Artificial Intelligence Policy Tracker
Search
Menu

AI incident ·

$31,000 Sanction in Lacey v. State Farm Tied to Purportedly Undisclosed Use of LLMs and Erroneous Citations

2 news reports Snapshot 7 Sep 2026
On this page 8 sections

In brief

An AI system built by Large Language Model Developers and deployed by Kandl Gates Llp and Ellis George Llp allegedly harmed Michael Wilner, Kandl Gates Llp and 3 others.

Risk domain
Misinformation False or misleading information
Occurred
Coverage
2 reportsMay 2025

What happened

In the case of Lacey v. State Farm, two law firms were sanctioned $31,000 after submitting a legal brief containing reportedly erroneous citations generated using AI tools. The court reportedly found that the lawyers failed to disclose the use of AI, neglected to verify its output, and refiled a revised brief with additional inaccuracies. Judge Michael Wilner deemed the conduct reckless and issued sanctions for what he described as "improper" and "misleading" legal filings.

Laws on record for this risk area

Policy angle: Classified under Misinformation (False or misleading information) in the MIT AI Risk Repository taxonomy; 5 instruments on record cover this risk area.

Matched from the record's risk category and country to the instruments in effect recorded here: a law listed covers the area, which is not a finding that it applies to this incident. A reviewer can correct the match in the repository (data/external/incident_overrides.yaml).

News reports (2)

Titles link to the original publisher; report text is not reproduced here.

  1. AI Hallucination in Filings Involving 14th-Largest U.S. Law Firm Lead to $31K in Sanctions
    reason.com · Eugene Volokh
  2. Judge Sanctions Law Firms $31,000 for Error-Filled AI-Generated Brief
    webpronews.com · Matt Milano

Who was involved

Alleged harmed party
Michael Wilner, Kandl Gates Llp, Ellis George Llp, Defense Counsel In Lacey V. State Farm, Judicial Integrity

Classification (MIT AI Risk Repository taxonomy)

Risk domain
Misinformation
Causal entity
Human
Intent
Unintentional
Timing
Post-deployment
Harm level
—
Sectors
—
Countries
—

Risk entries describing this failure mode

Entries from the MIT AI Risk Repository coded to subdomain 3.1.

  • Pursuing Consistent Context

    "LLMs have been demonstrated to pursue consistent context [129]–[132], which may lead to erroneous generation when the prefixes contain false information. Typical examples include sycophancy [129], [130], false demonstra...

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Defective Decoding Process

    In general, LLMs employ the Transformer architecture [32] and generate content in an autoregressive manner, where the prediction of the next token is conditioned on the previously generated token sequence. Such a scheme...

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Noisy Training Data

    "Another important source of hallucinations is the noise in training data, which introduces errors in the knowledge stored in model parameters [111]–[113]. Generally, the training data inherently harbors misinformation....

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Untruthful Content

    "The LLM-generated content could contain inaccurate information"

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Hallucinations

    "LLMs generate nonsensical, untruthful, and factual incorrect content"

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Faithfulness Errors

    "The LLM-generated content could contain inaccurate information" which is is not true to the source material or input used

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Factuality Errors

    "The LLM-generated content could contain inaccurate information" which is factually incorrect

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

  • Knowledge Gaps

    "Since the training corpora of LLMs can not contain all possible world knowledge [114]–[119], and it is challenging for LLMs to grasp the long-tail knowledge within their training data [120], [121], LLMs inherently posse...

    Risk Taxonomy, Mitigation, and Assessment Benchmarks of Large Language Model Systems (Cui2024)

Incidents in the same risk subdomain

All incidents in this subdomain

Source record: incident #1073 on the AI Incident Database · all 2 reports