Versant Funding LLC v. Teras Breakbulk Ocean Navigation Enterprises LLC
9:17-cv-81140
S.D. Fla.May 20, 2025Background
- This case involves sanctions against attorneys for Defendants and Third-Party Defendants after they submitted a fabricated (“hallucinated”) case citation in a federal court filing.
- The hallucinated case citation resulted from pro hac vice counsel (Mr. Lord) using AI to generate legal research, which produced a fake case that neither he nor local counsel (Mr. Bello) verified before filing.
- Once the error was discovered by Plaintiff's counsel, Defendants’ counsel eventually withdrew the citation and apologized, but only after two weeks and without immediate explanation.
- The Court undertook its own investigation, confirmed the nonexistence of the case, and ordered both attorneys to explain the mistake and their process.
- Both attorneys accepted responsibility, explained the error as unfamiliarity with AI, and indicated implementation of new safeguards for future filings.
- The Court considered multiple sources of authority for sanctions: Federal Rule of Civil Procedure 11, local rules, Florida Bar rules, 28 U.S.C. § 1927, and its own inherent powers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Submission of fake case citation | Defendants submitted a hallucinated/fake case. | AI error, first time using AI, apologized, implemented safeguards | Sanctions are appropriate for violating multiple rules/laws. |
| Obligation to verify case citations | Counsel failed to meet verification duties. | Claimed lack of experience with AI, unintentional error | Attorneys must verify all filings; AI use doesn't excuse error. |
| Appropriateness of sanctioning parties | Parties had no role; only counsel at fault. | N/A | No sanctions on parties; only counsel sanctioned. |
| Type and level of sanctions | Seriousness warrants significant penalty. | Accepted responsibility, asked for leniency | Sanctions: attorney's fees, CLE on AI ethics, monetary fines. |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (inherent authority of courts to manage their own affairs and sanction misconduct)
- Roadway Express, Inc. v. Piper, 447 U.S. 752 (scope of inherent powers extends to a full range of litigation abuses)
- Link v. Wabash R. Co., 370 U.S. 626 (courts' inherent power to manage proceedings for orderly disposition of cases)
- Peterson v. BMI Refractories, 124 F.3d 1386 (criteria for sanctions under 28 U.S.C. § 1927 include vexatious conduct and reasonable fees)