In re Whitehall Pharmacy LLC, No. 4:25-bk-12406 (2025)

Case details
Country
United States
Jurisdiction
Federal
Decided
2025
Disposition
Dismissed
Majority
Davidson (Justice)
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.12025 WL 2556097Only the Westlaw citation is currently available.United States Bankruptcy Court, E.D. Arkansas,Central Division.IN RE: WHITEHALL PHARMACY LLC, Debtor.Case No.: 4:25-bk-12406|Signed September 3, 2025Attorneys and Law FirmsCharles D. Davidson, Sr., Deven Harvison, Davidson LawFirm, Little Rock, AR, for Debtor.ORDER REGARDING SANCTIONSHONORABLE RICHARD D. TAYLOR, UNITED STATESBANKRUPTCY JUDGE*1 Before the court is its Order to Appear and ShowCause Why Sanctions Should Not Issue (“OSC”) enteredon August 18, 2025, at ECF No. 89 directing Charles D.Davidson, Sr. (“Davidson”), Deven Harvison (“Harvison”),and the Davidson Law Firm (collectively, “Counsel”) toappear and show cause why this court should not find one ormore violations of Rule 9011 and Local Rule 2090-21 withsanctions as provided therein. Counsel, on August 28, 2025,filed their Response to Order to Show Cause Why SanctionsShould Not Issue (“Response”) at ECF No. 98. By agreement,Counsel rested on their Response. Thereafter, the court tookthe matter under advisement. For the reasons stated herein, theOSC is withdrawn and dismissed; no sanctions are imposed.This order concludes this matter and shall be transmitted tothe Arkansas Office of Professional Conduct to supplementCounsel's election to self-report; this transmission is notintended as an independent referral.I. BACKGROUNDThe debtor, Whitehall Pharmacy LLC (“Whitehall”), filed aChapter 11 case on July 21, 2025, represented by Davidsonand Harvison, both attorneys at the Davidson Law Firm. Thecommencement of a Chapter 11 case is often attended byseveral motions seeking first day orders from the court; thesetypically concern ongoing operations, such as utilities and useof cash collateral. Whitehall adhered to this pattern.Atypically, however, Whitehall also sought permission fromthe court to pay pre-petition claims of various creditorsor vendors deemed critical to Whitehall's ongoing businessand potential reorganization. Specifically, Whitehall filedits Amended Motion for Authority to Pay Critical Vendors(“Amended Motion”) at ECF No. 24, which states in pertinentpart:COMES NOW Whitehall Pharmacy LLC, Debtor andDebtor-in-Possession (the “Debtor”), by and through itscounsel, and for its Amended Motion for Authority toPay Critical Vendors (the “Motion”), respectfully states asfollows:....15. Courts in this District and others have routinelyauthorized the payment of critical vendor claims undersimilar circumstances. See, e.g., In re Berry Good,LLC, No. 4:20-bk-12345 (Bankr. E.D. Ark. May 2020)(authorizing payment of perishable produce supplierscritical to debtor's restaurant operations).....WHEREFORE, the Debtor respectfully requests that thisCourt enter an order: (1) Authorizing, but not directing,the Debtor to pay prepetition obligations of the CriticalVendors up to a cap of $1,904,869.56; (2) Authorizingthe Debtor to condition such payments on the continuedprovision of goods and services on customary trade terms;and (3) Granting such other and further relief as is justand proper. Absent the relief requested, Debtor will sufferimmediate and irreparable harm due to potential supplychain disruption, loss of access to pharmaceuticals, andharm to patient care and estate value.*2 Respectfully Submitted,DAVIDSON LAW FIRM/s/ Charles Darwin Davidson, Sr.Charles Darwin Davidson, Sr. ABN73026-and-Deven K. Harvison ABN2017263724 Garland StreetLittle Rock, Arkansas 72201501-374-9977
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.2skipd@dlf-ar.comdeven.harvison@dlf-ar.com(Amended Motion, at 1, 4, and 6, ECF No. 24). The BerryGood case and parenthetical comprise the only caselawand substantive authority cited in the Amended Motionsupporting the requested relief.The Hon. Phyllis M. Jones entered her Interim OrderAuthorizing the Debtor to Pay Prepetition Claims of CriticalVendors (“Interim Order”) at ECF No. 28 granting therequested relief on a temporary basis and setting the AmendedMotion for hearing on August 14, 2025. Thereafter, JudgeJones recused, which resulted in this court presiding at theAugust 14 hearing; both Davidson and Harvison appeared onWhitehall's behalf. By its Order entered on August 14, 2025,at ECF No. 84, the court terminated without prejudice theInterim Order and reserved the Amended Motion for hearingby subsequent notice.At the August 14 hearing, this court raised perceivedinfirmities respecting paragraph 15 of the Amended Motion;specifically, the factual allegations and legal assertionscontained therein could be misleading, false, or incorrect.Critical vendor motions are not routinely filed or grantedin the Eastern District of Arkansas. The case referenced inparagraph 15 does not exist. The case number reflects anactual Chapter 13 bankruptcy case in the Eastern District ofArkansas; the case name, In re Berry Good, LLC, does not.The order referenced therein does not exist or stand for theproposition suggested. At the August 14 hearing, Counseladmitted as much and intimated that artificial intelligence(“AI”) may have been used in generating paragraph 15.II. RESPONSEAccordingly, the court issued its OSC pursuant to Rule9011 and Local Rule 2090-2. In their Response, Counselwisely elected four courses of action. First, while outliningtheir process by way of explanation (including the use ofAI), Davidson and Harvison took and accepted ultimateresponsibility for the phantom case citation and authority;they pled negligence and systemic lapses in lieu of anintent to mislead the court or gain an adversarial advantage.Second, Counsel self-imposed several internal safeguards.Specifically,36. Debtor's Counsel remains committed to maintainingthe highest professional standards of accuracy, candor,and integrity in all filings with the Court. To thatend, Debtor's Counsel has implemented immediatesafeguard[s], including, but not limited to:a) AI will no longer be used in the preparation ofmotions, pleadings, or other documents filed with theCourt;b) Any remaining use of AI will be confined strictly toadministrative tasks, and only with attorney oversight;c) All counsel at DLF must enroll in and attendadditional CLE at a minimum of three (3) hoursregarding AI's use in the legal industry;d) Mandatory attorney review of all drafts prior to filinghas been reinforced;e) Every case citation included in any filing must now beverified directly in Westlaw or Lexis before a pleadingis finalized and failure to adhere to this policy, failure todo so will result in appropriate disciplinary action.*3 (Response, at 10 and 11, ECF. No. 98). Third, Counselvolunteered that it would not bill Whitehall for any timerelated to the Amended Motion, OSC, or Response. Fourth,Counsel self-reported this matter by transmitting to theArkansas Office of Professional Conduct the OSC and theirResponse.III. ANALYSISBankruptcy “first day orders” are reorganization specific.After filing, the automatic stay takes effect affording thedebtor immediate refuge from their creditors while it attemptsto reorganize. Harmoniously, the Bankruptcy Code bothfosters and circumscribes the debtor's ability to continue itsoperations without some court, creditor, or United StatesTrustee (“UST”) scrutiny. The exigencies of the situation,however, often require that some matters, such as use of cashcollateral, must be addressed almost immediately upon filing.It is typical for the debtor to file a variety of first day motionswith limited notice to other parties. The court, recognizingthe exigencies of the circumstances,2 generally affords firstday requests favorable treatment. In doing so, the court relieson the representations contained in the motions, knows thatany resulting orders are temporary, and takes comfort thatthe court, creditors, and UST can suss out the authority andfacts to determine whether the relief accorded should extend
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.3beyond the initial interim. Paragraph 15 of the AmendedMotion fits that rubric.15. Courts in this District andothers have routinely authorized thepayment of critical vendor claimsunder similar circumstances. See,e.g., In re Berry Good, LLC, No.4:20-bk-12345 (Bankr. E.D. Ark.May 2020) (authorizing payment ofperishable produce suppliers critical todebtor's restaurant operations).(Amended Motion, at 4). The Berry Good case andparenthetical comprise the only persuasive authority cited inthe Amended Motion supporting the requested relief.Unfortunately, just about everything in paragraph 15 isincorrect. Critical vendor motions are not routinely filedor granted in the Eastern District of Arkansas. The casereferenced in paragraph 15 does not exist. The case numberreflects an actual Chapter 13 bankruptcy case in the EasternDistrict of Arkansas; the case name, In re Berry Good, LLC,does not. The order referenced therein does not exist or standfor the proposition suggested and is, as confirmed in theResponse, AI generated.The idea behind a critical vendor motion is that thedebtor seeks to favor certain vendors by elevating andpaying their pre-petition debt because their product orservices are “critical.” This treatment is inconsistent withthe Bankruptcy Code and usurps the protections affordedby disclosure, classification, acceptable discrimination, andratable distribution contemplated by a full plan confirmationprocess. There are jurisdictions both rejecting and acceptingcritical vendor efforts.The issue is not conclusive in the Eighth Circuit, though atleast four courts within the circuit have published opinionsreferencing critical vendor motions with approbation. SeeR. Ray Fulmer, II v. Fifth Third Equip. Fin. Co. (In re VegLiquidation, Inc.), 583 B.R. 203 (B.A.P. 8th Cir. 2018); In reWehrenberg, Inc., 260 B.R. 468 (Bankr. E.D. Mo. 2001); Inre Payless Cashways, Inc., 268 B.R. 543 (Bankr. W.D. Mo.2001); In re O & S Trucking, Inc., No. 12-61003, 2012 WL2803738 (Bankr. W.D. Mo. June 29, 2012); and In re BDCGrp., Inc., No. 23-00484, 2023 WL 4111476 (Bankr. N.D.Iowa June 21, 2023). But, insofar as this court can determine,critical vendor motions and orders approving same are notroutine in the Eastern or Western Districts of Arkansas. Nocurrent judge, current law clerk, or five career law clerks pastand present polled can recall one ever being addressed orapproved in these two districts.*4 Whether an Eastern District of Arkansas bankruptcycourt should approve a critical vendor motion is certainlysubject to dispute. This court inclines toward the belief thatthere is statutory and case law authority that may justify same.On that premise, argument for the relief requested is fair;a categorical statement that it is routine in this district isnot. Alone, that representation only invites curiosity whichdiminishes the argument. That representation, however,coupled to a specific but non-existent case in support, invitesscrutiny and consequences.When examined, paragraph 15 is the result of a flawedAI search that suggested an incorrect generalization falselysupported by a specific but non-existent case. Under anyscenario, a suspect argument buttressed with a case fromwhole cloth violates the expressed and tacit norms governingthe practice of law as it intersects with the courts. Simply, youcannot make stuff up to convince a court to do something.In simpler times, that would end the inquiry with draconianconsequences. The times, however, are no longer simple;thus, the inquiry does not end here.AI interposes additional considerations that defy easycategorization or scrutiny when examining the traditionalnorms of practice and advocacy. Threshold, two fields ofinquiry present in any AI debate. The first is whetherexposition artificially generated by a computer is acceptablein what has contextually been a forum for human criticalanalysis, thought, and advocacy. That is not the instance here.Rather, it is the second; that is, when AI sacrifices accuracy tosatisfy the consumer and that inaccuracy is advocated beforethe court.Thus, the inquiry becomes (1) are the expressed normsviolated and (2) does an artificial component alter thediscourse and impact the consequences. The answer to thefirst is easy. As suggested above, the use of a phantomcase clearly violates the traditional and expressed norms ofadvocacy and practice before any court. It would be difficultto argue otherwise.
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.4First, it is a violation of Rule 9011, which provides in pertinentpart:(b) Representations to the Court. By presenting to the courta petition, pleading, written motion, or other document-whether by signing, filing, submitting, or later advocatingit-an attorney or unrepresented party certifies that, tothe best of the person's knowledge, information, andbelief formed after an inquiry reasonable under thecircumstances:(2) the claims, defenses, and other legal contentions arewarranted by existing law or by a nonfrivolous argumentto extend, modify, or reverse existing law, or to establishnew law;Fed. R. Bankr. P. 9011.Second, phantom case authority violates Local Rule 2090-2of the United States Bankruptcy Court for the Eastern andWestern Districts of Arkansas. With respect to AttorneyDiscipline and Disbarment, the rule provides:The standard of professional conductfor attorneys practicing in thisCourt is governed by the ArkansasRules of Professional Conductand Federal Rule of BankruptcyProcedure 9011. The Court will referviolations of the Arkansas Rules ofProfessional Conduct to the ArkansasCommittee on Professional Conductfor such actions and sanctions asthe Committee deems appropriate.Additionally, the Court shall havesuch authority and discretion as arepermitted by and under the BankruptcyCode, the Federal Rules of BankruptcyProcedure, statutory and common law,and the express and inherent powersconferred upon them. Sanctions mayinclude suspension or disbarment fromthe practice before this Court.*5 As incorporated, the Arkansas Rules of ProfessionalConduct weigh in and provide in pertinent part:Rule 3.3. Candor Toward the Tribunal.(a) A lawyer shall not knowingly:(1) make a false statement of fact or law to a tribunal;or fail to correct a false statement of material fact or lawpreviously made to the tribunal by the lawyer[.]Further,Rule 8.4. Misconduct.It is professional misconduct for a lawyer to:(c) engage in conduct involving dishonesty, fraud, deceit ormisrepresentation;(d) engage in conduct that is prejudicial to theadministration of justice[.]Non-existent authority is grounds for sanction and referralunder Rule 9011, our local rules, the court's inherentpowers, and the Arkansas Rules of Professional Conduct asincorporated.So, the answer to the first question posed above is aresounding yes. The only acceptable conclusion is that citing amade-up case is a false representation to the court that violatesthe expressed norms of practice, is actionable, and should bearconsequences. The answer, however, to the second question—whether an artificial component alters the calculus—ismore difficult.Here, our traditional norms are challenged. In context, thetraditional advocacy process begins with black letter lawin the form of statutes, codes, and regulations. Then, thereare judicial opinions and orders interpreting black letter lawin the context of justiciable issues based on discrete facts.Lawyers cite cases for their binding or persuasive authorityand have done so ever since someone started committingjudicial decisions to stone, parchment, or paper. The abilityto find and cite cases has evolved over time from laboriousresearch in courthouses, to compendiums, indices, digests,reporters, advance sheets, key numbers, and now the internet.The internet changed this dynamic in two ways. First, itstreamlined, refined, and improved the research process.Users could select fields, topics, and key numbers to findand locate cases. Eventually, more specific tools, such askey words or phrases, enhanced the process. Second, andmore pertinent to the present issue, AI is creating a processwhere instead of just finding authority, the computer also
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.5does the supplicant's thinking and analysis for them. Thefirst innovation continues to evolve; the second is new,likewise continues to evolve, but constitutes an entirely newdimension, rather than a continuum, in legal practice. Findinghas evolved into finding and thinking.Travel back to research, the first changed dynamic. Fromstone to the internet, how lawyers found and used case lawtook many forms. Some would carefully read every casethey found; some would read every page of select cases theythought pertinent; others might read the digest entry and thenread only that section of the case; others might read onlythe digest entry; others barely read anything at all and citedanything that looked like it might support their position. Eachwas a personal decision by the lawyer for which he or sheis accountable under the traditional norms of practice bothofficially—through codes of conduct and Rule 9011—andunofficially per the norms and expectations of courts.*6 AI compresses this historical dynamic. The researchengine is now the search and thinking engine. AI finds caselaw and tells the subscriber that it supports their position. Allthe personalities described above—and known oh-so-well tous all—have become one.Except, however, AI is flawed. In its infancy—albeit one thatmay be in college soon—it is immature and does not alwaysprovide accurate information or correct analysis; it may evenmake things up.A tool that potentially supplants your advocacy by doing thefinding and thinking for you is enticing.3 But in the end, itis only a tool. Despite our near total and unfortunate faithin the internet, it does not relieve the attorney of his or herresponsibility to make sure that the information and analysisare correct.Reliance on AI can, however, mitigate intent. Here, Counselis responsible for their negligence and misplaced reliance onAI, but there is no indication—and this court does not believe—that they purposely misled the court. They did not decideto make up a case. Misplaced reliance or negligence does notalways equal intentional misrepresentation.To be clear, the mitigation is not of their responsibility; thatremains choate. A lawyer should know the authority they areciting. Rather, misplaced reliance or negligence can mitigateconsequences to the extent the proof or self-evident factsdemonstrate a lack of intent to actively mislead the court.This is not an abjuration of the lawyer's responsibility to theprofession and to the courts. Rather, this is a recognitionthat negligence or misplaced reliance on a new technologyshould not be viewed through the same exacting prism as anintentional effort to mislead a court or gain an adversarialadvantage by purposely creating and citing nonexistentauthority. If two things are not the same, consequences shouldnot be the same.A new technology affords only a limited window wherethis defense is available; time will alert the bar to AI'slimitations and how the bench and bar should respond.Adversaries and the courts are entitled to rely on the integrityof advocacy; if AI displaces the mule, lawyers retain thereins. Here, Counsel acknowledges their negligence in thatregard. In these circumstances, grace presents in determiningconsequences.Rule 9011, our local rules, and this court's inherent powersafford it an array of possible remedies and sanctions. Thecourt, however, is satisfied that the remedial actions andsafeguards outlined in the Response are appropriate to thecircumstances. No sanctions are warranted or issued.IV. CONCLUSIONThe OSC is withdrawn and dismissed. This order concludesthis matter and shall be transmitted to the Arkansas Officeof Professional Conduct to supplement Counsel's electionto self-report; this transmission is not intended as anindependent referral.IT IS SO ORDERED.All Citations--- B.R. ----, 2025 WL 2556097
In re Whitehall Pharmacy LLC, --- B.R. ---- (2025) © 2025 Thomson Reuters. No claim to original U.S. Government Works.6Footnotes1Federal Rule of Bankruptcy Procedure 9011; Local Rule 2090-2 of the United States Bankruptcy Courts forthe Eastern and Western Districts of Arkansas.2See 11 U.S.C. § 363(c)(3) (stating that any hearing on immediate use of cash collateral “shall be scheduledin accordance with the needs of the debtor”).3Enticing until it supplants you entirely.End of Document© 2025 Thomson Reuters. No claim to original U.S. Government Works.
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