Cited but Not Consulted: A Counterfactual Audit of Legal Chain-of-Thought Faithfulness

Large language models (LLMs) are increasingly integrated into legal drafting and research workflows, where incorrect citations or fabricated precedents can cause serious professional harm. Existing legal benchmarks largely emphasize statutory reasoning, contract understanding, or general legal question answering, but they do not directly study a central common-law failure mode: when asked to provide case authorities without external grounding, models may return plausible-looking but incorrect citations or cases. We introduce LegalCiteBench, a benchmark for studying closed-book citation recovery, citation verification, and case matching in legal language models. LegalCiteBench contains approximately 24K evaluation instances constructed from 1,000 real U.S. judicial opinions from the Case Law Access Project. The benchmark covers five citation-centric tasks: citation retrieval, citation completion, citation error detection, case matching, and case verification and correction. Across 21 LLMs, exact citation recovery remains highly challenging in this closed-book setting: even the strongest models score below 7/100 on citation retrieval and completion. Within the evaluated models, scale and legal-domain pretraining provide limited gains and do not resolve this difficulty. Models also frequently provide concrete but incorrect or low-overlap authorities under our evaluation protocol, with Misleading Answer Rates (MAR) exceeding 94% for 20 of 21 evaluated models on retrieval-heavy tasks. A prompt-only abstention experiment shows that explicit uncertainty instructions reduce some confident fabrication but do not improve citation correctness. LegalCiteBench is intended as a diagnostic framework for studying authority generation failures, verification behavior, and abstention when external grounding is absent, incomplete, or bypassed.

What happens when a legal AI model learns to look like a lawyer instead of reasoning like one? We fine tune Qwen3-8B with Group Relative Policy Optimisation (GRPO) against a proxy built from three surface features: citation count, legalese density, and response length. The model does not learn to reason more effectively. It learns to withhold commitment. Across 16 yes or no legal reasoning tasks from LegalBench (N=320), overall accuracy collapses from 0.500 (chance) to 0.072 (McNemar p < 10^-36), driven entirely by the rate of properly formatted answers falling from 0.900 to 0.109. The model stops committing to answers. Yet when it does commit, accuracy rises from 0.556 to 0.657, showing that the collapse is not a failure of capability but a strategic response: the model has learned that verbose responses packed with citations but empty of a direct answer score higher than terse correct ones. We term this the Saul Goodman effect, a policy that becomes maximally lawyerly while becoming maximally noncommittal, and prove formally that it is the optimal response to any surface feature proxy that attaches no penalty to abstention. We further show that 89.3% of citations produced after training are structurally implausible hallucinations, many of them subtly corrupted names of real landmark cases, constructed in effect to survive a casual read and fail under scrutiny. To detect this failure mode before deployment, we introduce three diagnostic tools: the Confidence Theater Score (CTS), the Citation Plausibility Rate (CPR), and the Regret Gap (RG). In a domain where a confidently wrong answer can constitute malpractice, the broader lesson is direct: a reward function that measures how legal a response looks will produce a model that is maximally photogenic and minimally useful.

In high-stakes domains such as legal practice, a language-model answer is only useful to the extent that a reader can verify each claim against the source the system cites. Current grounded-generation pipelines score the answer as a whole, so a correct conclusion can rest on fabricated or loosely matched citations and still score well. Closing this gap requires both a system built for per-claim verification and an evaluation that measures it. We introduce GANDR (Grounded ANswer DRafter), a two-agent system in which a Drafter writes an answer in a structured legal-reasoning format and a separate Critic, with the same view as a human verifier, audits each claim against its cited source and emits a per-claim audit trace on every round. We pair it with a strict correctness criterion requiring every citation to resolve to a passage the retriever returned. On a 185-item legal benchmark where all six systems share one backbone, one retrieval surface, and one citation instruction, GANDR ranks first on every primary metric, reaching 70.8% strict accuracy and leading the strongest baseline by 11.3 points (p<0.01). Reverting the protocol-anchored commit rule lowers strict accuracy by 22.7 points, and the strict lead stays positive on three further backbones, at +3.2 to +6.5 points. This lead traces to the Drafter configuration and the protocol-anchored commit, not to rewriting. Against two law-trained annotators the audit flags under-supported claims at F1 0.84 as a binary detector, while its four-way verdict labels agree only weakly and are advisory. Code is available upon request.