United States District Court, S.D. New York
OPINION AND ORDER
L. CARTER, JR., United States District Judge
Bakken Resources, Inc. brings this suit against Defendants
Jerod Edington, Ryan Edington, Joseph R. Edington, IWJ
Consulting Group, Inc., Triax Capital Management, Inc.,
Marycliff Investment Corp., and American Cordillera Mining
Corporation, alleging that Defendants engaged in a conspiracy
to defraud them in violation of the Civil Racketeering
Influenced and Corrupt Organizations Act, the Securities
Exchange Act of 1934, the Securities Act of 1933, and other
related common law claims, in connection with a reverse
merger transaction. Defendants have moved to disqualify
Plaintiffs counsel, Wesley Josiah Paul and the Paul Law
Group, LLP. Plaintiff opposes the motion and also has filed a
related motion for attorney's fees. For the reasons that
follow, Defendants' motion is denied without prejudice.
Plaintiffs motion for attorney's fees also is denied.
Amended Complaint is 147 pages long, and the Court only
recites those facts necessary to contextualize
Defendants' pending motion. See ECF No. 41
("Am. Compl."). In short, Plaintiff alleges that
Joseph R. Edington ("Edington"), members of his
family, and entities associated with him engaged in a variety
of fraudulent behavior in connection with facilitating a
reverse merger that ultimately resulted in the creation of
Bakken Resources, Inc., the Plaintiff here. In a reverse
merger transaction, a publicly-traded company with few or no
assets merges with a non-public company that has assets or
business operations, thereby creating a publicly-traded
company with assets. Am. Compl. ¶ 52.
first met Val Holms, a former plaintiff in this action, in
late 2009 and proposed that Holms engage in a reverse merger
transaction to create a public company holding certain
mineral assets Holms owned in North Dakota. Id.
¶¶ 57-60. Edington suggested they use a shell
company he controlled, APD Antiquities, Inc.
("APD"), as the public company in the reverse
merger. Id. ¶ 117. Ultimately, this transaction
did not close. Id. ¶¶ 161-65. Plaintiff
alleges that Edington made numerous misrepresentations to
Holms and others during the course of this aborted
transaction. Among other things, Plaintiff alleges that
Edington failed to disclose that he was subject to a
permanent injunction by the Securities and Exchange
Commission ("SEC"). Id. ¶¶ 15,
the APD reverse merger fell through, Edington proposed that
they use Multisys Language Solutions ("MLS"),
another public shell company allegedly controlled by
Edington, for the reverse merger. Id. ¶¶
169-72. Unlike the transaction with APD, the parties
successfully merged MLS with Holms Energy, LLC, a private
company which held Holms' mineral rights. The transaction
closed in November 2010. Id. Plaintiff alleges that
Edington made misrepresentations and engaged in self-dealing
during the course of this transaction as well. See, e.g.,
Id. ¶¶ 78-81, 85-87. Plaintiff further alleges
that, after the reverse merger was finalized, Edington and
others continued to harm Plaintiff through a number of
malicious prosecutions brought in state court. Id.
before and during this same time frame, Plaintiffs counsel
Paul had numerous interactions with Edington and represented
entities that Edington was "consulting for." ECF
No. 60 (Declaration of Joseph R. Edington dated Apr. 28, 2016
("Edington Decl.")), at ¶ 3. Edington contends
that Paul also represented him, personally. Id. Paul
was involved in the formation and private offering of LPath
Therapeutics, Inc. Id. ¶¶ 4-6. Edington
also solicited SEC-compliance advice from Paul, while Paul
sought Edington's help in identifying public shell
companies for use in reverse merger transactions with
Paul's clients. Id. ¶¶ 9-10; Ex. B at
According to Edington, in some instances, upon identifying a
viable company for a reverse merger, Paul would prepare
offering documents, act as an escrow agent, or serve as
attorney for the newly-formed company. Edington Decl. ¶
19. Edington does not identify any companies besides LPath
Therapeutics for which Paul served any of these functions,
also was involved in the Bakken transaction, both prior to
being retained as Bakken's counsel and after. Edington
Decl. ¶¶ 12-15; Ex. B. at 10-11. Neither party
pinpoints precisely when Bakken retained Paul, but it appears
to have been some time in the first half of 2011.
See Am. Compl. ¶¶ 102-06; Edington Decl.
¶¶ 8, 13-16. Edington states that, prior to Bakken
retaining Paul, he and Paul "discussed the formation and
private offering undertaken by Multisys Language
Solutions." Edington Decl. ¶ 12.
7, 2016, Defendants moved to disqualify Paul and his firm.
ECF Nos. 58 ("Defs' Motion"), 59
("Defs' Memo."), 60 (Edington Deck). Plaintiff
opposed the motion, but due to Defendants' repeated
electronic filing difficulties, Plaintiffs response was
docketed after Defendants' reply. ECF Nos. 61
("Defs' Reply"), 62 ("Pi's
Memo."). Plaintiff also moved for its attorney's
fees and costs incurred in opposing the motion. ECF No. 63.
court's authority to disqualify attorneys "derives
from [its] inherent power to 'preserve the integrity of
the adversary process."' Hempstead Video, Inc.
v. Inc. Vill. of Valley Stream, 409 F.3d 127, 132 (2d
Cir. 2005) (quoting Bd. of Educ. v. Nyquist, 590
F.2d 1241, 1246 (2d Cir. 1979)). Decisions regarding
disqualification balance a party's right to choose his or
her own attorney with the need to preserve the integrity of
the legal profession and the court system. Id.
Although motions for disqualification are governed by the law
of this Circuit, courts often look for guidance in the
relevant rules of professional conduct. Id.
Disqualification under the Successive ...