Nine of 27 citations were wrong and two of the cases did not exist — a court-appointed Special Master ordered Ellis George and K&L Gates to pay $31,100

Verification status: PENDING — awaiting human confirmation. Not verified. This is an honest-negative AI-governance case, not a deployment win. Every figure originates with an independent court officer, not a self-reporting vendor or buyer.

The problem

Generative AI marketed for legal research fabricates authority, and the failure does not stay inside the firm that used it. In Lacey v. State Farm General Insurance Co. (C.D. Cal., No. 2:24-cv-05205-FMO-MAA), a court-appointed Special Master had been asked to resolve a discovery dispute over the insurer’s privilege assertions. Plaintiff’s supplemental brief on that issue “contained numerous false, inaccurate, and misleading legal citations and quotations.” On the Special Master’s after-the-fact review, “approximately nine of the 27 legal citations in the ten-page brief were incorrect in some way. At least two of the authorities cited do not exist at all. Additionally, several quotations attributed to the cited judicial opinions were phony and did not accurately represent those materials.”

The order is explicit about why this mattered rather than merely embarrassed:

“Directly put, Plaintiff’s use of AI affirmatively misled me. I read their brief, was persuaded (or at least intrigued) by the authorities that they cited, and looked up the decisions to learn more about them – only to find that they didn’t exist. That’s scary. It almost led to the scarier outcome (from my perspective) of including those bogus materials in a judicial order.”

What was built

No system was built. What failed was a hand-off. The order records it directly:

“The lawyers admit that Mr. Copeland, an attorney at Ellis George, used various AI tools to generate an “outline” for the supplemental brief. That document contained the problematic legal research.”

He sent the outline to lawyers at co-counsel K&L Gates, who “incorporated the material into the brief.” The order records the control gap in one sentence: “No attorney or staff member at either firm apparently cite-checked or otherwise reviewed that research before filing the brief with the Special Master.” The receiving firm “didn’t know that Mr. Copeland used AI to prepare the outline; nor did they ask him.”

The order also records a second failure after the problem surfaced. When the Special Master emailed about two citations he could not confirm, “K&L Gates re-submitted the brief without the two incorrect citations – but with the remaining AI-generated problems in the body of the text.” An associate attorney then wrote back. The order’s sentence describing that e-mail straddles the page-3/4 footnote gutter in the primary; the part that runs contiguously on page 4 reads:

“e-mail thanking me for catching the two errors that were “inadvertently included” in the brief, and confirming that the citations in the Revised Brief had been “addressed and updated.””

The order does not name any AI product. Third-party reporting names specific tools; that attribution is deliberately held out of this record (excluded_claims.x1) until it can be tied to a quoted line in the primary.

The outcome

The Special Master found the lawyers “collectively acted in a manner that was tantamount to bad faith” and that “[t]he initial, undisclosed use of AI products to generate the first draft of the brief was flat-out wrong.” He ordered:

• $31,100, jointly and severally, against Ellis George LLP and K&L Gates LLP — “Plaintiff’s law firms are ordered (jointly and severally) to pay compensation to the defense in the aggregate amount of $31,100.”
• The briefs struck and the discovery relief denied — “I have struck, and decline to consider, any of the supplemental briefs that Plaintiff submitted on the privilege issue. From this, I decline to award any of the discovery relief […] that Plaintiff sought” — the elision drops the order’s parenthetical list of the specific relief.
• No sanction on the individual attorneys — “In a further exercise of discretion, I decline to order any sanction or penalty against any of the individual lawyers involved here.” The Special Master’s reason: “This was a collective debacle, and is properly resolved without further jeopardy.”

These are not equally corroborated, and the record separates them. The struck briefs and the denied discovery relief (c4) are reported in their own words by two mutually independent newsrooms — ABA Journal and LawSites. The no-individual-sanction ruling (c5) is carried by one: ABA Journal writes that “Wilner did not sanction the individual attorneys involved in the mishap, however.” LawSites does not mention that ruling at all, and Reason’s Volokh Conspiracy reaches it only by reprinting the order, which relays the origin rather than corroborating it. So c5 stands at one independent secondary, not two.

The order also states that the money falls on the lawyers, not the litigant: “Mrs. Lacey is clearly not at fault for the AI debacle […] She will not, however, be financially responsible for the monetary awards described in this order.”

The $31,100 breaks into approximately $26,100 reimbursing Special Master fees the defendant had advanced to JAMS, plus $5,000 toward the defense’s own fees. That split is in the primary and no independent secondary carries it: the one outlet that prints both figures, Reason’s Volokh Conspiracy, does so by block-quoting the order, which relays the origin rather than corroborating it, and neither the ABA Journal nor the LawSites report contains either figure. It is therefore recorded as a supporting claim (c3) at first-party-named corroboration, not as a headline one.

Path to green

This folder’s path to green is not a client-confirmation call. The origin is a signed order of a court-appointed Special Master, byte-tied to an Internet Archive capture; there is no first party whose sign-off would add anything, and no confirmation should be sought from the Special Master, who is a sitting court officer in the matter.

The docket-currency check is done, not open. The full docket was read from an archived capture dated after the case ended: nothing vacates, amends, reconsiders or appeals the sanctions order, and there is no Notice of Appeal. The case closed by settlement — entry #145 “Settlement” (23 July 2025) and #146 “ORDER DISMISSING ACTION by Judge Fernando M. Olguin. (Case Terminated; Made JS-6)” (24 July 2025). The order stands as issued.

What a human still owns before a green badge:

1. Optionally seek a statement from Ellis George LLP and K&L Gates LLP on payment and on what AI-governance controls changed. Not required for any figure above.
2. Rule on whether the AI product names in excluded_claims.x1 can be tied to the primary. (c3’s corroboration is settled: no independent secondary carries the $26,100/$5,000 split, and it stays at first-party-named.)