California’s AI Law Hits Lawyers With Tough Disclosure Decisions - news.bloombergtax.com

Californiaâs first-in-the-nation law to regulate attorneysâ use of generative artificial intelligence gives law firms the thorny task of determining when their use of the ubiquitous technology requires disclosure.

The law, which takes effect Jan. 1, requires attorneys to disclose when they have used generative AI to create any document filed with the courts. Deciding how to meet the standard is easier said than done, given that AI is woven into several technology platforms across firms.

âThe question every firm will be working through before January is what counts as using AI,â said Scott Meyers, chairman of law firm Akerman LLP. âItâs built into the research and drafting tools lawyers use every day.â

The disclosure requirement shows that fixing lawyer AI flaws such as hallucinated case citations comes with its own set of headaches. Firms expect to sort through such challenges, touting strengthened internal controls they say pave the way to compliance with the California law.

âFor most large law firms, the law is not going to change how we use AI,â said Daren Orzechowski, the Silicon Valley-based partner and global co-head of technology practice at A&O Shearman. The California statute âlargely captures what lawyers should already be doing,â he said.

The SB 574 legislation signed into law by Gov. Gavin Newsom (D) on Sept. 30 responds to a wave of AI hallucinations and fake or garbled case citations that have turned up in court filings nationwide. A California appeals court in March sanctioned counsel $5,000 for fictitious AI-generated citations in a custody dispute.

The law requires lawyers to verify every citation before filing, and at least one attorney to sign each filing in their own name. It also bans lawyers from putting confidential client information into public AI tools, and authorizes courts to sanction violations.

Similarly, arbitrators canât hand decisions to AI under the new law and must tell the parties when they rely on AI-generated information.

While other states have addressed AI through courts and bar regulators, California is the first to put rules in a statute â a difference that Meyers said matters.

âAn ABA opinion is guidance, and SB 574 is law,â he said. While most of what Californiaâs law asks of lawyers was already in ethics guidance, Meyers said, âthe new duty is disclosure.â

The disclosure rule applies to all documents submitted to the court and has no exception for minor uses, said Peter Salib, an assistant law professor at the University of Houston Law Center. âA firm that uses AI to research, draft, or even edit a brief will need a standard disclosure and a way to track which filings AI touched,â he said.

Daniel W. Linna Jr., director of law and technology initiatives at the Northwestern Pritzker School of Law and McCormick School of Engineering, said the disclosure rule âis of little purpose, is burdensome, overbroad, and will chill lawyer use of AI.â He said that lawyers should challenge the standard based on First Amendment grounds.

The requirement that the attorney responsible for a filing personally verify citations, even those not generated by AI, âimposes quite an onerous burden on the attorney signing each document,â said Ariel House, a partner at Baker Botts who has written client alerts on the legislation.

Firms often have paralegals, who bill at lower rates than attorneys, check every case, quote and exhibit reference in a filing under a lawyerâs supervision, House said. The requirement of an attorneyâs personal verification âtakes time, and that burden could be especially significant for solo practitioners and small firms,â she said.

The lawâs ban on handing legal work to AI could also become challenging for law firms, Meyers said, âbecause legal AI is moving from drafting documents to taking actions on a lawyerâs behalf.â Akerman designs its agentic tools so a lawyer reviews the work and makes the final call, he said.

âThe biggest difference will be for lawyers who were outsourcing their judgment to AI,â Meyers said.

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