Artificial Intelligence: Users Beware! (In re Jackson Hospital)

“A tool is neither good nor bad; it’s how the tool is used that matters.” –Anonymous

Artificial intelligence (“AI”) is a tool that can be used for both good and bad.

Here’s a case involving AI that turns out to be not-so-good: In re Jackson Hospital & Clinic, Inc., Case No. 25-30256, Middle Alabama Bankruptcy Court (decided November 20, 2025; Doc. 1182).

What follows is a summary of this Jackson Hospital opinion.

Business History

Contractor provides specialized services to Debtor (a hospital) during open-heart surgeries and other major heart procedures.

In May 2024, Debtor’s cardiovascular surgeon leaves. So, Debtor no longer needs Contractor’s services and terminates the contract.

Bankruptcy Filings

On February 3, 2025, Debtor files its voluntary Chapter 11 petition.

In the bankruptcy, Contractor files two motions:

to determine that Medicare reimbursements misappropriated by Debtor and earmarked for Contractor are not property of Debtor’s bankruptcy estate, based on constructive trust rules; and
to compel the designation of Contractor as a critical vendor for payment of its outstanding pre-petition claim.

Debtor files a response to each of Contractor’s two motions, and Contractor files replies.

Evidentiary Hearing

At an evidentiary hearing on the two motions, the Bankruptcy Court:

questions Contractor’s Attorney, in detail, about regulations cited in the two motions, pointing out that the cited regulations do not stand for the legal propositions for which they are cited;
asks for cases specifically providing for Medicare payments being earmarked or held in trust under the regulations cited, since the Court noted in a prior hearing that the regulations cited by Contractor’s Attorney do not impose a trust; and
denies both Contractor’s motions.

Motion to Reconsider & Objections

Undeterred, Contractor asks the Court to reconsider. Other parties object, compiling a summary of citations in Contractor’s motion to reconsider that, (i) do not stand for the proposition for which they were cited, (ii) do not contain the quotes attributed to them in the motion to reconsider, or (iii) do not exist at all.

The objecting parties add that Contractor’s motion bears the “markers of the use of artificial intelligence.” The Bankruptcy Court agrees.

Hearing on Motion to Reconsider

Less than ninety minutes before a hearing on Contractor’s motion to reconsider, Contractor files a Supplemental Brief that continues to miscite authorities and recycles a fabricated quote from the motion to reconsider.

As the hearing begins, the Court asks Contractor’s Attorney, “Was generative artificial intelligence used at any point in the preparation of the Motion to Reconsider?”

Contractor’s Attorney replies, “No, sir,” then adds that (i) a younger attorney started preparing the motion, and (ii) Contractor’s Attorney finished the motion without adequately checking the citations.

Recess & Withdrawal

The Court offers to recess the hearing to allow Contractor’s Attorney to confer with her client and with her Firm’s management.

After the recess, Contractor’s Attorney withdraws both the motion to reconsider and the Supplemental Brief.

Show Cause Order & Motion for Sanctions

In response, the Court issues an order:

citing the “pervasive inaccurate, misleading, and fabricated citations, quotations, and representations of legal authority in the Motion to Reconsider”; and
directing Contractor’s Attorney and her Firm to appear before the Court to “show cause, if any cause exists, as to why they should not be sanctioned.”

And Debtor moves for sanctions.

Firm’s Status Report

The Firm files its Status Report, prior to the show cause hearing, stating that it:

agrees to pay – and has paid – the full $55,721.20 amount of attorneys’ fees sought in the motion for sanctions;
is, under Bankruptcy Rule 9011, responsible for the conduct of its attorneys;
admits that one of its lawyers violated the ethical duties imposed by local court rules and Alabama law;
expresses a willingness to accept “whatever sanction the Court finds appropriate under these circumstances”;
describes several steps it has taken on its employees’ use of artificial intelligence, including the updating of its official policy and training thereon;
has conducted an internal investigation of prior work prepared by the Contractor’s Attorney in other cases to determine whether any of such work contains “suspected artificial intelligence hallucinations”; and
has instituted a cite checking policy that is mandatory and non-delegable for all attorneys in the Firm.

Attorney’s Response

Contractor’s Attorney retains her own attorney, who files a response to the show cause order. In the response, Contractor’s Attorney:

accepts responsibility for her actions;
explains that she took on the representation of Contractor in this case at the request of a close personal and family friend;
explains 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 such matters;
admits that she “did not have the time necessary to spend on the case to compensate for the obvious learning curve”;
admits that she misled the Court by representing that generative artificial intelligence was not used in preparing the motion to reconsider;
states that she did not personally use generative artificial intelligence to prepare the motion to reconsider but was aware of its use by someone other than an associate at the Firm, contrary to her previous representations;
expresses a willingness to share further information on this issue in an ex parte hearing or in a document filed under seal;
concedes that she was responsible for the motion to reconsider, which she signed and filed; and
describes the turmoil in her personal and financial life that contributed to her struggle to maintain her case load, including the representation of Contractor in this case.

Court’s Ruling

The Bankruptcy Court’s opinion, after a lengthy analysis, offers the following conclusions.

Contractor’s Attorney “doubled down, tripled down, and quadrupled down on arguments unsupported by the authorities cited, diverting time, money, and attention from the Debtors’ efforts at rehabilitation.”

The Court (i) applauds the accountability that the Firm has taken, (ii) appreciates the accountability Contractor’s Attorney has taken, (iii) recognizes that Contractor ultimately withdrew the filings at issue—although, by that point, significant damage had already been done.

The Court’s ruling includes the following directives:

The Court PUBLICLY REPRIMANDS Contractor’s Attorney for the misconduct described in this Memorandum Opinion and Order;
Creditor’s Attorney is ORDERED to provide a copy of this Memorandum Opinion and Order to her clients, opposing counsel, and the presiding judge in every pending state or federal case in which she is currently counsel of record, 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;
To further effectuate the reprimand and deter similar misconduct by others, the Clerk of Court is DIRECTED to submit this Memorandum Opinion and Order for publication;
Contractor’s Attorney is DIRECTED to provide the Clerk of Court with a listing of jurisdictions in which she is licensed to practice law within twenty-four hours of this Memorandum Opinion and Order;
The Clerk of Court is DIRECTED to serve a copy of this Memorandum Opinion and Order on the General Counsel of the Alabama State Bar, the Georgia State Bar, and any other applicable licensing authorities for further proceedings as appropriate; and
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, 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.

Conclusion

Yikes.

The moral of the story is this: “AI users beware!”

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