Drip Capital, Inc. v. SGM Socher Inc.

What sanction did the court impose?

In a May 12, 2026 order (NYSCEF Doc. No. 87), the court recounted that counsel had filed an affirmation that "says all the right things and reflects what the court hopes is a genuine commitment to ensuring this doesn't happen again." It stated that "the flood of AI hallucinations in court filings is a serious problem that only appears to be getting worse," that this "type of frivolous conduct needs to be deterred as strongly as possible," and that "[a] mere admonishment is not enough." Given "the context and circumstances set forth in the affirmation and the severity of this particular violation," it limited the sanction to $1,000, adding that "[a]ttorneys in other cases should not assume they will be afforded the same leniency . . . ." It ordered, "pursuant to 22 NYCRR 130-1.1," that Levkovich "is sanctioned for frivolous conduct for citing two AI hallucinated cases in the opposition brief," with $1,000 due to the Lawyers' Fund for Client Protection by May 20, 2026. On May 20 (NYSCEF Doc. No. 93), the court held that counsel's further affirmation did "not contain sufficient justification to further reduce or vacate the financial sanction" but extended the payment deadline to June 30, 2026.

Why does Drip Capital, Inc. v. SGM Socher Inc. matter for law firms using AI?

Drip Capital is a post-judgment enforcement dispute in the Commercial Division, and the AI issue arose in the defendants’ opposition to a turnover motion. In the same decision that granted turnover in part and rejected the cross-motion to vacate the judgment, Justice Schecter set the citation problem apart “as a separate but no less serious matter”: two cases in the opposition brief “do not appear to exist,” which the court described as “what appear to be AI hallucinations.” Citing the Third Department’s decision in Deutsche Bank Natl. Trust Co. v LeTennier, it called the conduct “frivolous and sanctionable” and directed the attorney to show cause why a $3,000 sanction should not issue.

The disposition came eleven days later. The court accepted that counsel’s affirmation “says all the right things” but held that “[a] mere admonishment is not enough,” pointing to what it called “the flood of AI hallucinations in court filings” and the need for deterrence. It set the sanction at $1,000 under 22 NYCRR 130-1.1, payable to the Lawyers’ Fund for Client Protection, and cautioned that attorneys in other cases “should not assume they will be afforded the same leniency, particularly if it continues to become apparent that far harsher sanctions are necessary to actually have a deterrent effect.” A later request to reduce or vacate the sanction further was denied, though the court extended the time to pay.

Firms documenting compliance may wish to consider that here the court treated a responsive affirmation as a reason to reduce, not to forgo, a monetary sanction, and said expressly that a warning alone would not suffice.