Legal Advice Using Artificial Intelligence
Artificial Intelligence (AI) is bringing enormous benefits to community associations, both directly and indirectly. There are, however, dangers. AI sometimes hallucinates--a polite term for fabricating information, i.e., giving false answers and lying about its sources.
Using AI in Court. A California case highlights the perils of relying on AI for legal assistance. A woman filed a complaint alleging employment-related claims against a company. The company denied the allegations and filed a motion for summary judgment, which the trial court granted.
The plaintiff appealed. Her lawyer filed briefs with the Court of Appeal that contained false information. Nearly all the legal quotes in his opening brief and reply brief were made up. The quotations did not appear in any of the cases cited. Additionally, many of the cases did not discuss the topics for which they were cited, and a few cases did not exist at all. Artificial intelligence used by the lawyer fabricated the legal authorities. The plaintiff lost her appeal, and the court levied sanctions on her attorney and reported him to the State Bar. (Noland v. Land of the Free)
Boards & Managers Using AI. Some board members and managers are already using AI to save legal fees. They use it to analyze CC&Rs when advising homeowners about their maintenance responsibilities and restrictions on pets and other issues. They also use it to find solutions to legal problems confronting their associations. Unfortunately, doing so puts directors and managers at risk.
If a board relies on advice generated by AI, or on legal advice from a manager, the directors lose the protections of the Business Judgment Rule, which requires boards to make decisions (i) in good faith, (ii) in the best interests of their association, and (iii) after making a reasonable inquiry.
Due Diligence. This third element of the Business Judgment Rule is what will get boards into trouble. As part of their due diligence, boards can rely on the advice of persons they believe to be reliable and competent in the matters being presented. (Corp. Code § 7231) If a board makes a bad decision based on advice from artificial intelligence, and the association is sued, a court would deem the board's actions unreasonable. Legal counsel from AI is not reliable and competent. Losing the third element of the Business Judgment Rule puts directors in legal jeopardy. They could be found negligent and liable for damages.
Practicing Law. Managers giving legal advice generated by AI, which subsequently gets a board sued, would not be indemnified against a first-party claim by the association against the manager. Moreover, the manager would be at risk with the State Bar for practicing law without a license.
Recommendation: AI might replace lawyers somewhere down the road, but it has not done so yet. AI is smart and getting smarter, but it is not reliable when it comes to legal advice. Boards and managers should be careful about how they use artificial intelligence.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with community association issues, subscribe to the Davis-Stirling Newsletter.