms. Preston was put on notice that the Motion to Reconsider contained fabricated quotes, mis-citations, and misstatements of existing case law. Despite this notice, Ms. Preston filed the Supplemental Brief and Progressive Response, which contained more mis-citations, misstatements of existing case law, and the re-use of a fabricated quote now attributed to a new case. The Court rejects Ms. Preston’s assertion in the Progressive Response that the Motion to Reconsider contained “at most, citation or paraphrasing errors.” Even if the Court accepted that assertion, the subsequent misrepresentations of law in the Supplemental Brief and Progressive Response are so egregious that it could only be construed as to have been committed in bad faith. Therefore, sanctions are appropriate against Ms. Preston under the Court’s inherent authority.

The court issued a public reprimand of Ms. Preston, ordered her to provide the opinion “to her clients, opposing counsel, and the presiding judge in every pending state or federal case in which she is currently counsel of record,” revoked her admission to practice in the court in this case, and ordered that the opinion be served on all the state bars in which she is admitted. As to the firm,

[T]he Court finds that it took reasonable steps both before and after the issuance of the Show Cause Order to address the inherent risk associated with the use of generative artificial intelligence for legal research and writing. It implemented the Original AI Policy in June 2023 and the Updated AI Policy in July 2025. Once it learned of the Show Cause Order, it expended significant financial and human resources to remediate the harm caused in this case and to prevent future violations.

Without limitation, the Firm: paid over $55,000.00 in attorneys’ fees to the DIP Lender and the Debtors; used Firm lawyers to investigate other filings by Ms. Preston and to provide supervision in her cases; implemented the Cite Checking Policy; and conducted additional training of its attorneys regarding the responsible use of generative artificial intelligence. Accordingly, the Court concludes that the Firm has not acted in bad faith with respect to the events that unfolded in this case, such that sanctions under the Court’s inherent authority are not necessary or appropriate with respect to the Firm….

The Firm is not sanctioned or reprimanded, but the Firm is DIRECTED to provide a copy of this Memorandum Opinion and Order—as well as the Updated AI Policy and the Cite Checking Policy—to every attorney in the Firm, obtaining acknowledgment of receipt by each attorney. The Firm must comply with this requirement within thirty days from the date of this Memorandum Opinion and Order and must certify to the Court within twenty-four hours of that compliance that the requirement has been met.