In a letter order signed Wednesday, Vice Chancellor Lori W. Will told Richards Layton director Richard P. Rollo that as "the signatory to the brief and letters" at issue, he and his firm need to show why they shouldn't be sanctioned for violating Chancery Court rules regarding the accuracy of submissions to the court.
The rule she cited states that "'to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances[,]' the 'legal contentions' made 'are warranted by existing law.'"
At issue was an answering brief Richards Layton filed in January in a legal fee advancement dispute, in which it is representing plaintiffs Kevin Leiske, Joseph Christopher Lewis and Margaret Slemmer.
In a January letter to the court, opposing counsel raised several issues with citations in the brief at issue, including that quotes given from certain cases did not actually appear in those cases.
The brief, filed under seal, was a response to objections Robert Gregory Kidd made to a magistrate judge's report in January finding the plaintiffs were entitled to have their legal fees for certain proceedings covered by Kidd and retirement trusts associated with him.
In a February letter order, Vice Chancellor Will affirmed the magistrate's report, determining that Leiske, Lewis and Slemmer were entitled to fees for both the underlying legal proceedings at issue and the advancement action they brought in the Chancery Court.
At issue in the advancement lawsuit were indemnification rights the three plaintiffs said they had as managers of Hard Yaka Ventures LLC. In a complaint filed last year, they said Hard Yaka was a family investment entity set up by Kidd to invest in technology and cryptocurrency companies. Kidd is also a manager of the company, according to the suit.
Leiske, Lewis and Slemmer asserted that indemnification agreements entitled them to advancement of legal fees for costs incurred in certain proceedings, including a Nevada federal court suit that was filed after the relationship between them and Kidd soured and he moved to wind down the business.
After Richards Layton filed the brief at issue in January, counsel for Kidd alleged the document "contained fictitious citations, fabricated quotations, and hallucinated legal propositions," according to the letter order issued Wednesday.
In a Jan. 28 letter, the firm acknowledged it used "a generative artificial intelligence tool" to revise the text of the brief and failed to verify the accuracy of the citations, "attributing the oversight to a paralegal's review," Vice Chancellor Will noted in her order.
"The plaintiffs also filed a corrected answering brief," according to the order. "Although this submission removed quotation marks around erroneous statements of law, it did not correct the inaccurate descriptions."
However, defense counsel told the court, "misrepresentations" still remained and there were "similar citation problems" in another filing.
In its letter, Richards Layton had faulted defense counsel "for failing to 'meet and confer' about the errors before bringing them to the court's attention," the vice chancellor wrote.
Additionally, the firm insisted the "underlying legal propositions" in the brief were accurate and accused defense counsel of "using the genAI errors to gain a 'litigation advantage,'" according to the order.
In April, a magistrate judge held Kidd in contempt for not advancing roughly $4.7 million in fees to the plaintiffs and levied a fine if the advancement order continued to not be met.
Vice Chancellor Will found she retained jurisdiction over the AI errors and that the matter was now "ripe for resolution."
"A fictitious citation is not 'existing law,'" she wrote, adding that counsel owes a "duty of candor to the court" and "cannot discharge those obligations by relying on a paralegal, much less on an artificial intelligence program."
"Here, the concerns raised by the initial filing were compounded by counsel's response after the errors were identified," according to the order. "In correcting the answering brief, counsel merely deleted quotation marks while preserving the fabricated legal synthesis."
She also tossed aside the assertion that counsel should have conferred before the court was alerted about the citation issues.
"The meet-and-confer requirement is designed to facilitate the resolution of disputes among parties," the order said. "There is nothing to negotiate or compromise when an attorney submits false citations to a tribunal, and opposing counsel is justified in bringing such misrepresentations directly to the court's attention."
The vice chancellor added: "Because this incident may implicate the firm's training, supervision, and deployment of genAI, the firm must answer alongside the individual signatory."
Rollo has until July 15 to file a response explaining details such as how the generative AI tool was used to draft the brief at issue, the process used to verify the cited text and remedial steps taken to address concerns raised in defense counsel's letter.
"Mr. Rollo must explain why quotation marks were removed but flawed legal propositions were retained, and whether he personally reviewed the underlying judicial opinions at that time," Vice Chancellor Will wrote.
Furthermore, Richards Layton must provide the court with its "written policies, guidelines, and restrictions regarding the use of genAI by attorneys and staff," how those policies were communicated with Rollo and other attorneys handling the advancement matter, and other details.
Once those submissions are made, the vice chancellor will decide whether oral argument is needed or if she can make a decision based on the paper record, according to the order.
Counsel for the parties didn't immediately respond to requests for comment Monday.
Leiske, Lewis and Slemmer are represented by Richard P. Rollo, Travis S. Hunter and Alexandra M. Ewing of Richards Layton & Finger PA.
Kidd and the other defendants are represented by Margaret M. DiBianca of DiBianca Law LLC and Kenneth P. Herzinger and Jennifer Baldocchi of Paul Hastings LLP.
The case is Leiske et al. v. Kidd et al., case number 2025-0426, in the Court of Chancery of the State of Delaware.
--Editing by Covey Son.
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