Stephen J. Palumbo and Lori A. Palumbo v. Gregory M. Palumbo

What is the current procedural posture?

In a post-trial final report under Court of Chancery Rule 144, Magistrate in Chancery David Hume, IV recommended that the petition to remove Gregory as co-trustee be granted, that his cross-petition for an accounting be denied, and that fees and costs be awarded to petitioners under the bad-faith exception to the American Rule. Finding that Gregory "conducted this litigation with subjective bad faith," the report relied on a combination of conduct: misrepresenting law to the court at trial and failing to correct it, pressing witnesses on irrelevant matters, committing "critical errors in citing law in his post-trial brief, relying on Delaware cases for propositions neither supported nor implicated in the case," misrepresenting scheduling communications, and offering no evidence for his accounting petition. The report notes that while he is pro se, he is sophisticated from his years of practice. No fee amount is stated. As a Magistrate's final report, it is subject to exceptions before the Court of Chancery; no order adopting it had been located as of 2026-09-28, so the recommended fee shift is not yet treated as imposed.

Why does Stephen J. Palumbo and Lori A. Palumbo v. Gregory M. Palumbo matter for law firms using AI?

The Magistrate’s report addresses fictitious quotations in a trust dispute where the self-represented respondent was a disbarred lawyer. The respondent argued that if his counter-petition was unclear, the proper response was a Rule 12(e) motion for a more definite statement, and he supported that argument with Kuroda v. SPJS Holdings. The report found that “Kuroda never discusses Rule 12(e) nor stands for any of these principles,” and that, although he purported to quote it twice, “the cited words never appear in the Kuroda decision.”

The report’s AI discussion is carefully limited. In a footnote it observed that fictitious quotations are “one of the hallmarks of Artificial Intelligence usage,” citing the Court of Chancery’s decision in An v. Archblock, and that abuse of AI in litigation filings “comprises an ‘abuse of the adversary system’ and is sanctionable conduct.” In the text, it distinguished the respondent from “the typical self-represented litigant seeking to use artificial intelligence to obtain access to the Court,” stressing his legal training. It did not find that he used AI.

The consequence came through fee-shifting under the bad-faith exception to the American Rule rather than a stand-alone sanction. The citation errors were one element in a finding of subjective bad faith that also rested on misstatements of law at trial, irrelevant cross-examination, misrepresented scheduling communications, and an unsupported accounting claim. Because this is a Magistrate’s final report, it is subject to exceptions. Firms documenting compliance may wish to consider that citation defects can feed a broader bad-faith record even where no separate sanctions motion is filed.