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In re Jackson Hosp. & Clinic, Inc.
, No. 25-30256-CLH (M.D. Ala. 2025)
Case details
Full caption
In re Jackson Hospital & Clinic, Inc., et al.
Country
United States
Jurisdiction
Federal
Court
Middle District of Alabama
Decided
2025
IN
THE
UNITED
STATES
BANKRUPTCY
COURT
FOR
THE
MIDDLE
DISTRICT
OF
ALABAMA
In
re
Case
No.
25
-
30256
-
CLH
Chapter
11
JACKSON
HOSPITAL
&
CLINIC,
INC.,
et
al.
,
Jointly
Administered
Debtors.
1
MEMORANDUM
OPINION
AND
ORDER
REGARDING
SANCTIONS
AGAINST
CASSIE
D.
PRESTON
AND
GORDON
REES
SKULLY
MANSUKHANI
,
LLP
On
August
28,
2025,
the
Court
entered
its
Order
to
Cassie
D.
Preston
and
Gordon
Rees
Skully
Mansukhani
,
LLP
to
Appear
and
Show
Cause
as
to
Why
Sanctions
Should
Not
Be
Imposed
[Doc.
No.
871]
(the
“
S
how
Cause
Order
”)
.
At
the
hearing
on
the
Show
Cause
Order
on
October
28,
2025,
Gordon
Rees
Skully
Mansukhani
,
LLP
(the
“Firm”)
was
represented
by
Robert
D.
Segall
and
J.
David
Martin.
I
n
attendance
on
behalf
of
the
Firm
were
its
Chief
Legal
Officer,
Ronald
A.
Giller,
and
the
Managing
Partner
of
its
Atlanta
Office,
Chad
Shultz.
Ms.
Preston
attended
the
hearing
and
was
represented
by
Wallace
D.
Mills.
Based
on
the
pleadings
of
record,
the
declarations
submitted
by
Mr.
Giller
and
Mr.
Shultz,
the
arguments
and
representations
of
counsel,
the
statements
of
Mr.
Giller
and
Ms.
Preston
at
the
hearing
,
and
for
the
reasons
below,
the
Court
determines
that
with
respect
to
the
Firm,
no
additional
sanctions
are
necessary
or
appropriate
,
provided
that
the
Firm
takes
the
additional
steps
regarding
Firm
-
wide
training
outlined
herein.
T
he
Court
determines
that
with
respect
to
Ms.
Preston,
sanctions
in
the
form
of
a
formal
reprimand
and
revocation
of
Ms.
Preston’s
pro
hac
vice
admission
to
this
Court,
together
with
limited
circulation
of
this
Memorandum
Opinion
and
Order
,
are
necessary
and
appropriate,
as
detailed
below.
1
Pursuant
to
Rule
1015(b)
of
the
Federal
Rules
of
Bankruptcy
Procedure
,
the
cases
of
J
ackson
Hospital
&
Clinic,
Inc.
(the
“Hospital”)
and
JHC
Pharmacy,
LLC
(the
“Pharmacy
,
”
and
together
with
the
Hospital,
the
“Debtors”)
are
being
jointly
administered,
with
25
-
30256
being
the
lead
case.
(Case
No.
25
-
30256,
Doc.
49).
Case
25-30256
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1182
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15:26:23
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2
JURISDICTION
The
Court
has
jurisdiction
to
hear
this
matter
pursuant
to
28
U.S.C.
§
1334(b)
and
the
General
Order
of
Reference
entered
by
United
States
District
Court
for
the
Middle
District
of
Alabama
on
April
25,
1985.
Venue
is
proper
pursuant
to
28
U.S.C.
§§
1408
and
1409.
This
is
a
core
proceeding
under
28
U.S.C.
§
157(b)(2).
BACKGROUND
RELEVANT
TO
THE
SHOW
CAUSE
ORDER
A.
The
Relationship
Between
the
Debtors
and
Progressive
Perfusion,
Inc.
On
February
3,
2025
(the
“Filing
Date”)
,
the
Debtors
filed
voluntary
petitions
for
relief
under
Chapter
11
of
the
Bankruptcy
Code
.
2
Prior
to
the
Filing
Date,
the
Hospital
and
Progressive
Perfusion
,
Inc.
(“Progressive”)
were
parties
to
a
contract
under
which
Progressive
provided
specialized
services
to
the
Hospital
during
open
-
heart
surgeries
and
other
major
cardiovascular
procedures.
See
Transcript
of
July
8,
2025,
Hearing
[Doc.
758],
at
pp.
10-
12.
3
In
May
2024,
the
Hospital
terminated
the
contract
with
Progressive
because
the
Hospital’s
cardiovascular
surgeon
left
the
H
ospital,
such
that
the
Hospital
no
longer
need
ed
Progressive’s
services.
Id.
Progressive
has
not
provided
services
to
the
Hospital
since
May
2024.
Id.
B.
Ms.
Preston’s
Admission
Pro
Hac
Vice
On
March
7,
2025,
Ms.
Preston
filed
her
Motion
for
Entry
of
Order
Admitting
Cassie
D.
Preston
to
Appear
Pro
Hac
Vice
[Doc.
183]
(the
“Preston
Admission
Motion”).
Admissions
to
th
is
2
All
references
to
the
“Code”
or
the
“Bankruptcy
Code”
are
to
11
U.S.C.
§§
101-
1532.
3
On
July
8,
2025,
the
Court
held
a
hearing
on
the
Supplemental
Notice
and
Disclosure
Regarding
Debtors’
Motion
for
Interim
and
Final
Orders
(I)
Authorizing
Debtors
to
(A)
Obtain
Postpetition
Secured
Financing
Pursuant
to
Section
364
of
the
Bankruptcy
Code,
(B)
Use
Cash
Collateral,
(II)
Granting
Liens
and
Superpriority
Administrative
Expense
Status,
(II)
Granting
Adequate
Protection,
(IV)
Modifying
the
Automatic
Stay,
(V)
Scheduling
a
Final
Hearing,
and
(VI)
Granting
Relat
ed
Relief
[Doc.
637]
(the
“Supplemental
Notice”).
In
two
pleadings
filed
by
Ms.
Preston,
Progressive
objected
to
the
Supplemental
Notice
,
asserting
constructive
trust
arguments
largely
identical
to
the
arguments
in
Progressive’s
other
pleadings.
See
Doc.
654
and
Doc.
660.
At
the
hearing,
counsel
for
the
Debtors
proffered
the
testimony
of
the
Debtors’
C
hief
Restructuring
O
fficer,
Allen
Wilen
.
Ms.
Preston
was
present
and
did
not
object
to
the
proffer.
Th
e
proffer
was
admitted
into
evidence
.
E
xcerpt
s
from
the
July
8,
2025
,
transcript,
as
referenced
here
and
later
in
this
Memorandum
Opinion
and
Order,
are
collectively
attached
as
Exhibit
A
.
Case
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3
Court
are
governed
by
Rule
2090-
1
of
the
Local
Rules
of
the
United
States
Bankruptcy
Court
for
the
Middle
District
of
Alabama
(the
“Local
Bankruptcy
Rules”)
,
which
provides
in
relevant
part
:
(e)
All
attorneys
who
appear
in
this
Court
shall
be
deemed
to
be
familiar
with
and
shall
be
governed
by
these
Local
Rules
and
applicable
rules
of
professional
conduct.
Such
attorneys
shall
be
subject
to
the
disciplinary
powers
of
the
Court.
Attorneys
should
conduct
themselves
with
civility
and
in
a
spi
rit
of
cooperation
to
reduce
unnecessary
cost
and
delay.
Rule
2090-
1
of
the
Local
Bankruptcy
Rules
incorporates
by
reference
Rule
83.1
of
the
Local
Rules
of
the
United
States
District
Court
for
the
Middle
District
of
Alabama
(the
“Local
Rules”)
,
which
provides
in
relevant
part
:
(g)
Standards
for
Professional
Conduct;
Obligations.
Attorneys
admitted
to
practice
before
this
Court
shall
adhere
to
this
Court
’
s
Local
Rules,
the
Alabama
Rules
of
Professional
Conduct,
the
Alabama
Standards
for
Imposing
Lawyer
Discipline,
and,
to
the
extent
not
inconsistent
with
the
preceding,
the
American
Bar
Association
Model
Rules
of
Professional
Conduct.
Attorney
misconduct,
whether
or
not
occurring
in
the
course
of
an
attorney/client
relationship,
may
be
disciplined
by
disbarment,
suspension,
reprima
nd,
monetary
sanctions,
removal
from
this
Court
’
s
roster
of
attorneys
eligible
for
practice
before
this
Court,
or
such
other
sanction
as
the
Court
may
deem
appropriate
.
On
March
12,
2025,
the
Court
entered
its
Order
Granting
Motion
to
Appear
Pro
Hac
Vice
[Doc.
208]
(the
“Preston
Admission
Order”).
C.
The
Progressive
Payment
Motions
On
June
17,
2025,
Progressive
filed
its
Motion
to
Determine
that
Medicare
Reimbursements
Misappropriated
by
Debtor
and
Earmarked
for
Progressive
Perfusion,
Inc.
are
Not
Property
of
the
Estate
[Doc.
614]
(the
“Constructive
Trust
Motion”).
On
June
18,
2025,
Progressive
filed
its
Motion
to
Compel
the
Designation
of
Progressive
Perfusion,
Inc.
as
a
Critical
Vendor
and
for
Payment
of
the
Outstanding
Pre
-
Petition
Debt
[Doc.
617]
(
the
“Motion
to
Compel
Critical
Vendor
Treatment,”
and
together
with
the
Constructive
Trust
Motion,
the
“Progressive
Payment
Motions”).
On
July
11,
2025,
the
Debtors
filed
the
Debtors’
Response
to
Progressive
Perfusion’s
(I)
Motion
to
Compel
the
Designation
of
Progressive
Perfusion,
Inc.
as
a
Critical
Case
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4
Vendor
and
for
Payment
of
the
Outstanding
Pre
-
Petition
Debt;
and
(II)
Motion
to
Determine
that
Medicare
Reimbursements
Misappropriated
by
Debtor
and
Earmarked
for
Progressive
Perfusion,
Inc.
are
Not
Property
of
the
Estate
.
[Doc.
693].
On
July
14,
2025,
Progressive
filed
Progressive
Perfusion,
Inc.’s
Reply
to
Debtors’
Response
to
Motion
to
Compel
Designation
as
Critical
Vendor
and
to
Motion
to
Determine
that
Misappropriated
Medicare
Reimbursements
are
Not
Property
of
the
Estate
.
[Doc.
706].
The
Court
he
ard
the
Progressive
Payment
Motions
and
related
pleadings
on
July
15,
2025.
At
the
hearing,
counsel
for
the
Debtors
incorporated
by
reference
the
July
8,
2025,
proffer
of
the
testimony
of
Allen
Wilen,
the
Chief
Restructuring
Officer
of
the
Debtors.
No
parties
objected
to
the
proffer,
and
no
parties
presented
any
other
evidence
at
the
hearing
.
T
he
Court
questioned
Ms.
Preston
in
detail
about
regulations
cited
in
the
Progressive
Payment
Motions,
pointing
out
that
these
regulations
did
not
stand
for
the
legal
propositions
for
which
Progressive
had
cited
them.
See
Transcript
of
July
15,
2025,
Hearing
[Doc.
760],
at
pp.
18
-
22.
4
Ms.
Preston
acknowledged
that
the
regulations
she
cited
did
not
explicitly
create
a
constructive
trust
or
–
for
that
matter
–
speak
at
all
to
the
obligations
of
a
hospital
to
pay
its
vendors
in
any
specific
manner
.
I
d.
Ms.
Preston
asserted
that
case
law
supported
Progressive’s
position,
and
the
Court
asked
for
cases
specifically
holding
that
payments
the
Debtors
received
through
Medicare
were
earmarked
or
held
in
trust
for
Progressive
under
the
regulations
cited.
Id.
No
such
cases
were
cited
in
the
Progressive
Payment
Motions
or
at
the
hearing.
This
was
not
the
first
time
the
Court
call
ed
to
Ms.
Preston’s
attention
its
concerns
with
the
authorities
cited
in
Progressive’s
pleadings.
At
the
hearing
on
July
8,
2025,
the
Court
noted
that
the
regulations
cited
in
Progressive’s
other
pleadings
–
found
at
Doc.
654
and
Doc.
660
–
did
not
4
E
xcerpt
s
from
the
July
15,
2025,
transcript,
as
referenced
here
and
later
in
this
Memorandum
Opinion
and
Order,
are
collectively
attached
as
Exhibit
B.
Case
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5
impose
a
trust.
See
Transcript
of
July
8,
2025,
Hearing
[Doc.
758],
at
pp.
21-
22.
5
Ms.
Preston
cited
In
re
Columbia
Gas
System,
Inc.
,
997
F.2d
1039
(3rd
Cir.
1993)
,
in
support
of
her
position.
Id
.
at
p.
21.
When
the
Court
noted
that
the
Columbia
Gas
opinion
stood
only
for
the
general
proposition
that
constructive
trusts
may
be
imposed
in
bankruptcy,
Ms.
Preston
disagreed,
stating
that
the
opinion
was
specific
to
Medicare.
Id.
at
p.
22.
The
Columbia
Gas
opinion
has
nothing
to
do
with
Medicare,
as
the
debtor
in
that
case
engaged
in
the
transportation
and
resale
of
natural
gas.
See
997
F.2d
at
1051.
6
Based
on
the
evidence
and
arguments
presented
at
the
July
15,
2025,
hearing,
the
Court
entered
its
Order
Denying
Motion
to
Determine
that
Medicare
Reimbursements
Misappropriated
by
Debtor
and
Earmarked
for
Progressive
Perfusion,
Inc.
are
Not
Property
of
the
Estate
[Doc.
712]
and
its
Order
Denying
Motion
to
Compel
Designation
of
Progressive
Perfusion,
Inc.
a
s
a
Critical
Vendor
and
for
Payment
of
the
Outstanding
Pre
-
Petition
Debt.
[Doc.
713].
D.
The
Motion
to
Reconsider
On
July
29,
2025,
Progressive
filed
its
Motion
for
Reconsideration
of
Orders
Denying
Motion
to
Compel
Turnover
or
to
Recognize
Constructive
Trust
in
Medicare
Funds
[
Doc.
776]
(
the
“Motion
to
Reconsider”),
which
the
Court
set
for
hearing
on
August
26,
2025.
In
response
to
the
Motion
to
Reconsider
,
Jackson
Investment
Group,
LLC
(the
“DIP
Lender”)
filed
T
he
DIP
Lender’s
(i)
Objection
to
Progressive
Perfusion,
Inc.’s
Motion
for
Reconsideration
and
(ii)
Request
for
Sanctions
[Doc.
842]
(the
“DIP
Lender
Objection”),
and
the
Debtors
filed
the
Debtors’
5
See
Exhibit
A
.
6
Even
to
the
extent
Ms.
Preston
misunderstood
the
Court’s
point
regarding
the
applicability
of
the
case,
the
Court
made
it
abundantly
clear
that
it
was
asking
for
regulations
and
case
law
directly
supporting
Progressive’s
position
that,
in
bankruptcy,
Medicare
payments
are
held
by
a
hospital
in
constructive
trust
for
the
hospital’s
vendors
.
This
is
b
ecause
in
the
context
of
bankruptcy,
the
“[i]mposition
of
a
constructive
trust
clearly
thwarts
the
policy
of
ratable
distribution
and
should
not
be
impressed
cavalierly.”
In
re
Behring
Intern.,
Inc
.,
61
B.R.
896,
902
(Bankr.
N.D.
Tex.
1986).
Accordingly,
“
courts
generally
will
require
that
nonbankruptcy
grounds
for
imposing
a
constructive
trust
‘be
so
clear,
convincing,
strong
and
unequivocal
as
to
lead
to
but
one
conclusion.’”
Matter
of
Vacuum
Corp.
,
215
B.R.
277,
281
-
82
(Bankr.
N.D.
Ga.
1997)
(internal
citation
omitted).
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6
Response
to
and
Motion
to
Strike
Progressive
Perfusion’s
Motion
for
Reconsideration
of
Orders
Denying
Motion
to
Compel
Turnover
or
to
Recognize
Constructive
Trust
in
Medicare
Funds
[Doc.
843]
(the
“Debtors’
Response”).
Both
the
DIP
Lender
Objection
and
the
Debtors’
Response
compiled
summaries
of
numerous
citations
in
the
Motion
to
Reconsider
that:
did
not
stand
for
the
proposition
for
which
they
were
cited;
did
not
contain
the
quotes
attributed
to
them
in
the
Motion
to
R
econsider;
or
did
not
exist
at
all.
[Doc.
842]
,
at
pp.
8-
13;
[Doc.
843]
,
at
pp.
15-
21.
Likewise,
both
the
Debtors
and
the
DIP
Lender
suggested
that
the
Motion
to
Reconsider
bore
the
markers
of
the
use
of
artificial
intelligence.
[Doc.
842]
,
at
pp.
1-
2;
[Doc.
843]
,
at
pp.
7-
8.
The
concerns
raised
in
the
DIP
Lender
Objection
and
Debtors’
Response
were
consistent
with
the
Court’s
concerns,
which
arose
when
the
Court
–
having
become
skeptical
of
the
authorities
cited
in
Progressive’s
pleadings
–
independently
cite
-
checked
the
Motion
to
Reconsider.
E.
The
Supplemental
Brief
and
Joint
Response
On
August
26,
2025,
less
than
ninety
minutes
prior
to
the
hearing
on
the
Motion
to
Reconsider,
Progressive
filed
its
Supplemental
Brief
in
Support
of
Motion
for
Reconsideration
[Doc.
859]
(the
“Supplemental
Brief”)
and
Progressive
Perfusion,
Inc.’s
Joint
Response
to
the
DIP
Lender’s
Objection
and
Request
for
Sanctions
and
Debtor’s
Motion
to
Strike
[Doc.
860]
(the
“Progressive
Response”).
In
these
filings,
Progressive
obdurately
clung
to
the
positions
it
had
staked
out
in
the
Progressive
Payment
Motions
and
the
Motion
to
Reconsider.
Moreover,
in
the
Supplemental
Brief
and
Progressive
Response
,
Progressive
continued
to
mis
cite
authorities
,
and
it
even
recycled
a
fabricated
quote
from
the
Motion
to
Reconsider.
See
The
DIP
Lender’s
Motion
for
Sanctions
Regarding
Progressive
Perfusion,
Inc.’s
Filings
[Doc.
898]
(the
“DIP
Lender’s
Motion
for
Sanctions”),
at
pp.
5-
6;
Debtors’
Motion
for
Sanctions
[Doc.
902]
(the
“Debtors’
Motion
for
Sanctions”),
at
pp.
25-
26.
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7
F.
The
Hearing
on
the
Motion
to
Reconsider
At
the
outset
of
the
hearing
on
the
Motion
to
Reconsider,
the
Court
communicated
to
Ms.
Preston
its
concerns
with
the
authorities
Progressive
had
cited.
See
Transcript
of
August
26,
2025,
Hearing
[Doc.
891],
at
pp.
16-
17.
7
The
Court
noted
the
applicability
of
the
Local
R
ules
in
connection
with
the
Preston
Admission
Motion
and
the
Preston
Admission
Order
,
which
subjected
Ms.
Preston
to
the
Alabama
Rules
of
Professional
Conduct
(the
“Alabama
Ethics
Rules”)
.
Id.
at
p.
17.
The
Court
reminded
Ms.
Preston
that
under
Alabama
Ethics
Rule
3.3(a),
a
lawyer
shall
not
knowingly
make
a
false
statement
of
material
fact
or
law
to
a
tribunal.
Id.
Against
that
backdrop,
the
Court
asked
Ms.
Preston,
“Was
generative
artificial
intelligence
used
at
any
point
in
the
preparation
of
the
Motion
to
Reconsider?”
Id.
Ms.
P
reston
replied,
“No,
sir.”
Id.
She
then
stated
that
she
had
a
younger
attorney
start
the
motion
and
that
she
finished
it
without
checking
the
citations
to
the
degree
that
she
should
have.
Id.
T
he
Court
asked
Ms.
Preston
whether
she
would
like
to
withdraw
the
Motion
to
Reconsider.
Id.
at
p.
18.
Ms.
Preston
inquired
as
to
whether
the
Supplemental
Brief
could
be
substituted
for
the
Motion
to
Reconsider,
and
the
Court
declined
to
do
so.
Id.
The
Court
offered
to
recess
to
allow
Ms.
Preston
to
confer
with
her
client
and
management
of
the
Firm.
Id.
at
pp.
18-
19.
After
the
recess,
Ms.
Preston
announced
that
Progressive
would
withdraw
the
Motion
to
Reconsider
and
the
Supplemental
Brief.
Id.
at
pp.
19-
20.
The
Court
told
the
parties
that
an
order
to
appear
and
show
cause
to
Ms.
Preston
and
the
Firm
was
for
thcoming,
with
a
hearing
to
be
set
within
the
next
30-
45
days.
Id.
at
pp.
21-
22.
The
Court
further
advised
that
if
a
party
sought
relief
in
connection
with
Progressive’s
filings,
they
should
do
so
in
a
manner
that
facilitated
a
hearing
on
the
same
day
as
the
hearing
on
the
order
to
appear
and
show
cause.
Id
.
at
pp.
23,
27-
28.
7
E
xcerpt
s
from
the
August
26,
2025,
transcript,
as
referenced
here
and
later
in
this
Memorandum
Opinion
and
Order,
collectively
are
attached
as
Exhibit
C
.
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8
THE
SHOW
CAUSE
ORDER,
MOTIONS
FOR
SANCTIONS,
AND
HEARING
A.
The
Show
Cause
Order
In
the
Show
Cause
Order,
the
Court
described
the
conduct
it
found
problematic,
namely
the
“pervasive
inaccurate,
misleading,
and
fabricated
citations,
quotations,
and
representations
of
legal
authority
in
the
Motion
to
Reconsider.”
[Doc.
871].
The
Court
directed
Ms.
Preston
and
the
Firm
to
appear
before
the
Court
on
October
7,
2025,
and
to
“show
cause,
if
any
cause
exists,
as
to
why
they
should
not
be
sanctioned
under
Rule
9011
of
the
Federal
Rules
of
Bankruptcy
Procedure,
Rule
2090-
1
of
the
Loc
al
Rules
of
the
United
States
Bankruptcy
Court
for
the
Middle
District
of
Alabama,
11
U.S.C.
§
105(a),
the
Court’s
inherent
authority,
the
Alabama
Standards
for
Im
posing
Lawyer
Discipline,
or
Alabama
Rule
of
Professional
Conduct
3.3,
for
making
false
statements
of
fact
or
law
to
the
Court
with
regard
to
the
Progressive
Filings.”
Id.
B.
The
DIP
Lender’s
Motion
for
Sanctions
The
DIP
Lender’s
Motion
for
Sanctions
was
filed
on
September
5,
2025.
[Doc.
898].
T
he
DIP
Lender
sought
entry
of
an
order
granting
sanctions
against
the
Firm
and
Ms.
Preston
under
28
U.S.C.
§
1927,
the
Court’s
sua
sponte
Rule
11
powers,
and
the
inherent
authority
of
the
Court.
[
Doc.
898]
,
at
p.
1.
The
DIP
Lender
noted
that
the
Motion
to
Reconsider
contained
fabrications,
mis
-
citations,
and
misstatements
of
existing
case
law.
Id
.
at
pp.
1
-
2.
It
also
pointed
out
that
even
though
the
DIP
Lender
and
the
Debtors
had
highlighted
these
problems
in
their
objections
to
the
Motion
to
Reconsider,
Progressive
“doubled
down”
by
fil
ing
the
Supplemental
Brief
and
the
Progressive
Response,
which
contained
“even
more
mis
-
citations,
misstatements
of
existing
case
law,
and
remarkably
used
the
same
fabricated
quote,
but
now
attributed
to
a
different
irrelevant
case.”
Id
.
at
p.
2.
The
DIP
Lender
sought
recovery
of
legal
fees
totaling
$35,227.20
in
connection
with
the
Motion
to
Reconsider,
Supplemental
Brief,
Progressive
Response,
and
DIP
Lender’s
Motion
for
Sanctions.
Id.
at
p.
13.
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9
C.
The
Debtors’
Motion
for
Sanctions
The
D
ebtors
’
Motion
for
Sanctions
was
filed
on
September
8,
2025.
8
[Doc.
902].
T
he
D
ebtors
sought
entry
of
an
order
imposing
sanctions
against
the
Firm
and
Ms.
Preston
under
28
U.S.C.
§
1927,
Bankruptcy
Rule
9011,
11
U.S.C.
§
105(a),
and
the
inherent
authority
of
the
Court.
[
Doc.
902]
,
at
p.
1.
The
D
ebtors
noted
that
the
Motion
to
Reconsider
:
contained
incorrectly
or
falsely
attributed
holdings
in
numerous
reported
decisions
;
cited
to
quotations
that
do
not
appear
in
cases
;
and
i
n
at
least
two
instances,
cited
to
a
case
that
does
not
match
a
citation
.
Id
.
at
pp.
1-
2.
T
he
Debtors
asserted
that
they
were
forced
to
expend
estate
resources
to
determine
the
validity
of
the
authority
cited
in
t
he
Motion
to
Reconsider
and
to
file
the
Debtors’
Response
.
Id
.
Like
the
DIP
Lender
,
the
Debtors
pointed
out
that
even
after
the
se
issues
were
raised,
Progressive
filed
the
Supplemental
Brief
and
the
Progressive
Response
,
which
contained
“additional
incorrect
citations
and
misstatements
of
case
law.”
Id
.
at
p.
2.
The
Debtors
sought
recovery
of
legal
fees
totaling
$20,494.00
in
connection
with
the
Motion
to
Reconsider
and
the
D
ebtors
’
Motion
for
Sanctions.
Id.
at
p.
14.
D.
The
Motion
to
Continue
On
September
23,
2025,
Robert
D.
Segall
and
J.
David
Martin
filed
notices
of
appearance
on
behalf
of
the
Firm.
[
Doc.
945]
and
[Doc.
946
]
.
Also
on
that
day,
the
Firm
filed
its
Motion
to
Continue
Show
Cause
Hearing
and
Hearing
on
Motions
for
Sanctions
[Doc.
948]
(
the
“Motion
to
Continue”).
In
the
Motion
to
Continue,
the
Firm
sought
a
thirty-
day
continuance
of
the
hearing
on
the
Show
Cause
Order
and
on
the
DIP
Lender’s
Motion
for
Sanctions
and
the
Debtors’
Motion
for
Sanctions
(together,
the
“Motions
for
Sanct
ions”).
The
Firm
asserted
that
the
continuance
would
allow
the
Firm
to
investigate
the
facts
and
respond
accordingly
to
the
C
ourt,
as
well
as
attempt
to
8
The
chart
attached
to
the
Debtors’
Motion
for
Sanctions,
which
summarizes
the
issues
associated
with
Progressive’s
citations,
is
attached
as
Exhibit
D
.
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10
resolve
the
Motions
for
Sanctions.
[
Doc.
948
]
,
at
p.
2.
The
Court
set
the
Motion
to
Continue
for
hearing
on
September
30,
2025.
On
October
3,
2025,
t
he
Court
entered
its
Order
Granting
Motion
to
Continue
Show
Cause
Hearing
and
Hearing
on
Motions
for
Sanctions
and
Resetting
Hearing
[Doc.
1002]
(the
“Continuance
Order”).
Th
e
Co
ntinuance
Order
reset
the
hearing
on
the
Show
Cause
Order
and
the
Motions
for
Sanctions
for
October
28,
2025.
It
also
directed
the
Firm
and
Ms.
Preston
to
file
,
by
October
23,
2025,
a
status
report
regarding
any
settlement
negotiations
related
to
the
Motions
for
Sanctions,
as
well
as
responses
to
the
Show
Cause
Order
and
the
Motions
for
Sanctions.
E.
The
Firm’s
Status
Report
and
Response
Pursuant
to
the
Continuance
Order,
on
October
23,
2025,
the
Firm
filed
its
Status
Report
on
Pending
Motions
for
Sanctions
[Doc.
1073]
(the
“Status
Report”).
In
the
Status
Report,
the
Firm
stated
that
it
agreed
to
pay
–
and
had
paid
–
the
DIP
Lender
the
full
amount
of
attorneys’
fees
sought
in
the
DIP
Lender’s
Motion
for
Sanctions.
[
Doc.
1073]
,
at
p.
1.
In
connection
with
that
payment,
the
DIP
Lender
agreed
not
to
seek
further
fees
related
to
the
prior
filings
that
were
withdrawn
or
with
respect
to
attendance
at
the
hearing
on
the
Show
Cause
Order
or
the
Motions
for
Sanctions,
provided
that
the
agreement
did
not
apply
to
future
filings
or
the
renewal
of
withdrawn
motions.
Id.
The
Firm
also
stated
that
it
had
sent
to
the
Debtors
the
full
amount
of
the
fees
and
expenses
sought
in
the
Debtors’
Motion
for
Sanctions,
which
counsel
for
the
Debtors
was
holding
pending
the
hearing.
Id
.
at
p.
2.
Also
on
October
23,
2025,
the
Firm
filed
the
Gordon
Rees
Skully
Mansukhani
Response
to
Order
to
Show
Cause
[Doc.
1074]
(the
“Firm
Response”).
To
the
Firm’s
credit,
it
squarely
and
unequivocally
conceded
that
under
Bankruptcy
Rule
9011,
it
was
responsible
for
the
conduct
of
its
attorneys.
[
Doc.
1074]
,
at
p.
1-
2.
The
Firm
further
acknowledged
its
lawyers’
duties
under
the
Local
Bankruptcy
Rules
and
the
Alabama
Ethics
Rules
,
and
it
admitted
that
one
of
its
lawyers
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violated
those
duties.
Id
.
It
expressed
its
willingness
to
accept
“whatever
sanction
the
Court
finds
appropriate
under
these
circumstances.”
Id.
at
p.
2.
The
Firm
described
several
steps
it
had
taken
regarding
its
employees’
use
of
artificial
intelligence,
both
before
and
after
the
Show
Cause
Order.
On
June
28,
2023,
the
Firm
adopted
and
distributed
its
official
policy
regarding
the
use
of
artificial
intelligence
(the
“Original
AI
Policy”).
Id
.
at
p.
9.
Among
other
things,
the
Original
AI
Policy:
prohibited
use
of
programs
using
artificial
intelligence
without
pre
-
approval
by
the
Firm’s
i
nformation
t
echnology
department;
provided
that
“no
finalized
versions
of
any
[AI
prepared]
materials
shall
be
used
outside
the
firm
absent
prior
verification
of
the
accuracy
of
the
same
by
the
user
”;
required
users
to
be
mindful
of
avoiding
any
biases
that
might
be
imbedded
in
the
program
and
prohibited
users
from
“engaging
in
any
unlawful
or
unethical
activity
in
connection
with
same
”;
required
that
the
“utmost
care
must
be
taken
to
protect
the
confidentiality,
proprietary
nature
and
privacy
of
the
firm’s
clients
and
their
information
”;
and
prohibited
employees
from
charging
clients
for
work
product
created
by
artificial
intelligence.
Id
.
at
p.
60.
On
July
30,
2025,
without
knowledge
of
the
issues
beginning
to
surface
in
this
case,
the
Firm
updated
its
policy
on
artificial
intelligence
(the
“Updated
AI
Policy”)
.
Id
.
at
p.
63.
T
he
Updated
AI
Policy
included
a
link
to
a
list
of
allowed
and
disallowed
artificial
intelligence
tech
nologies
,
bolstered
the
provision
regarding
client
confidentiality,
simplified
the
provision
regarding
client
billing,
and
emphasized
that
the
requirement
to
verify
the
accuracy
of
materials
to
be
released
outside
the
F
irm
applied
not
only
to
the
user
but
also
“by
another
individual
acting
on
his/her
behalf.”
Id
.
at
p.
63.
After
learning
of
the
Show
Cause
Order,
the
Firm
undertook
additional
remedial
and
preventive
measures.
On
the
remediation
side,
the
Firm
paid
the
fees
sought
in
the
Motions
for
Sanctions
–
totaling
$55,721.20
–
with
out
haggling
with
the
DIP
Lender
and
the
Debtors
or
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otherwise
forcing
a
contested
hearing
.
Id
.
at
p.
73.
The
Firm
also
conducted
an
internal
investigation
to
determine
whether
any
of
Ms.
Preston’s
other
filings
contained
“suspected
artificial
intelligence
hallucinations.”
Id
.
at
p.
74.
This
investigation
consisted
of
the
Firm’s
information
technology
department
pulling
a
list
of
all
documents
Ms.
Preston
prepared
since
joining
the
Firm,
which
totaled
approximately
2700
documents.
Id
.
A
partner
at
the
Firm
then
reviewed
each
of
those
documents
to
identify
court
filings
containing
legal
citations.
Id
.
Th
e
partner
then
cite
-
checked
the
filings,
r
eveal
ing
a
case
in
Georgia
in
which
it
was
called
to
the
c
ourt
’s
attention
that
Ms.
Preston
included
an
artificial
intelligence
-
generated
hallucination.
Id
.
at
p.
74-
75.
Mr.
Shultz
took
over
that
case
and
settled
the
issues
raised
regarding
the
use
of
artificial
intelligence
.
Id.
at
p.
71.
The
Firm
also
assigned
a
partner
to
serve
as
co-
counsel
with
Ms.
Preston
on
every
case
she
previously
was
handling
by
herself,
and
the
newly
assigned
partner
s
ha
ve
reviewed
each
case
in
detail.
Id
.
In
terms
of
additional
preventive
measures,
on
September
19,
2025,
the
Firm
adopted
a
policy
to
supplement
the
Updated
AI
P
olic
y,
this
one
focused
on
cite
-
checking
(the
“Cite
Checking
Policy”)
.
Id.
at
p.
76.
Th
e
Cite
Checking
P
olicy
makes
it
mandatory
for
all
attorneys
in
the
Firm
to
check
pleadings
“in
their
entirety
for
(i)
whether
the
cases
are
still
good
law;
and
(ii)
whether
the
citations
are
accurate,
in
the
correct
for
m
,
and
reflect
what
the
cases
actually
say.”
Id
.
The
Cite
Checking
Policy
clarifie
s
that
the
duty
to
cite
-
check
–
or
confirm
that
another
lawyer
on
the
file
has
performed
a
cite
-
check
–
is
non-
delegable.
Id
.
In
addition
to
implementing
the
Cite
Checking
Policy,
the
Firm
conducted
training
on
the
Updated
AI
Policy
and
the
C
ite
C
hecking
Policy
at
its
partner
retreat
in
mid
-
October,
bringing
in
an
outside
speaker
to
discuss
the
risks
of
using
artificial
intelligence
and
using
this
case
as
a
cautionary
tale.
Id
.
at
p.
77.
Additional
efforts
were
made
through
the
Firm’s
r
egional
oversight
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13
partners
and
office
managing
partners
to
ensure
all
lawyers
were
made
aware
of
the
Updated
AI
Policy,
the
Cite
Checking
Policy,
and
the
events
of
this
case.
Id
.
at
p.
77.
F.
Ms.
Preston’s
Response
On
October
23,
2025,
Wallace
D.
Mills
filed
a
Notice
of
Appearance
as
attorney
for
Ms.
Preston.
[
Doc.
1075]
.
Mr.
Mills
also
filed
Cassie
Preston’s
Response
to
Order
to
Show
Cause
[Doc.
1076]
(the
“Preston
Response”).
Ms.
Preston
accepted
responsibility
for
her
actions,
explaining
that
she
took
on
the
representation
of
Progressive
in
this
case
at
the
request
of
a
close
personal
and
fa
mily
friend.
[
Doc.
1076]
,
at
p.
1.
She
explained
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
the
types
of
matters
which
were
at
issue
before
this
Court.”
Id
.
She
a
dmitted
that
she
“did
not
have
the
time
necessary
to
spend
on
the
case
to
compensate
for
the
obvious
learning
curve.”
Id
.
at
p.
2.
Ms.
Preston
admitted
that
she
misled
the
Court
on
August
26,
2025,
when
she
represented
that
generative
artificial
intelligence
was
not
used
in
preparing
the
Motion
to
Reconsider.
Id.
at
p.
2.
She
stated
that
she
did
not
personally
use
generative
artificial
intelligence
to
prepare
the
Motion
to
Reconsider,
but
she
was
aware
it
was
used
by
someone
other
than
an
associate
at
the
Firm
,
contrary
to
her
previous
represent
at
ions
.
Id
.
She
expressed
a
willingness
to
share
further
information
on
this
issue
in
an
ex
parte
hearing
or
in
a
document
filed
under
seal.
Id.
She
freely
conceded
,
however,
that
she
was
responsible
for
the
Motion
to
Reconsider,
which
she
signed
and
filed.
Id
.
While
not
seeking
to
excuse
her
actions,
Ms.
Preston
described
turmoil
in
her
personal
and
financial
life
that
contributed
to
her
struggle
to
maintain
her
case
load,
including
her
representation
of
Progressive
in
this
case.
Id
.
at
p.
3.
She
was
reluctant
to
share
details
in
writing
or
in
public
at
the
hearing
on
the
Show
Cause
Order,
but
she
expressed
a
willingness
to
share
those
details
in
an
ex
parte
hearing
or
in
a
document
filed
under
seal.
Id
.
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14
G.
The
Hearing
on
the
Motions
for
Sanctions
and
the
Show
Cause
Order
At
the
hearing
on
October
28,
2025,
the
Court
first
took
up
the
Motions
for
Sanctions.
The
Court
confirmed
that
the
parties
considered
the
DIP
Lender’s
Motion
for
Sanctions
to
be
settled
by
the
Firm’s
payment
of
the
DIP
Lenders’
attorneys’
fees,
subject
to
the
condition
that
the
settlement
did
not
apply
to
any
future
filings
by
Progressive
or
to
any
withdrawn
motions
that
are
subsequently
renewed.
See
Transcript
of
October
28,
2025,
Hearing
[Doc.
1152],
at
pp.
17-
18
9
;
[Doc.
1097].
The
Court
also
confirmed
that
the
parties
considered
the
Debtors’
Motion
for
Sanctions
to
be
settled
by
the
Firm’s
payment
of
the
Debtors’
attorneys’
fees,
together
with
the
stipulated
dismissal
of
Progressive’s
adversary
proceeding
against
the
Debtors
and
the
additional
condition
that
Ms.
Preston
would
not
be
involved
in
the
case
going
forward.
Id
.
at
18-
20;
[
Doc.
1097]
.
With
the
Firm
having
resolved
the
Motions
for
Sanctions,
the
Court
then
offere
d
the
Firm
an
opportunity
to
address
the
Show
Cause
Order.
Mr.
Segall
’s
presentation
to
the
Court
on
behalf
of
the
Firm
generally
was
consistent
with
the
Firm
Response
.
He
point
ed
out
that
the
Firm
recognized
the
seriousness
of
the
matter,
and
that
Mr.
Giller
had
travelled
from
New
Jersey
and
Mr.
Shultz
had
traveled
from
Georgia
to
be
available
for
questions
from
the
Court.
Id
.
at
21-
22.
Mr.
Segall
described
the
steps
the
Firm
ha
d
taken
both
before
and
after
the
Show
Cause
Order
to
address
the
use
of
artificial
intelligence
and
the
need
for
proper
cite
-
checking.
Id
.
at
22-
27.
In
response
to
a
question
from
the
Court,
Mr.
Giller
confirmed
that
in
the
past
three
years,
no
attorney
at
the
Firm
had
been
sanctioned
or
reprimanded
by
any
other
state
or
federal
court
for
misciting
legal
authorities,
including,
but
not
limited
to,
hallucinated
cases
that
may
have
been
generated
through
artificial
intelligence.
Id
.
at
p.
28.
In
response
to
another
question
from
the
9
E
xcerpt
s
from
the
October
28,
2025
,
transcript,
as
referenced
here
and
later
in
this
Memorandum
Opinion
and
Order,
collectively
are
attached
as
Exhibit
E
.
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15
Court,
Mr.
Giller
stated
that
there
was
no
specific
record
of
Ms.
Preston
acknowledging
the
Original
AI
Policy
or
the
Updated
AI
Policy.
Id
.
at
p.
29.
Mr.
Giller
stated
that
over
the
past
year
the
Firm
has
developed
a
mechanism
to
track
signed
acknowledgments
of
updated
policies
,
and
he
believed
acknowledgments
were
tracked
by
the
Firm’s
risk
department.
Id
.
at
p.
30.
With
respect
to
training,
Mr.
Giller
stated
that
the
training
session
at
the
partner
retreat
was
not
recorded,
but
the
messag
ing
from
that
training
session
was
delivered
to
the
managers,
who
then
took
that
messag
ing
back
to
the
Firm’s
offices.
Id
.
at
pp.
30
-
31.
The
Court
also
inquired
as
to
whether
the
Firm
had
any
policy
regarding
the
delegation
of
client
referrals
to
attorneys
with
specialized
knowledge
and
expertise.
T
he
Firm
did
not
have
a
formal
policy,
but
Mr.
Giller
stated
that
in
the
offices
he
oversees,
attorneys
are
discouraged
from
taking
on
matters
in
which
they
do
not
have
experience.
Id
.
at
pp.
33-
34.
Mr.
Giller
pointed
out
that
Ms.
Preston’s
representation
of
Progressive
started
out
in
state
court,
and
she
continued
to
represent
Progressive
in
this
case.
Id.
at
p.
34.
Mr.
Segall
emphasized
Ms.
Preston’s
regret
that
she
did
not
seek
assistance
once
it
became
a
matter
of
bankruptcy
law.
Id
.
The
Court
then
afforded
Ms.
Preston
an
opportunity
to
address
the
Show
Cause
Order.
Mr.
Mills
first
spoke
on
behalf
of
Ms.
Preston,
reiterating
the
position
in
the
Preston
Response
that
Ms.
Preston
does
not
make
any
excuses
for
the
pleadings
she
filed
on
behalf
of
Progressive
or
for
her
misrepresentation
to
the
Court
on
August
26,
2025.
Id
.
at
p.
36.
In
response
to
questions
from
the
Court,
Ms.
Preston
acknowledged
that
she
had
limited
bankruptcy
experience.
Id
.
at
pp.
39
-
40.
She
also
stated
that
while
she
normally
would
cite
-
check
legal
authorities
using
Westlaw,
she
did
not
do
so
with
respect
to
the
Motion
to
Reconsider.
Id
.
at
p.
40.
She
reviewed
the
Firm’s
handbook
when
she
started
with
the
Firm,
but
she
did
not
recall
everything
in
it.
Id
.
at
p.
41.
Mr.
Mills
referenced
a
potential
ex
parte
hearing
in
which
Ms.
Preston
could
provide
information
as
to
the
use
of
artificial
intelligence
in
the
pleadings
,
as
well
as
Ms.
Preston’s
personal
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circumstances.
Id.
at
pp.
36-37.
Progressive’s
recently
retained
lawyer,
Joel
D.
Connally,
raised
concerns
related
to
the
attorney
-
client
privilege,
which
ultimately
were
resolved
by
Mr.
Connally
being
permitted
to
participate
in
the
ex
parte
hearing
and
by
limiting
the
discussion
in
the
ex
parte
hearing
to
Ms.
Preston’s
personal
circumstances.
Id
.
at
pp.
41
-42.
During
the
ex
parte
hearing,
Ms.
Preston
described
events
in
her
personal
life
that
the
Court
recognizes
would
take
a
significant
toll
on
anyone.
The
Court
is
empathetic
to
Ms.
Preston’s
personal
circumstances
and
certainly
understands
how
those
events
made
it
difficult
for
Ms.
Preston
to
devote
the
necessary
time
and
attention
to
her
legal
practice.
LEGAL
ANALYSIS
AND
CONCLUSIONS
OF
LAW
A.
Ethics
Implications
By
operation
of
Local
Rule
83.1,
as
made
applicable
by
Local
Bankruptcy
Rule
2090-1,
the
ethics
implications
associated
with
the
Motion
to
Reconsider,
Supplemental
Brief
,
and
Joint
Response
are
relevant
to
the
Show
Cause
Order.
While
Alabama
Ethics
Rule
3.3(a)(1),
which
deals
with
candor
to
the
Court,
is
central
in
this
case,
the
Court
finds
that
deficiencies
under
Alabama
Ethics
Rules
1.1
and
3.1
also
can
–
and
did
–
lead
to
sanctionable
conduct.
1.
Alabama
Ethics
Rule
1.1
10
In
terms
of
competence,
t
he
threat
to
attorneys
using
generative
artificial
intelligence
platforms
powered
by
large
language
models
is
two
-
fold.
First,
danger
exists
that
the
attorney
does
10
Because
the
Preston
Admission
Motion
states
that
Ms.
Preston
is
licensed
in
Georgia,
the
Court
is
including
a
comparison
of
the
Georgia
Rules
of
Professional
Conduct
to
the
Alabama
Ethics
Rules.
Georgia
Rule
of
Professional
Conduct
1.1
provides:
A
lawyer
shall
provide
competent
representation
to
a
client.
Competent
representation
as
used
in
this
rule
means
that
a
lawyer
shall
not
handle
a
matter
which
the
lawyer
knows
or
should
know
to
be
beyond
the
lawyer's
level
of
competence
without
associating
another
lawyer
who
the
original
lawyer
reasonably
believes
to
be
competent
to
handle
the
matter
in
question.
Competence
requires
the
legal
knowledge,
skill,
thoroughness
and
preparation
reasonably
necessary
for
the
representation.
G
A
.
R.
P
ROF
’
L
C
ONDUCT
R.
1.1
(2000).
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17
not
understand
how
the
technology
functions,
believing
that
the
output
is
real
instead
of
“
realistic
-
looking
.”
See
In
re
Martin
,
670
B.R.
636,
649
(Bankr.
N.D.
Ill.
2025)
(“
Instead,
these
AI
platforms
look
at
legal
briefs
in
their
training
model
and
then
create
output
that
looks
like
a
legal
brief
by
‘placing
one
most
-
likely
word
after
another’
consistent
with
the
prompt
it
received.”
)
(emphasis
in
original)
(internal
citation
omitted)
.
An
attorney’s
failure
to
understand
this
concept
can
lead
to
catastroph
ic
results
in
court.
Second,
even
if
the
attorney
understands
how
large
language
models
function,
the
output
of
a
large
language
model
depends
heavily
on
the
prompt,
which
in
turn
requires
the
attorney
to
hav
e
a
foundational
understanding
of
the
legal
issue
at
hand.
In
other
words,
a
prompt
based
on
an
incorrect
assumption
about
the
law
–
or
a
bias
toward
a
particular
result
–
may
steer
the
attorney
further
away
from
not
only
any
actual
legal
authority
but
also
any
plausible
legal
argument
s
supporting
the
attorney’
s
position.
One
professor,
Terrence
Sejnowski,
posits
that
these
models
reflect
the
intelligence
and
biases
of
their
users,
much
like
the
Mirror
of
Erised
in
Harry
Potter
and
the
Sorcerer’s
Stone
:
[T]
he
Mirror
of
Erised
reflects
the
deepest
desires
of
the
those
that
look
into
it,
never
yielding
knowledge
or
truth,
only
reflecting
what
it
believes
the
onlooker
wants
to
see.
Chatbots
act
similarly,
Sejnowski
says,
willing
to
bend
truths
with
no
regard
to
differentiating
fact
from
fiction
–
all
to
effectively
reflect
the
user.
AI
Chatbot
ChatGPT
Mirrors
I
ts
U
sers
to
Appear
Intelligent
,
S
ALK
I
NSTITUTE
FOR
B
IOLOGICAL
S
TUDIES
,
https://www.salk.edu/new
-
release/ai
-chatbot-
chatgpt
-
mirrors
-
its
-
users
-
to
-
appear-
intelligent/
(
last
visited
Nov
.
20,
2025).
Because
of
th
ese
dangers,
an
attorney’s
use
of
generative
artificial
intelligence
i
mplicates
Alabama
Ethics
Rule
1.1,
which
provides,
in
relevant
part:
“
A
lawyer
shall
provide
competent
representation
to
a
client.
Competent
representation
requires
the
legal
knowledge,
skill,
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18
thoroughness,
and
preparation
reasonably
necessary
for
the
representation.”
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
1.1
(2012).
The
Comment
to
Alabama
Ethics
Rule
1.1
offers
helpful
guidance:
In
determining
whether
a
lawyer
employs
the
requisite
knowledge
and
skill
in
a
particular
matter,
relevant
factors
include
the
relative
complexity
and
specialized
nature
of
the
matter,
the
lawyer
’
s
general
experience,
the
lawyer
’
s
training
and
experience
in
the
field
in
question,
the
preparation
and
study
the
lawyer
is
able
to
give
the
matter
and
whether
it
is
feasible
to
refer
the
matter
to,
or
associate
or
consult
with,
a
lawyer
of
established
competence
in
the
field
in
question.
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
1.1
cmt.
(2012).
While
generative
artificial
intelligence
may
serve
as
a
helpful
tool,
it
cannot
replace
an
attorney’s
“requisite
knowledge
and
skill
in
a
particular
matter,”
which
only
can
be
acquired
through
diligent
preparation
and
study.
Generative
artificial
intelligence,
without
foundational
knowledge
of
the
legal
matter
at
hand
or
the
guidance
of
“
a
lawyer
of
established
competence,”
is
not
a
safe
shortcut
.
Unfortunately,
Ms.
Preston
took
that
shortcut.
She
admitted
that
her
bankruptcy
experience
was
limited
and
that
she
lacked
the
time
necessary
to
compensate
for
the
steep
learning
curve
associated
with
representing
Progressive
in
this
case.
Although
the
Firm
has
a
Bankruptcy,
Restructuring,
and
Creditors
’
Rights
group,
Ms.
Preston
did
not
consult
members
of
that
group
while
representing
Progressive
in
this
case.
As
a
result,
Ms.
Preston
filed
multiple
pleadings
in
this
case
–
and
in
a
separate
adversary
proceeding
related
to
this
case
–
that
misapplied
provisions
of
the
Bankruptcy
Code
or
were
unsupported
by
relevant
case
law.
The
impact
of
the
lack
of
foundational
knowledge
was
compounded
by
using
generative
artificial
intelligence
when
preparing
the
Motion
to
Reconsider
,
Supplemental
Brief
,
and
Progressive
Response
.
While
it
is
unclear
whether
Ms.
Preston
was
aware
of
the
limitations
of
generative
artificial
intelligence
and
its
tendency
to
create
“
realistic
looking”
instead
of
actual
legal
authorities,
the
result
was
a
lack
of
competent
representation
that
has
needlessly
consumed
scarce
resources
in
this
case.
Progressive
miti
gated
some
of
the
harm
by
withdrawing
the
Motion
to
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19
Reconsider
,
the
Supplemental
Brief,
and,
eventually
,
the
Progressive
Response
.
Even
so,
the
cost
in
time
and
money
to
the
Court
and
other
parties
to
the
case
cannot
be
measured
fully
.
2.
Alabama
Ethics
R
ule
3
.1
11
Generative
artificial
intelligence
also
has
the
dangerous
potential
to
“
supercharge
”
vexatious
litigation,
given
how
quickly
it
can
produce
a
realistic
looking
legal
argument
to
support
an
attorney’s
position.
Alabama
Ethics
Rule
3.1(a)
provides:
In
his
representation
of
a
client,
a
lawyer
shall
not
file
a
suit,
assert
a
position,
conduct
a
defense,
delay
a
trial,
or
take
other
action
on
behalf
of
the
lawyer
’
s
client
when
the
lawyer
knows
or
when
it
is
obvious
that
such
action
would
serve
merely
to
harass
or
maliciously
injure
another.
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
3.1
(2012).
The
Comment
to
Alabama
Ethics
Rule
3.1
is
instructive:
“
The
advocate
has
a
duty
to
use
legal
procedure
for
the
fullest
benefit
of
the
client
’
s
cause,
but
also
a
duty
not
to
abuse
legal
procedure.
”
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
3.1
cmt.
(2012).
A
prime
example
of
the
intersection
of
generative
artificial
intelligence
and
abuse
of
legal
procedure
can
be
found
in
ByoPlanet
Int’l,
LLC
v.
Johansson
,
792
F.
Supp.
3d
1341
(S.D.
Fla.
2025).
In
ByoPlanet
,
counsel
admitted
to
repeatedly
using
generative
artificial
intelligence
and
failing
to
check
its
outputs
in
eight
related
cases.
ByoPlanet
Int’l,
LLC
,
792
F.
Supp.
3d
at
1347.
Over
the
span
of
about
three
months,
counsel
filed
over
fifteen
pleadings
containing
hallucinated
cases
and
quotations.
Id
.
at
1347-
51.
Many
of
these
pleadings
came
after
counsel
was
put
on
notice
11
Georgia
Rule
of
Professional
Conduct
3.1
provides
:
In
the
representation
of
a
client,
a
lawyer
shall
not:
(a)
file
a
suit,
assert
a
position,
conduct
a
defense,
delay
a
trial,
or
take
other
action
on
behalf
of
the
client
when
the
lawyer
knows
or
when
it
is
obvious
that
such
action
would
serve
merely
to
harass
or
maliciously
injure
another;
(b)
knowingly
advance
a
claim
or
defense
that
is
unwarranted
under
existing
law,
except
that
the
lawyer
may
advance
such
claim
or
defense
if
it
can
be
supported
by
good
faith
argument
for
an
extension,
modification
or
rev
ersal
of
existing
law.
G
A
.
R.
P
ROF
’
L
C
ONDUCT
R.
3.1
(
2000).
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20
that
his
use
of
generative
artificial
intelligence
was
leading
to
hallucinations.
Id
.
at
1349.
Shockingly,
one
such
pleading
containing
hallucinated
quotations
was
the
response
to
an
order
to
show
cause
regarding
the
use
of
fabricated
case
citations.
Id
.
at
1350.
As
with
the
filings
in
ByoPlan
e
t
,
Progressive’s
filings
in
this
case
evidence
an
abuse
of
legal
procedure,
with
some
filings
being
plagued
with
hallucinated
citations
and
quotations.
By
the
Court’s
count,
Progressive
has
filed
ten
pleadings
in
this
case
,
all
essentially
revolving
around
the
legal
theory
that
certain
Medicare
payments
received
by
the
Debtors
we
re
held
in
constructive
trust
for
the
benefit
of
Progressive
.
12
In
pleadings
or
during
hearings,
parties
in
interest
repeatedly
challenged
this
theory.
At
least
two
times
–
at
the
hearings
on
July
8
and
July
15
–
the
Court
specifically
called
out
citations
in
Progressive’s
pleadings
that
did
not
directly
support
the
legal
theory
Progressive
was
pushing.
Rather
than
stand
down,
Ms.
Preston
filed
the
Motion
to
Reconsider,
Supplemental
Brief,
and
Progressive
Response,
all
of
which
contained
mis
-
citations
of
law,
hallucinated
cases,
hallucinated
quotations
,
or
some
combination
of
the
three.
While
the
Court
has
not
scrutinized
each
of
the
prior
seven
Progressive
filings
to
determine
whether
generative
artificial
intelligence
was
used,
the
fact
remains
that
with
the
three
most
recent
pleadings,
Ms.
Preston
rapidly
multiplied
the
litigation
using
generative
artif
icial
intelligence,
implicating
Alabama
Ethics
Rule
3.1.
12
Motion
to
Determine
that
Medicare
Reimbursements
Misappropriated
by
Debtor
and
Earmarked
for
Progressive
Perfusion,
Inc.
a
re
Not
Property
of
the
Estate
[Doc.
614];
Motion
to
Compel
the
Designation
of
Progressive
Perfusion,
Inc.
as
a
Critical
Vendor
and
for
Payment
of
the
Outstanding
Pre
-
Petition
Debt
[Doc.
617]
;
Creditor
Progressive
Perfusion,
Inc.’s
Motion
Objecting
to
Proposed
Sale
of
Estate
Assets
Pursuant
to
11
U.S.C.
§
363
with
Brief
in
Support
[Doc.
618];
Adversary
Case
25-
03015
[Doc.
620];
Objection
to
Use
of
Newly
Discovered
Account
Containing
Reimbursements
and
Motion
to
Segregate
Trust
or
Earmarked
Funds
Not
Property
of
the
Estate
[Doc.
654];
Limited
Objection
of
P
rogressive
Perfusion,
Inc.
to
Use
of
Funds
from
Undisclosed
Account
and
Reservation
of
Rights
[Doc.
660];
Progressive
Perfusion,
Inc.’s
Reply
to
Debtors’
Response
to
Motion
to
Compel
Designation
as
Critical
Vendor
and
to
Motion
to
Determine
t
hat
Misappropriated
Medicare
Reimbursements
are
Not
Property
of
the
Estate
[Doc.
706];
Motion
for
Reconsideration
of
Orders
Denying
Motion
to
Compel
Turnover
or
to
Recognize
Constructive
Trust
in
Medicare
Funds
[Doc.
776];
Supplemental
Brief
in
Support
of
Motion
for
Reconsideration
[Doc.
859]
(the
“Supplemental
Brief”)
;
and
Progressive
Perfusion,
Inc.’s
Joint
Response
to
the
DIP
Lender’s
Objection
and
Request
for
Sanctions
and
Debtor’s
Motion
to
Strike
[Doc.
860]
.
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As
expla
in
ed
in
the
Preston
Response
and
relayed
at
the
hearing
on
the
Show
Cause
Order,
Ms.
Preston
was
motivated
by
her
close
personal
connections
with
Progressive’s
owner
and
his
family.
Her
recalcitrance,
as
reflected
in
the
positions
taken
in
Progressive’s
pleadings
and
at
hearings,
almost
certainly
was
fueled
by
a
profound
sense
of
loyalty
to
her
close
friends
.
That
said,
attorneys
must
not
allow
their
personal
feelings
to
cloud
their
professional
judgment,
and
Ms.
Preston
crossed
a
line
when
she
resorted
to
making
use
of
arguments
and
authorities
generated
by
artificial
intelligence.
3.
Alabama
E
thics
Rule
3.3
13
Alabama
Ethics
Rule
3.3(a)
provides
that
“[a]
lawyer
shall
not
knowingly:
(1)
Make
a
false
statement
of
material
fact
or
law
to
a
tribunal.”
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
3.3(a)(1)
(2012).
The
Comment
crystallizes
the
concept
of
Rule
3.3(a)(1):
“
Legal
argument
based
on
a
knowingly
false
representation
of
law
constitutes
dishonesty
toward
the
tribunal.
A
lawyer
is
not
required
to
make
a
disinterested
exposition
of
the
law,
but
must
recognize
the
existence
of
pertinent
legal
authorities.
”
A
LA
.
R.
P
ROF
’
L
C
ONDUCT
R.
3.3
cmt.
(2012).
It
is
unclear
whether
Alabama
Ethics
Rule
3.3(a)(1)
is
violated
when
an
attorney
uses
generative
artificial
intelligence
in
pleadings
but
fails
to
verify
the
accuracy
of
the
citations
and
quotations
generated.
See
Johnson
v.
Dunn
,
792
F.
Supp.
3d
1241,
1260
(N.D.
Ala.
2025).
The
question
is
whether
the
attorney
can
be
found
to
have
“knowingly”
made
a
false
representation
simply
by
failing
to
cite
-
check
a
pleading
generated
through
a
large
language
model.
This
conduct
could
be
considered
negligent
or
reckless,
but
maybe
n
ot
“knowing.”
13
Georgia
Rule
of
Professional
Conduct
3.3(a)(1)
is
identical
to
Alabama
Ethics
Rule
3.3(a)(1).
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22
Here,
however,
Ms.
Preston
admitted
she
violat
ed
Alabama
Ethics
Rule
3.3(a)(1).
At
the
August
26,
2025,
hearing,
the
Court
reminded
Ms.
Preston
of
Alabama
Ethics
Rule
3.3
before
asking
her
,
“Was
generative
artificial
intelligence
used
at
any
point
in
the
preparation
of
the
Motion
to
Reconsider?”
Ms.
Preston
replied,
“No,
sir
.”
As
admitted
in
the
Preston
Response
and
at
the
hearing
on
the
Show
Cause
Order,
this
representation
to
the
Court
w
as
false,
and
Ms.
Preston
knew
it
was
false.
[
Doc.
1076
]
,
at
p.
1.
She
explained
that
she
became
defensive
and
“was
not
fully
truthful
out
of
fear,”
and
“understood
very
quickly
that
this
was
a
poor
decision.”
Id
.
The
Court
takes
Ms.
Preston
at
her
word
that
this
was
the
reason
she
lied
,
but
the
Court
asked
the
question
to
give
her
an
opportunity
to
come
clean
and
contain
the
damage
caused
by
Progressive’s
pleadings
.
Ms.
Preston
choose
to
forgo
that
opportunity,
in
violation
of
Alabama
Ethics
Rule
3.3(a)(1).
B.
Sanctions
1.
28
U.S.C.
§
1927
Attorneys
can
be
sanctioned
under
Title
28
of
the
United
States
Code,
Section
1927
if
they
unreasonably
and
vexatiously
multiply
proceedings
in
any
case.
Peer
v.
Lewis
,
606
F.3d
1306,
1314
(11th
Cir.
2010).
“An
attorney
multiplies
the
proceedings
unreasonably
and
vexatiously
only
when
the
attorney’s
conduct
is
so
egregious
that
it
is
tantamount
to
bad
faith.”
Id
.
(
quoting
Amlong
&
Amlong,
P.A.
v.
Denny’s,
Inc.
,
500
F.3d
1230,
1239
(11th
Cir.
2007))
(internal
quotations
omitted).
A
determination
of
bad
faith
is
appropriate
whe
n
an
attorney
“knowingly
or
recklessly
pursues
a
frivolous
claim”
or
“engages
in
litigation
tactics
that
needlessly
obstruct
the
litigation
of
non-frivolous
claims.”
Id.
;
Schwartz
v.
Millon
Air,
Inc.
,
341
F.3d
1220,
1225
(11th
Cir.
2003).
Courts
in
this
Circuit
have
found
bad
faith
and
imposed
Section
1927
sanctions
where
attorneys
used
artificial
intelligence
to
draft
and
file
pleadings
without
ensuring
the
accuracy
of
the
case
citations
and
principles
of
law.
See,
e.g.
,
ByoPlanet
Int’l,
LLC
,
792
F.
Supp.
3d
at
1357-
58
(imposing
Section
1927
sanctions
for
the
use
of
artificial
intelligence
-
generated
hallucinated
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23
cases
and
fabricated
quotations
that
caused
the
parties
and
the
court
to
spend
significant
resources
to
determine
the
accuracy
of
the
citations);
Versant
Funding
LLC
v.
Teras
Breakbulk
Ocean
Navigation
Enters.,
LLC
,
No.
17-
CV
-
81140,
2025
WL
1440351,
at
*5
(S.D.
Fla.
May
20,
2025)
(same).
In
this
case,
the
Court
finds
that
Ms.
Preston’s
filings
constituted
egregious
conduct
evidencing
bad
faith,
as
she
engaged
in
litigation
tactics
that
needlessly
obstructed
the
progress
of
the
Debtors’
cases.
See
Peer
,
606
F.3d
at
1314.
However,
the
Firm
voluntarily
paid
the
entirety
of
the
attorneys’
fees
sought
by
the
DIP
Lender
and
the
Debtors
in
the
Motions
for
Sanctions
–
totaling
$55,721.20 –
such
that
neither
the
Firm
nor
Ms.
Preston
can
be
found
to
have
further
liability
under
28
U.S.C.
§
1927.
2.
Inherent
Authority
The
Court
possess
es
the
inherent
power
to
sanction
a
party
“for
conduct
which
abuses
the
judicial
process.”
Chambers
v.
NASCO,
Inc.
,
501
U.S.
32,
33
(1991).
A
court’s
inherent
power
is
“governed
not
by
rule
or
statute
but
by
the
control
necessarily
vested
in
courts
to
manage
their
own
affairs
so
as
to
achieve
the
orderly
and
expeditious
disposition
of
cases.”
Id
.
at
43
(quoting
Link
v.
Wabash
R.
Co.
,
370
U.S.
626,
630–31
(1962)).
C
ourts
can
use
their
inherent
authority
to
impose
sanctions
ranging
from
the
award
of
fees
to
suspending
or
disbarring
lawyers
to
outright
dismissal
of
a
case.
Id.
at
45;
In
re
Snyder
,
472
U.S.
634,
643
(1985).
“Inherent
powers
must
be
exercised
with
restraint
and
discretion,”
and
“
[a]
primary
aspect
of
that
discretion
is
the
ability
to
fashion
an
appropriate
sanction
for
conduct
which
abuses
the
judicial
process.”
Chambers
,
501
U.S.
at
44-
45.
To
exercise
its
inherent
authority,
a
court
must
find
that
the
party
acted
in
bad
faith.
Purchasing
Power,
LLC
v.
Bluestem
Brands,
Inc.
,
851
F.3d
1218,
1223
(11th
Cir.
2017)
(“Our
circuit
has
linked
inherent
power
sanctions
with
subjective
bad
faith[.]”).
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24
“[I]n
the
absence
of
direct
evidence
of
subjective
bad
faith,
this
[subjective
bad
faith]
standard
can
be
met
if
an
attorney’s
conduct
is
so
egregious
that
it
could
only
be
committed
in
bad
faith.”
Purchasing
Power
,
851
F.3d
at
1124-
25.
Recklessness
alone
does
not
satisfy
the
subjective
bad
-
faith
standard;
instead,
the
standard
requires
something
more,
such
as
recklessness
plus
a
frivolous
argument.
Id
.
at
1225-
26;
see
also
Barnes
v.
Dalton
,
158
F.3d
1212,
1214
(11th
Cir.
1998).
Under
this
inherent
authority,
courts
can
“sanction
the
misuse
of
AI
when
it
affects
the
Court’s
docket,
case
disposition,
and
ruling.”
Versant
Funding
LLC
,
2025
WL
1440351,
at
*3.
Courts
have
found
that
a
party
acts
in
subjective
bad
faith
when
the
party
submits
a
brief
without
verifying
the
validity
of
arguments
or
existence
of
cases
cited
therein.
See
Benjamin
v.
Costco
Wholesale
Corp.
,
779
F.
Supp.
3d
341,
350
(E.D.N.Y.
2025).
I
n
ByoPlanet
,
the
district
court
awarded
sanctions
for
counsel’s
continued
submissions
to
the
court
using
artificial
intelligence
w
ithout
checking
the
accuracy
of
cases
and
citations,
despite
being
on
notice
that
the
use
of
artificial
intelligence
resulted
in
hallucinated
cases
and
quotations.
792
F.
Supp.
3d
at
1349.
In
that
case,
the
court
found
subjective
bad
faith,
holding
that
counsel’s
behavior
was
egregious
given
that:
(1)
counsel
was
already
on
notice
of
hallucinated
cases
and
quotations;
and
(2)
af
ter
counsel
was
on
notice,
he
used
hallucinated
cases
and
quotations
in
direct
response
to
a
motion
to
dismiss
and
an
order
to
show
cause
regarding
his
misrepresentations
and
hallucinated
cases
and
quotations.
Id
.
Like
the
lawyer
in
ByoPlanet,
Ms.
Preston
was
put
on
notice
that
the
Motion
to
Reconsider
contained
fabricated
quotes,
mis
-
citations,
and
misstatements
of
existing
case
law
.
Despite
this
notice,
Ms.
Preston
filed
the
Supplemental
Brief
and
Progressive
Response,
which
contained
more
mis
-
citations,
misstatements
of
existing
case
law,
and
the
re
-
use
of
a
fabricated
quote
now
attributed
to
a
new
case.
The
Court
r
e
jects
Ms.
Preston
’
s
assertion
in
the
Progressive
Response
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that
the
Motion
to
Reconsider
contained
“at
most,
citation
or
paraphrasing
errors
.
”
Even
if
the
Court
accepted
that
assert
ion,
the
subsequent
misrepresentations
of
law
in
the
Supplemental
Brief
and
Progressive
Response
are
so
egregious
that
it
could
only
be
construed
as
to
have
been
committed
in
bad
faith
.
Therefore,
sanctions
are
appropriate
against
Ms.
Preston
under
the
Court’s
inherent
authority.
With
respect
to
the
Firm,
the
Court
finds
that
it
took
reasonable
steps
both
before
and
after
the
issuance
of
the
Show
Cause
Order
to
address
the
inherent
risk
associated
with
the
use
of
generative
artificial
intelligence
for
legal
research
and
writing.
It
implemented
the
Original
AI
Policy
in
June
2023
and
the
Updated
AI
Policy
in
July
2025.
Once
it
learned
of
the
Show
Cause
Order,
it
expended
significant
financial
and
human
resources
to
remediate
the
harm
caused
in
this
case
and
to
prevent
future
violatio
ns
.
Without
limitation,
the
Firm:
paid
over
$55,000.00
in
attorneys’
fees
to
the
DIP
Lender
and
the
Debtors
;
used
Firm
lawyers
to
investigate
other
filings
by
Ms.
Preston
and
to
provide
supervision
in
her
cases
;
implemented
the
Cite
Checking
Policy
;
and
conducted
additional
training
of
its
attorneys
regarding
the
responsible
use
of
generative
artificial
intelligence.
Accordingly,
the
Court
concludes
that
the
Firm
has
not
acted
in
bad
faith
with
respect
to
the
events
that
unfolded
in
this
case,
such
that
san
ctions
under
the
Court’s
inherent
authority
are
not
necessary
or
appropriate
with
respect
to
the
Firm.
3.
Bankruptcy
Rule
9011
Rule
9011
of
the
Federal
Rules
of
Bankruptcy
Procedure
provides
in
relevant
part:
(b)
Representations
to
the
Court.
By
presenting
to
the
court
a
petition,
pleading,
written
motion,
or
other
document
–
whether
by
signing,
filing,
submitting,
or
later
advocating
it
–
an
attorney
or
unrepresented
party
is
certifies
that,
t
o
the
best
of
the
person’s
knowledge,
information,
and
belief
,
formed
after
an
inquiry
reasonable
under
the
circumstances
:
.
.
.
(2)
the
claims,
defenses,
and
other
legal
contentions
are
warranted
by
existing
law
or
by
a
nonfrivolous
argument
to
extend,
modify,
or
reverse
existing
law,
or
to
establish
new
law
.
.
.
.
F
ED
.
R.
B
ANKR
.
P.
9011(b)(2).
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26
“Rule
11
imposes
a
duty
on
attorneys
to
certify
that
they
have
conducted
a
reasonable
inquiry
and
have
determined
that
any
papers
filed
with
the
court
are
well
grounded
in
fact,
[
and
]
legally
tenable.”
Benjamin
,
779
F.
Supp.
3d
at
347
(quoting
Park
v.
Kim
,
91
F.4th
610,
614
(2d
Cir.
2024))
(emphasis
in
original).
“At
the
very
least,
the
duties
imposed
by
Rule
11
require
that
attorneys
read,
and
thereby
confirm
the
existence
and
validity
of
,
the
legal
authorities
on
which
they
rely.”
Id
.
(quoting
Park
,
91
F.4th
at
615)
(emphasis
in
original)
.
L
awyers
who
cite
case
law
that
is
either
hallucinated
by
artificial
intelligence
or
otherwise
made
up
violate
their
duties
under
Rule
11.
See,
e.g.
,
Gauthier
v.
Goodyear
Tire
&
Rubber
Co.
,
No.
1:23-
CV
-
281,
2024
WL
4882651,
at
*3
(E.D.
Tex.
Nov.
25,
2024)
(sanctioning
attorney
who
filed
a
response
“without
reading
the
cases
cited,
or
even
confirming
the
existence
or
validity
of
the
cases
included
therein”);
Mata
v.
Avianca
,
678
F.
Supp.
3d
443,
461
(S.D.N.Y.
2023)
(“A
fake
opinion
is
not
‘existing
law’
and
citation
to
a
fake
opinion
does
not
provide
a
non-
frivolous
ground
for
extending,
modifying,
or
reversing
existing
law,
or
for
establishing
new
law.”)
(citation
omitted)
.
L
awyers
also
violate
Rule
11
when
they
mis
-
cite
the
holdings
of
a
case
or
mis
-
quote
from
judicial
opinions.
See
United
States
v.
Hayes
,
763
F.
Supp.
3d
1054,
1067
(E.D.
Cal.
2025);
Precision
Specialty
Metals,
Inc.
v.
United
States
,
315
F.3d
1346,
1347
(Fed.
Cir.
2003)
(affirming
Rule
11
sanctions
against
attorney
for
misquoting
and
failing
to
quote
fully
from
judicial
opinions
in
a
motion
for
reconsideration
she
signed
and
filed);
see
also
iParametrics,
LLC
v.
Howe
,
522
F.
App’x
737,
739
(11th
Cir.
2013)
(upholding
Rule
11
sanctions
for
filing
a
factually
and
legally
inaccurate
writ
of
execution
where
the
lawyer
“could
readily
have
discovered
and
corrected
his
pleadings,
but
instead
his
misrepresentations
went
undetected
for
over
a
year”).
Courts
addressing
fake
citations
generated
by
artificial
intelligence
have
imposed
various
forms
of
Rule
11
sanctions
upon
the
offending
attorneys,
including
monetary
sanctions,
referrals
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27
to
a
disciplinary
body
for
proceedings,
CLE
training
requirements,
and
pro
hac
vice
revocations
.
See
Benjamin
,
2025
WL
1195925,
at
*6
(collecting
cases).
Where
Rule
11
sanctions
are
to
be
imposed,
“[a]bsent
exceptional
circumstances,
a
law
firm
must
be
held
jointly
responsible
for
a
violation
committed
by
its
partner,
associate,
or
employee.”
F
ED
.
R.
B
ANKR
.
P.
9011(c)
(1).
With
the
Motions
for
Sanctions
having
been
resolved,
Bankruptcy
Rule
9011
applies
in
this
case
only
with
respect
to
the
Show
Cause
Order.
F
ED
.
R.
B
ANKR
.
P.
9011(
c
)(3
)
.
In
the
Eleventh
Circuit,
to
exercise
its
sua
sponte
Rule
11
powers,
a
court
must
find
that
the
party
acted
in
bad
faith.
Kaplan
v.
DaimlerChrysler,
A.G.
,
331
F.3d
1251,
1255
(11th
Cir.
2003).
In
a
court
-
initiated
proceeding
under
Rule
11,
the
court
must
apply
a
standard
“akin
to
contempt”
Id.
The
Eleventh
Circuit
has
“
not
elaborated
on
the
‘akin
to
contempt’
standard.”
McDonald
v.
Emory
Healthcare
Eye
Ctr.,
391
F.
App’x
851,
853
(11th
Cir.
2010).
The
Eleventh
Circuit
has
not
determined
whether
the
“akin
to
contempt”
standard
requires
subjective
bad
faith.
Kaplan
,
331
F.3d
at
1256.
However,
if
an
attorney’s
conduct
meets
the
subjective
bad
faith
standard,
such
conduct
also
necessarily
satisfies
the
“akin
to
contempt”
standard
,
and,
a
s
noted
above,
subjective
bad
faith
can
be
inferred
from
conduc
t
that
is
so
egregious
that
it
could
only
be
committed
in
bad
faith.
Purchasing
Power
,
851
F.3d
at
1223.
As
described
above,
Ms.
Preston
repeatedly
present
ed
to
the
C
ourt
pleadings
that
contained
f
abricated
quotes,
mis
-
citations,
and
misstatements
of
existing
case
law
,
even
after
being
put
on
notice
of
the
infirmities
of
these
papers
by
the
DIP
Lender,
the
Debtors,
and
the
Court.
B
y
signing,
filing,
and
later
advocating
these
pleadings,
Ms.
Preston
repeatedly
violated
Bankruptcy
Rule
9011,
as
she
admitted
she
had
not
pe
r
formed
an
inquiry
sufficient
to
certify
that
the
legal
contentions
therein
were
warranted
by
e
xisting
law
or
by
a
nonfrivolous
argument
for
the
extension
of
the
law.
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The
artificial
intelligence
-
generated
m
isrepresentations
of
law
in
the
Motion
to
Reconsider,
Supplemental
Brief
,
and
Progressive
Response
represent
conduct
so
egregious
that
it
could
only
be
construed
as
to
have
been
committed
in
bad
faith
.
See
Purchasing
Power
,
851
F.3d
at
1223.
Therefore,
sanctions
are
appropriate
against
Ms.
Preston.
The
Court
notes,
however,
that
Ms.
Preston
accepted
the
Court’s
invitation
to
withdraw
the
Motion
to
Reconsider
and
Supplemental
Brief,
such
that
monetary
sanctions
may
not
be
awarded
under
Bankruptcy
Rule
9011.
See
F
ED
.
R.
B
ANKR
.
P.
9011(c)
(2)(B).
The
Court
determines
it
is
appropriate
to
impose
a
nonmonetary
sanction
on
Ms.
Preston
under
,
without
limitation,
Bankruptcy
Rule
9011(c)(
3
),
as
discussed
below.
With
respect
to
the
Firm,
the
Court
finds
that
the
Firm
took
reasonable
steps
both
before
and
after
the
issuance
of
the
Show
Cause
Order
to
address
the
inherent
risk
associated
with
the
use
of
generative
artificial
intelligence
for
legal
research
and
writing
,
as
summarized
more
fully
above
.
Accordingly,
the
Court
concludes
that
sanctions
under
Bankruptcy
Rule
9011
are
not
appropriate
with
respect
to
the
Firm.
4.
Section
105(a)
Section
105(a)
provides
bankruptcy
judges
with
broad
power
to
implement
the
provisions
of
the
Bankruptcy
Code
and
to
prevent
abuse
of
the
bankruptcy
process.
See,
e.g.
,
Insight
Sec.
Inc.
v.
Cordova
(In
re
Cordova)
,
Nos.
6:19-bk-04049-LVV,
6:19-
ap
-00323-LVV,
2021
WL
6550868,
at
*
3
(Bankr.
M.D.
Fla.
Sep.
24,
2021)
(citing
Franken
v.
Mukamal
,
449
Fed.
App’x
776,
778
(11th
Cir.
2011));
In
re
Volpert
,
110
F.3d
494,
500
(7th
Cir.1997);
In
re
Coquico,
Inc.
,
508
B.R.
929,
940-41
(Bankr.
E.D.
Pa.
2014).
Under
Section
105(a),
a
bankruptcy
c
ourt
“may
issue
any
order,
process,
or
judgment
that
is
necessary
or
appropriate
to
carry
out
the
provisions”
of
Title
11.
Section
105(a)
also
permits
a
Bankruptcy
Court,
sua
sponte
,
to
“tak[e]
any
action
or
mak[e]
any
determination
necessary
or
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29
appropriate
to
enforce
or
implement
court
orders
or
rules,
or
to
prevent
an
abuse
of
process.”
11
U.S.C.
§
105(a).
In
addition,
Section
105(a)
may
be
used
“to
protect
the
integrity
of
the
Bankruptcy
Code
as
well
as
the
judicial
process.”
See
In
re
Arkansas
Communities,
Inc.
,
827
F.2d
1219,
1222
(8th
Cir.1987)
(quoting
In
re
Silver
,
46
B.R.
772,
774
(D.
Colo.
1985)).
When
sufficient
evidence
exists
to
find
an
abuse
of
the
judicial
system,
a
bankruptcy
c
ourt
may
award
sanctions
against
both
attorneys
and
litigants
under
Section
105(a),
without
regard
to
the
signed
document
requirement
or
safe
harbor
provisions
of
Rule
9011.
See
e.g.
,
In
re
Schemelia
,
607
B.R.
455,
462
(Bankr.
D.N.J.
2019);
In
re
Evergreen
Sec.,
Ltd.
,
570
F.3d
1257,
1273-
74
(11th
Cir.
2009);
Ettinger
&
Assocs.
LLC
v.
Miller
(In
re
Miller)
,
529
B.R.
73,
85
(Bankr.
E.D.
Pa.
2015);
In
re
Antonelli
,
No.
11-
20255/JHW,
2012
WL
280722,
at
*13
(Bankr.
D.N.J.
Jan.
30,
2012);
In
re
Bailey
,
321
B.R.
169,
178
(Bankr.
E.D.
Pa.
2005);
In
re
Collins
,
250
B.R.
645,
657-
59
(Bankr.
N.D.
Ill.
2000);
In
re
Mergenthaler
,
144
B.R.
632,
635
(Bankr.
E.D.N.Y.
1992)
(citing
United
States
v.
Int’l
Brotherhood
of
Teamsters
,
948
F.2d
1338,
1345
(2d
Cir.
1991)).
For
the
reasons
stated
in
Sections
B.2
and
B.3
above,
the
Court
finds
that
Ms.
Preston’
s
conduct
with
respect
to
the
Motion
to
Reconsider,
Supplemental
Brief,
and
Progressive
Response
constituted
an
abuse
of
the
bankruptcy
process
.
The
Court
determines
that
a
nonmonetary
sanction
against
Ms.
Preston
is
appropriate
under
,
without
limitation,
Section
105(a),
as
forth
in
more
detail
below.
With
respect
to
the
Firm,
consistent
with
the
analysis
in
Sections
B.2
and
B.3
above,
the
Court
finds
that
the
Firm
took
reasonable
steps
both
before
and
after
the
issuance
of
the
Show
Cause
Order
to
address
the
inherent
risk
associated
with
the
use
of
gen
erative
artificial
intelligence
for
legal
research
and
writing.
Accordingly,
the
Court
concludes
that
sanctions
under
Section
105(a),
are
not
appropriate
with
respect
to
the
Firm.
Even
so,
the
Court
finds
that
further
limited
action
by
the
Firm
is
necessar
y
and
appropriate
to
enforce
or
implement
court
orders
and
rules,
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30
and
to
prevent
future
abuse
of
process
in
the
context
of
the
use
of
generative
artificial
intelligence.
See
11
U.S.C.
§
105(a).
As
noted
above,
the
Firm
took
numerous
affirmative
steps
to
mitigate
the
harm
associated
with
Ms.
Preston’s
actions
in
this
case
and
to
prevent
future
abuse
of
process.
Among
those
steps
were
to
adopt
the
Cite
Checking
Policy
and
to
conduct
training
on
the
Updated
AI
Policy,
the
Cite
Checking
Policy,
and
the
responsible
use
of
artificial
intelligence.
The
one
gap
in
these
measures
relates
to
verifying
that
all
attorneys
and
employees
were
aware
of
the
Firm’s
policies.
In
response
to
a
question
from
the
Court,
Mr.
Giller
stated
that
there
was
no
specific
record
of
Ms.
Preston
acknowledging
the
Original
AI
Policy
or
the
Updated
AI
Policy.
See
Transcript
of
October
28,
2025,
Hearing
[Doc.
1152],
at
p.
29.
14
Mr.
Giller
further
stated
that
over
the
past
year
the
Firm
developed
a
mechanism
to
track
signed
acknowledgments
of
updated
policies,
and
he
believed
acknowledgments
were
tracked
by
the
Firm’s
risk
department.
Id
.
at
p.
30.
The
Court
finds
it
necessary
and
appropriate
to
procure
a
more
definite
certification
from
the
Firm
that
the
Updated
AI
Policy,
the
Cite
Checking
Policy,
and
the
circumstances
of
this
case
have
been
reviewed
and
acknowledged
by
the
Firm’s
personnel.
Accordingly,
under
Section
105(a),
the
Court
will
impose
a
certification
requirement
on
the
Firm,
as
set
forth
below.
CONCLUSION
B
ankruptcy
cases
often
involve,
as
here,
a
degree
of
scarcity
not
always
present
in
other
legal
proceedings.
There
is
a
scarcity
of
financial
resources
and
human
resources,
and
almost
inevitably
a
scarcity
of
time.
It
certainly
is
within
a
part
y’s
rights
to
litigate
issues
in
a
bankruptcy
case,
even
if
the
litigation
slows
down
the
case
and
diverts
resources.
That
said,
doing
so
without
a
sound
legal
and
factual
basis
is
exceedingly
and
unnecessarily
destructive
,
given
the
scarcity
of
14
See
Exhibit
E
.
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31
resources
.
The
use
of
generative
artificial
intelligence
to
multiply
the
proceedings
in
this
case
was
particularly
egregious,
given
that
not
only
the
Debtors
and
the
DIP
Lender
–
but
also
the
Court
–
repeatedly
pointed
out
the
very
serious
flaws
in
Progressive’s
arguments
and
authorities.
Ms.
Preston
doubled
down,
tripled
down,
and
quadrupled
down
on
arguments
unsupported
by
the
authorities
cited
,
divert
ing
time,
money,
and
attention
from
the
Debtors’
efforts
at
rehabilitation
.
The
Court
applauds
the
accountability
that
the
Firm
has
taken
on
account
of
Ms.
Preston’s
actions
and
appreciates
the
accountability
Ms.
Preston
has
taken
in
the
Preston
R
esponse
and
at
the
hearing
on
the
Show
Cause
Order.
The
Court
also
recognizes
that
Progressive
ultimately
withdrew
the
Motion
to
Reconsider,
Supplemental
Brief,
and
Progressive
Response.
By
that
point,
however,
significant
damage
already
had
been
done,
such
that
nonmonetary
sanctions
and
certain
remedial
action
s
are
necessary
and
appropria
te.
Accordingly,
based
on
the
foregoing:
1.
The
Court
PUBLICLY
REPRIMANDS
attorney
Cassie
D.
Preston
for
t
he
misconduct
described
in
this
Memorandum
Opinion
and
Order;
2.
To
effectuate
her
reprimand,
to
the
extent
Ms.
Preston
still
is
representing
Firm
clients
in
active
litigation,
she
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.
She
must
comply
with
this
requirement
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
;
3.
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;
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4.
Ms.
Preston’s
pro
hac
vice
admission
to
this
Court
is
REVOKED
;
5.
Ms.
Preston
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;
6.
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
7.
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.
The
Firm
must
comply
with
this
requirement
within
thi
rty
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.
Done
this
20
th
day
of
November,
2025.
Christopher
L.
Hawkins
United
States
Bankruptcy
Judge
c:
Cassie
D.
Preston
Wallace
D.
Mills,
Attorney
for
Ms.
Preston
Ronald
A.
Giller
on
behalf
of
the
Firm
Chad
Shultz
on
behalf
of
the
Firm
Robert
D.
Segall,
Attorney
for
the
Firm
J.
David
Martin,
Attorney
for
the
Firm
Derek
F.
Meek,
Attorney
for
Debtors
Marc
P.
Solomon,
Attorney
for
Debtors
Catherine
Via,
Attorney
for
Debtors
Paul
M.
Rosenblatt,
Attorney
for
the
DIP
Lender
Joel
D.
Connally,
Attorney
for
Progressive
Perfusion,
Inc.
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