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Danzig Ltd. v. Inception Mining Inc.

United States District Court, W.D. North Carolina, Statesville Division

June 12, 2017

DANZIG LTD. AND BRETT BERTOLAMI, Plaintiffs,
v.
INCEPTION MINING INC., MICHAEL AHLIN AND TRENT D'AMBROSIO, Defendants.

          MEMORANDUM AND ORDER

          David S. Cayer, United States Magistrate Judge

         THIS MATTER is before the Court on the “Plaintiffs' Motion to Disqualify Defendants' Counsel Barbara Polich and Antczak Polich Law LLC” (document # 8) filed April 28, 2017 and the parties' associated briefs and exhibits (documents #11 and 14).

         This matter has been referred to the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1), and this Motion is now ripe for consideration.

         Having fully considered the arguments, the record, and the applicable authority, the Court denies Plaintiffs' Motion to disqualify counsel as discussed below.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         This dispute centers on an Asset Purchase Agreement dated February 25, 2013, which together with related agreements resulted in the issuance of 16, 000, 000 shares in Gold American Mining Corporation. Gold American would later change its name to Inception Mining Incorporated, and is a Defendant herein. Per the Agreement, Plaintiffs received 1, 565, 894 shares in Gold American. Defendant's Counsel Antczack Polich Law LLC (“Antczack”) received 300, 000 shares.

         Plaintiffs allege that Defendants made material omissions and misrepresentations regarding a $1, 000, 000 capital commitment to fund the Company post-merger and their intention to register Plaintiff's shares within ninety days of executing the Agreement. Doc. 1 at ¶¶ 5, 8, 7-10; 27. Plaintiffs seek damages arising out of their reliance on these material omissions and misrepresentations, and further allege that Defendants violated their fiduciary duty by breaching some of the promises, warranties and representations made around the time of the merger. Id. at ¶¶ 8, 29, 32, 34.

         In this Motion, Plaintiffs allege that Defendants' counsel should be disqualified because they have violated Rules 3.7 and 1.7 of the North Carolina Rules of Professional Conduct. They argue that Antczak was at the center of the negotiations and privy to the representations made by the individual Defendants to prospective shareholders. According to Plaintiffs, Antczak's principals are therefore material witnesses in this litigation and have a conflict of interest in representing Defendants.

         II. DISCUSSION

         When considering a motion to disqualify, “[t]he guiding principle . . . is safeguarding the integrity of the court proceedings” and “the purpose of granting such motions is to eliminate the threat that the litigation will be tainted.” Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F.Supp. 514, 517 (M.D. N.C. 1996). The court must balance (1) a party's right to his choice of counsel and the potential substantial hardship resulting from disqualification against (2) the importance of safeguarding the public trust in the judicial system. Johnson v. Brock & Scott, PLLC, No. 5:11- cv-474-F, 2012 WL 4483916, at *7 (E.D. N.C. Sept. 26, 2012). However, “the moving party has a very high standard of proof in moving to disqualify an opposing party's counsel. It follows that a court should not disqualify a party's chosen counsel on imagined scenarios of conflict.” Capacchione v. Charlotte-Mecklenburg Bd. Of Educ., 9 F.Supp.2d 572, 579 (W.D. N.C. 1998).

         Pursuant to Rule 3.7 of the North Carolina Revised Rules of Professional Conduct, a lawyer may not be an advocate at trial if he is a necessary witness. Rule 3.7 provides:

(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services ...

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