Axis Dynamics, Inc. v. Knox County, Tennessee

What did the court warn about?

Judge Charles E. Atchley, Jr. granted FUSB's motion to dismiss because the agreement's express disclaimer meant Axis was not a third-party beneficiary under Alabama or Tennessee law, denied Plaintiffs' motion for an interlocutory appeal as moot, directed the clerk to close the file, and said a separate judgment would be entered. On the citations, the court wrote in footnote 6 that it "cannot say whether this is the product of a lack of diligence, an irresponsible use of generative artificial intelligence, or an intentional attempt to mislead the Court." It stated that "Plaintiffs' counsel is REMINDED that the Tennessee Rules of Professional Conduct and the Federal Rules of Civil Procedure prohibit misrepresenting the law to the Court," citing Tennessee Supreme Court Rule 8, RPC 3.3, and Rule 11(b), and that "Plaintiffs' counsel is hereby placed ON NOTICE that future citations to fictitious authority or the misrepresentation of actual authority will result in sanctions." The court imposed no sanction and ordered no response on the citations.

Why does Axis Dynamics, Inc. v. Knox County, Tennessee matter for law firms using AI?

Axis Dynamics is a dismissal on the merits in which the court also walked through each authority the plaintiffs had offered and found none of it held up. The dispute turned on whether a contractor could enforce a construction loan agreement between a bank and homeowners that expressly disclaimed third-party beneficiary rights. Plaintiffs argued Alabama law lets other contract provisions override such a disclaimer. The court found that the statutory subsection they relied on, Ala. Code § 7-5-116(4), does not exist, and that the reporter citation for Meridian Mutual Insurance Company v. Huntsville led to a Mississippi criminal appeal; a search by caption also turned up nothing.

The opinion distinguishes nonexistent authority from misdescribed authority but treats both as problems. Landale Enterprises concerned a buyer’s disclaimer of reliance, not third-party rights, and predates the statute Plaintiffs paired it with. Iskra and Ex parte Stamey recognize third-party beneficiary rights but involved no disclaimer. Brown v. Gadsden Regional Medical Center held that a disclaimer defeated third-party beneficiary status, which the court said “directly undercuts” Plaintiffs’ argument. The court summarized that “none of Plaintiffs’ cited authority supports their position” and “some of their cited authority does not even exist.”

In footnote 6 the court said it could not say which cause applied, listing a lack of diligence, an irresponsible use of generative AI, and an intentional attempt to mislead as possibilities, and it imposed no sanction. It reminded counsel of the professional-conduct and Rule 11 prohibitions on misrepresenting the law and placed counsel on notice that future fictitious or misrepresented citations “will result in sanctions.” Firms documenting compliance may wish to consider that, in this case, the court’s warning covered misrepresenting real authority as well as citing authority that does not exist.