From Judgments to Issues: Structured Extraction of Legal Reasoning with Citation-Hallucination Control

Applying computational methods to law at scale requires separating genuine legal reasoning from surface similarity. We study this through a concrete task: detecting implicit citations of the French Civil Code, where a court applies a statutory rule without naming it: a post-hoc question about the reasoning a court actually used. We release a benchmark of 1,015 passage-article pairs annotated by three legal experts. Our central finding is that their disagreement is itself informative: the third of cases the experts dispute are where models fail. Our best ensemble reaches an F1 score of 0.70 overall. Yet, two-thirds of its false positives fall on those disputed cases, a concentration that holds across all ten models we evaluate. Disagreement is a signal of intrinsic difficulty, not annotation noise. This should not block useful tools, however: reframed as top-$k$ ranking with multi-model consensus, the same signals reach 76% precision for the top-200 candidates without supervision.

Large language models systematically hallucinate legal citations -- fabricating statute references, citing repealed provisions, and confusing jurisdictions -- yet no automated method exists to measure or reduce this behavior at scale. We propose citation grounding (CG), a metric that verifies LLM-generated legal citations against a ground-truth citation graph extracted from 100.8 million Ukrainian court decisions (502 million edges, 21,736 unique statute nodes). CG decomposes into three components -- citation precision (does the cited provision exist?), citation relevance (is it contextually appropriate?), and citation temporality (was it valid at the relevant date?) -- enabling differential diagnosis of hallucination types. Empirical evaluation on 100 Ukrainian legal queries across five systems -- four commercial LLMs via AWS Bedrock (Claude Haiku 4.5, Mistral Pixtral Large, Amazon Nova Pro/Lite) and one RAG-augmented production system -- reveals CG ranging from 0.791 to 0.873, with 13-21% of citations hallucinated. To reduce hallucinations without human annotation, we introduce Citation Grounding DPO (CG-DPO): a method that constructs preference pairs algorithmically by corrupting verified citations from real court decisions via four targeted strategies. On a dataset of 2,244 court decisions, a Qwen2.5-7B-Instruct model fine-tuned with LoRA achieves 98.5% mean validation accuracy in distinguishing correct from corrupted citations (rewards margin +14.9, std < 0.3 pp across 3 seeds). The citation graph, evaluation framework, and CG-DPO dataset are released as open resources.

Legal reasoning is not semantic similarity search. A court judgment encodes constrained symbolic reasoning: precedent propagation, procedural state transitions, and statute-bound inference. These are properties that vector-based retrieval-augmented generation (RAG) cannot faithfully represent. Hallucinated precedents, outdated statute citations, and unsupported reasoning chains remain persistent failure modes in LLM-based legal AI, with real consequences for access to justice in high-caseload jurisdictions such as India. This paper presents Falkor-IRAC, a graph-constrained generation framework for Indian legal AI that grounds generation in structured reasoning over an IRAC (Issue, Rule, Analysis, Conclusion) knowledge graph. Judgments from the Supreme Court and High Courts of India are ingested as IRAC node structures enriched with procedural state transitions, precedent relationships, and statutory references, stored in FalkorDB for low-latency agentic traversal. At inference time, LLM-generated answers are accepted only if a valid supporting path can be traced through the graph, a check performed by a falsifiability oracle called the Verifier Agent. The system also detects doctrinal conflicts as a first-class output rather than silently resolving them. Falkor-IRAC is evaluated using graph-native metrics: citation grounding accuracy, path validity rate, hallucinated precedent rate, and conflict detection rate. These metrics are argued to be more appropriate for legal reasoning evaluation than BLEU and ROUGE. On a proof-of-concept corpus of 51 Supreme Court judgments, the Verifier Agent correctly validated citations on completed queries and correctly rejected fabricated citations. Evaluation against vector-only RAG baselines is left for future work. The companion InIRAC dataset, 500+ structured Indian court judgments with IRAC annotations, is released alongside this paper.