Fang v. Hechalou US LLC (2025)

Case details
Full caption
Yi-Sheng Fang, et al. v. Hechalou US LLC, et al.
Country
United States
Jurisdiction
Federal
Decided
2025
UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIACIVIL MINUTES - GENERALCase No.CV 25-1180 PA (JDEx)DateSeptember 12, 2025TitleYi-Sheng Fang, et al. v. Hechalou US LLC, et al.Present: The HonorablePERCY ANDERSON, UNITED STATES DISTRICT JUDGEKamilla Sali-SuleymanNot ReportedN/ADeputy ClerkCourt Reporter / RecorderTape No.Attorneys Present for Plaintiffs:Attorneys Present for Defendants:NoneNoneProceedings: IN CHAMBERS - COURT ORDERBefore the Court is the Order to Show Cause Regarding Sanctions and the parties’responses to the Order to Show Cause. (Docket Nos. 25, 26, 32, 35.) Pursuant to Rule 78 of theFederal Rules of Civil Procedure and Local Rule 7-15, the Court finds that this matter isappropriate for decision without oral argument, and rules as follows. I.Factual and Procedural BackgroundOn July 14, 2025 counsel for defendants Hechalou US LLC and Johanna Chen(“Defendants’) filed an Opposition to the Motion for Preliminary Injunction filed by plaintiffsYi-Sheng Fang and Hechalou International LLC (“Plaintiffs”). (Docket No. 18.) On July 21,2025 (the date that Plaintiffs’ Reply was due), Defendants filed a “Notice of Errata” to correct“inadvertent errors cited in their Opposition.” (Docket No. 19.) The Notice of Errata highlightssix citation errors – four involve quotations that did not exist in the cited cases, and two involvechanging the case citations for the proffered proposition. (Notice of Errata at pp. 1-6.) Both theOpposition and Notice of Errata list Douglas R. Luther and Daniel H. Ngai as attorneys forDefendants were signed by counsel Daniel H. Ngai on behalf of the law firm Luther Lanard, PC.In connection with Plaintiffs’ Reply, also filed on July 21, 2025, Plaintiffs submitted asupplemental declaration of counsel to address the erroneous quotations and citations. (DocketNo. 20-1, Supp. Adams Decl. ). This supplemental declaration also included a chart identifyingnine erroneous citations (three more than Defendants included in their Notice of Errata), andsummarizes the issues with each citation. (Docket No. 17-2; Exhibit A to Supp. Adams Decl.). The issues involved citation to cases that either: (1) do not exist; (2) exist but do not include thequoted language; or (3) exist but do not include the quoted language or address the point beingargued. (Id.) On August 7, 2025 the Court issued an Order requesting that Defendants show cause whythey and their counsel, Douglas R. Luther and Daniel H. Ngai of Luther Lanard, PC, should notbe sanctioned under Fed. R. Civ P. 11, Local Rules 11-3.9.3, 83-7, 28 U.S.C. § 1927 and theCV-90 (06/04)CIVIL MINUTES - GENERALPage 1 of 5Case 8:25-cv-01180-PA-JDE Document 49 Filed 09/12/25 Page 1 of 5 Page ID#:721
UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIACIVIL MINUTES - GENERALCase No.CV 25-1180 PA (JDEx)DateSeptember 12, 2025TitleYi-Sheng Fang, et al. v. Hechalou US LLC, et al.Court’s inherent authority by: (1) the imposition of monetary sanctions in an amount up to$5,000; (2) the imposition of monetary sanctions in an amount necessary to compensatePlaintiffs for having to respond to any false citations in Plaintiffs’ Reply; and (3) being requiredto file a declaration in connection with all future filings of briefs or legal memoranda certifyingthat the filer has reviewed the source material and verified that the content is accurate andcomplies with the filer’s Rule 11 obligation. (Docket No. 25.) Luther Lanard, PC filed its response, including a declaration of Douglas Luther, onAugust 15, 2025. (Docket No. 26.) Mr. Luther stated that: (1) as a small firm with “feesensitive” clients, the firm uses artificial intelligence (“AI”) to “more efficiently undertake casesand provide access to justice;” (2) in this case, the AI used by the firm generated inaccurate legalcitations; and (3) the drafting attorney failed to review and confirm the accuracy of all citationsin the Opposition, contrary to firm policy. (Lanard Decl. ¶¶ 2, 3.) Mr. Lanard apologized to theCourt, opposing counsel and to his client, and asked that the Court impose no monetarysanctions, or sanctions in an amount less than $1,000 based on the following arguments: (1) theerror was the result of an accidental oversight; (2) the error was brought to the Court’s attentionthrough the notice of errata; (3) although the case names, citations and quotations wereinaccurate, the underlying principles of law were largely correct; (4) this is the first time the firmis facing sanctions; (5) the firm takes the matter very seriously and has implemented policies toensure it doesn’t happen again; and (6) the two attorney’s who filed the Opposition (Mr. Lutherand Mr. Ngai) had agreed to take CLE courses on the use of AI in legal writing. (Lanard Decl.¶¶ 4-11.)Mr. Ngai, the attorney responsible for filing the Opposition also submitted a declarationin response to the Court’s Order to Show Cause. (Docket No. 26.) Mr. Ngai stated that althoughhe is “relatively new to generative artificial intelligence” he was also aware that errors can occur. (Ngai Decl. 4.) Mr. Ngai explained that he did not intend to mislead the Court, parties oropposing counsel, and described his conduct as follows – although he checked generally to seethat the legal propositions in the AI generated outline were correct, he did not check the citedlanguage or verify that all the cases existed or represented the legal positions asserted. (Id. ¶¶ 5-6.) Mr. Ngai has now enrolled in continuing legal education classes at his own expense andapologized to his clients and opposing counsel. (Id. 9.) Finally, Mr. Ngai asked that the Courtimpose sanctions only on himself, and not on his client, Mr. Luther or the law firm of LutherLanard, PC. (Id. 13.) Upon receipt of this Response, the Court issued another Order requesting that Plaintiffsfile a declaration that detailed the total amount of costs and fees incurred as a result of having toprepare a response to the false citations in Defendants’ Opposition. (Docket No. 32.) Plaintiffs’counsel, Kevin A. Adams of Mortenson Taggart Adams LLP, filed a Declaration in response toCV-90 (06/04)CIVIL MINUTES - GENERALPage 2 of 5Case 8:25-cv-01180-PA-JDE Document 49 Filed 09/12/25 Page 2 of 5 Page ID#:722
UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIACIVIL MINUTES - GENERALCase No.CV 25-1180 PA (JDEx)DateSeptember 12, 2025TitleYi-Sheng Fang, et al. v. Hechalou US LLC, et al.the Court’s Order. (Docket No. 37.) Mr. Adams stated that the total amount of fees incurred asa result of having to respond to the false citations was $4,837.00, based on approximately 10hours of attorney and paralegal time spent on legal research and drafting the portion of the replybrief, declaration and supporting chart that addressed the false citations. (Adams Decl. 2.)II.AnalysisWhile the Court acknowledges defense counsel’s transparency and candor in admittingthe unverified use of AI as the explanation for the false citations, these errors are highlyproblematic and simply unacceptable to the Court, especially given that there have been manyrecent and highly publicized cases where attorneys’ use of artificial intelligence has resulted inbriefs that cite non-existent or hallucinated authorities. At this point, it is “well-known in thelegal community that AI resources generate fake cases.” Wadsworth v. Walmart Inc., 348F.R.D. 489, 497 (D. Wyo. 2025). As a result, “[a]cross the country, courts have issued a panoplyof sanctions against attorneys who submitted fake cases.” Benjamin v. Costco Wholesale Corp.,No. 24-CV-7399, 2025 WL 1195925, at *5 (E.D.N.Y. Apr. 24, 2025) (citing cases where courtsimposed monetary sanctions up to $15,000, referred attorneys to the appropriate disciplinarybody for disciplinary sanctions, and imposed other penalties for similar apparent misconduct);see also Mid Central Operating Engineers Health & Welfare Fund v. HoosierVac, LLC, No.24-cv-00326, 2025 WL 574234, at *3, 5 (S.D. Ind. Feb. 21, 2025) (recommending sanctions forciting authorities “hallucinate[d]” by artificial intelligence in court filings); Gauthier v.Goodyear Tire & Rubber Co., No. 23-CV-281, 2024 WL 4882651, at *3 (E.D. Tex. Nov. 25,2024) (imposing sanctions under Fed. R. Civ. Pro. 11(b) for filing a brief that included fake caselaw generated by artificial intelligence “without confirming the existence or validity of the casesincluded”); Mata v. Avianca, Inc., 678 F. Supp. 3d 443, 465 (S.D.N.Y. 2023) (same). “The bottom line is this: at this point, no lawyer should be using . . .any . . .generative AIproduct to perform research without verifying the results.” In re Martin, 670 B.R. 636, 648(N.D. Ill. 2025) (citing Lacey v. State Farm Gen. Ins. Co.,, CV 24-5205, 2025 WL 136069, at *3(C.D. Cal. May 5, 2025) (“Even with recent advances, no reasonably competent attorney shouldout-source research and writing to this technology—particularly without any attempt to verifythe accuracy of that material.”); Mid Cent. Operating Eng’rs, 2025 WL 574234, at *2 (“It is onething to use AI to assist with initial research, and even non-legal AI programs may provide ahelpful 30,000-foot view. It is an entirely different thing, however, to rely on the output of agenerative AI program without verifying the current treatment or validity—or, indeed, the veryexistence—of the case presented.”)).The Court’s Order to Show Cause asked counsel to address the imposition of sanctionsunder Federal Rule of Civil Procedure 11, the Local Rules, 28 U.S.C. § 1927 and the Court’sCV-90 (06/04)CIVIL MINUTES - GENERALPage 3 of 5Case 8:25-cv-01180-PA-JDE Document 49 Filed 09/12/25 Page 3 of 5 Page ID#:723
UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIACIVIL MINUTES - GENERALCase No.CV 25-1180 PA (JDEx)DateSeptember 12, 2025TitleYi-Sheng Fang, et al. v. Hechalou US LLC, et al.inherent power. The Court has determined that sanctions under 28 U.S.C. § 1927 areappropriate in this case. Under section 1927, an attorney may be required to pay “excess costs, expenses, andattorneys’ fees” on counsel who “multiplies the proceedings in any case unreasonably andvexatiously.” The imposition of sanctions under section 1927 is left to the sound discretion ofthe Court. See Haynes v. City & Cnty. of San Francisco, 688 F.3d 984, 987 (9th Cir.2012)(“Thus, with § 1927 as with other sanctions provisions, ‘[d]istrict courts enjoy much discretionin determining whether and how much sanctions are appropriate.’”) (quoting Trulis v. Barton,107 F.3d 685, 694 (9th Cir.1995)). While “bad faith is required for sanctions under the court’sinherent power” to sanction, “recklessness suffices” for the imposition of sanctions under section1927. B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th Cir. 2002), overruled on othergrounds by Fort Bend Cnty., Texas v. Davis, 587 US 541 (2019) (quoting Fink v. Gomez, 239F.3d 989, 993 (9th Cir. 2001)).1 The Court finds that the conduct in this case was reckless. Despite the fact that it is wellknown in the legal community that AI resources generate fake cases and attribute falsequotations, defense counsel relied on AI to generate the arguments in the Opposition, and thenfiled the brief without verifying the accuracy of the legal citations. Based on the filing, Plaintiffswere obligated to spend time and resources on responding to the false citations in addition to theactual legal arguments. The false citations necessitated additional briefing and forced the partiesand the Court to spend significant resources on the order to show cause. Moreover, while theremay be actual cases that stand for the propositions Defendants argue in their Opposition, theirfailure to properly identify any of those cases prevented Plaintiffs and the Court from being ableto locate and review those cases and, in turn, took the Court’s time from other important mattersand hindered the Court’s performance of one of its core functions. Thus, it is undeniable thatdefense counsel’s actions unreasonably multiplied the proceedings in this case and that as aresult, awarding sanctions based on the amount of attorneys’ fees incurred because of the use ofAI generated cases is warranted. In determining the appropriate sanctions in this case, the Court has considered themitigating factors. The attorneys in this case filed a notice of errata once they discovered thefalse citations, apologized to the Court, opposing counsel and their client. They also took steps1The Court notes that other Ninth Circuit cases have defined the standard for imposingsanctions under section 1927 as requiring a finding of subjective bad faith, but then go on todefine subjective bad faith as present when an attorney acts recklessly. E.g., Lake v. Gates, 130F.4th 1064 (9th Cir. 2025) (citing Blixseth v. Yellowstone Mountain Club, LLC, 796 F.3d 1004,1007 (9th Cir. 2015)). CV-90 (06/04)CIVIL MINUTES - GENERALPage 4 of 5Case 8:25-cv-01180-PA-JDE Document 49 Filed 09/12/25 Page 4 of 5 Page ID#:724
UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIACIVIL MINUTES - GENERALCase No.CV 25-1180 PA (JDEx)DateSeptember 12, 2025TitleYi-Sheng Fang, et al. v. Hechalou US LLC, et al.to remediate the situation prior to the issuance of sanctions. Absent these factors, the Courtwould have considered far greater and additional types of sanctions. Cf. United States v. Hayes,763 F. Supp. 1054, 1064 (E.D. CA 2025) (noting attorney mislead the court by claiming thathallucinated cases were result of an inadvertent error); Mata, 678 F. Supp. at 449 (sanctionsbased in part on attorneys’ failure to admit use of AI generated cases and continued to misleadthe court). ConclusionBased on the foregoing, the Court believes that reimbursement of 50% of the attorneys’fees generated as a result of the AI generated citations is a reasonable sanction, and that thesanction should be imposed on the law firm that filed the brief as opposed to the individualattorney or attorneys responsible. Accordingly the Court orders as follows: 1.Counsel for Defendants, the law firm of Luther & Lanard, PC, shall pay sanctionsin the amount of $2,418.50 to counsel for Plaintiffs (Mortenson Taggert AdamsLLP) within 10 days of the date of this order; 2.By that same date, counsel shall notify the California State Bar of the sanction,attaching a copy of this Order. 3.Defense counsel shall also file a declaration of compliance with this Order by nolater than September 30, 2025. 4.The Court’s Order to Show Cause issued on August 7, 2025 is discharged.5. The Court will approve the substitution of counsel form submitted by Luther &Lanard, PC (Docket No. 27) after the declaration of compliance is filed, and aftersubmission of a proposed order in accordance with the Local Rules. (See DocketNo. 32.) IT IS SO ORDERED.CV-90 (06/04)CIVIL MINUTES - GENERALPage 5 of 5Case 8:25-cv-01180-PA-JDE Document 49 Filed 09/12/25 Page 5 of 5 Page ID#:725
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