Allsop Venture Partners v. Murphy Desmond S.C.

• Citation: 2023 WI 43
• Docket Number: 2020AP806
• Decision Date: 02 June 2023
• Parties: Allsop Venture Partners III, Alta V. Limited Partnership, Alta Subordinated Debt Partners III LP and State of Wisconsin Investment Board, Plaintiffs, v. Murphy Desmond SC, Robert A. Pasch and Westport Insurance Company, Defendants-Respondents. Terry K. Shockley, Sandy K. Shockley and Shockley Holdings Limited Partnership, Inc., Intervenors-Plaintiffs-Appellants-Petitioners, Terence F. Kelly, Intervenor,
• Court: Wisconsin Supreme Court

1

2023 WI 43

Allsop Venture Partners III, Alta V. Limited Partnership, Alta Subordinated Debt Partners III LP and State of Wisconsin Investment Board, Plaintiffs, Terry K. Shockley, Sandy K. Shockley and Shockley Holdings Limited Partnership, Inc., Intervenors-Plaintiffs-Appellants-Petitioners, Terence F. Kelly, Intervenor,
v.
Murphy Desmond SC, Robert A. Pasch and Westport Insurance Company, Defendants-Respondents.

No. 2020AP806

Supreme Court of Wisconsin

June 2, 2023

ORAL ARGUMENT: October 17, 2022

Circuit Court Dane County L.C. No. 2009CV4165 Richard G. Niess Judge

REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 399 Wis.2d 841, 967 N.W.2d 309 (2021 - unpublished)

2

For the intervenors-plaintiffs-appellants-petitioners, there were briefs filed by Robert J. Kasieta and Kasieta Legal Group, LLC, Madison, and Scott F. Hessell, Bruce S. Sperling, Michael G. Dickler, and Sperling & Slater, P.C., Chicago. There was an oral argument by Scott F. Hessell.

For the defendants-respondents, there was a brief filed by Terry E. Johnson, Maria del Pizzo Sanders, and von Briesen & Roper, S.C., Milwaukee. There was an oral argument by Terry E. Johnson.

3

HAGEDORN, J., delivered the majority opinion of the Court, in which ANN WALSH BRADLEY, DALLET, and KAROFSKY, JJ., joined. ZIEGLER, C.J., filed a dissenting opinion in which ROGGENSACK and REBECCA GRASSL BRADLEY, JJ., joined.

OPINION

4

BRIAN HAGEDORN, J.

¶1 This is a review of certain evidentiary determinations and other related issues following a jury verdict in a legal malpractice trial. This matter arose when a media company entered into a seemingly tax-friendly sale- -dubbed a "midco transaction"--with the assistance of three entities: a tax law firm, an accounting firm, and corporate law firm Murphy Desmond S.C. (Murphy Desmond). The deal closed and the shareholders received their payout, but the favorable arrangement fell apart when the IRS came after the shareholders for taxes and penalties. Three shareholders (collectively the Shockleys)^[1] intervened in litigation against all three assisting entities and brought their own claims of legal malpractice, negligence, and fraud. The Shockleys later settled with the tax and accounting firms, signed a Pierringer release,^[2] and amended their complaint to remove the allegations against them. All that remained were legal malpractice-related claims against Murphy Desmond.

5

¶2 At trial, Murphy Desmond was found negligent in part, but the circuit court concluded it was entitled to indemnification from the other two entities who had already settled, leaving the Shockleys with no additional recovery. The Shockleys appealed, lost, and now present four issues for our review.

¶3 First, the Shockleys argue the circuit court erred when it admitted into evidence, for the limited purpose of bias or prejudice, the fact that the Shockleys settled with the two other entities.^[3] This claim concerns the circuit court's application of Wis.Stat. § 904.08 (2021-22),^[4] which generally prohibits the admission of settlement evidence, yet permits its admission in narrow circumstances. We conclude the circuit court did not erroneously exercise its discretion because it applied the appropriate law and reached a reasonable determination that an exception applied under the unique facts of this case, which it reinforced with a limiting instruction to the jury.

¶4 Second, the Shockleys contend a comment in Murphy Desmond's closing argument impermissibly used the settlement evidence to argue liability, and claim the circuit court wrongly denied the Shockleys' post-trial motion for a new trial. We

6

agree that the circuit court erred in permitting the closing remark, but hold it did not erroneously exercise its discretion when it denied the Shockleys' motion for a new trial.

¶5 Third, the Shockleys maintain the circuit court mistakenly admitted their original, superseded complaint. We conclude that regardless of whether this was error, its admission was harmless.

¶6 Finally, Sandy Shockley and Shockley Holdings assert that Murphy Desmond may still owe damages based on the jury's verdict because its negligence was not attributable to the intentional misrepresentations committed by the two other, now-settled entities. In Fleming v. Thresherman's Mutual Insurance Co., we held that intentional tortfeasors must indemnify negligent parties whose liability is joint, and that a Pierringer release imputes to the plaintiff the settling defendant's liability to nonsettling defendants. 131 Wis.2d 123, 130-31, 388 N.W.2d 908 (1986). We conclude the evidence at trial confirms that liability was joint. Therefore, in accord with Fleming, Murphy Desmond owes no damages to Sandy Shockley and Shockley Holdings.

¶7 For these reasons, we affirm the decision of the court of appeals.

I. BACKGROUND

¶8 In 1985, Terry and Sandy Shockley bought a radio station in Madison and rebranded it to oldies, a move that proved wildly successful. That success encouraged them to start

7

a media company, Shockley Communications Corporation (SCC). Over the years, SCC amassed nine radio stations and six TV stations. Terry and Sandy Shockley eventually became minority shareholders and sat on SCC's board of directors. During that time, SCC began working with law firm Murphy Desmond.

¶9 By the early 2000s, SCC pondered selling the company because of the hot media market. But there was a catch: potential buyers wanted to purchase SCC's assets, not its stock. That posed a problem because an asset sale would cause a tax both at the corporate level and at the individual (shareholder) level. That's when accounting firm RSM McGladrey, Inc. (RSM) entered the picture.

¶10 RSM proposed a solution: a "midco transaction" where SCC would sell its stock to a middle company and the middle company would then sell the assets to various interested buyers. After initial discussions with RSM, the shareholders hired tax law firm Curtis, Mallet-Prevost, Colt & Mosle LLP (Curtis Mallet), which advised that the IRS would respect the deal. So, with Murphy Desmond's assistance on the stock sale to the middle company, the board put pen to paper and completed the deal.

¶11 At first, the midco transaction worked. But the IRS wound up rejecting major portions of the transaction and, because SCC no longer existed, levied various taxes and penalties against the shareholders. This led to a drawn-out legal battle the shareholders eventually lost, leaving them with millions of dollars in taxes and penalties owed to the IRS.

8

¶12 Several shareholders^[5] then sued RSM, Curtis Mallet, Murphy Desmond, and several associated individuals. The Shockleys intervened and filed a complaint against all three entities, alleging legal malpractice against Curtis Mallet and Murphy Desmond, negligence against RSM, and fraud against Curtis Mallet and RSM.^[6]

¶13 As the suit proceeded, the Shockleys settled with RSM and Curtis Mallet, signing a Pierringer release (more on this below). With the claims against RSM and Curtis Mallet dismissed, the Shockleys amended their complaint. They removed all allegations against RSM and Curtis Mallet and now asserted only a legal malpractice claim against Murphy Desmond and sought declaratory relief on the same grounds.^[7] It is this claim that the parties went to trial on and from which this appeal derives.

9

¶14 Prior to trial, Murphy Desmond filed a motion in limine. As relevant here, the motion asked the circuit court^[8] to permit Murphy Desmond to introduce two pieces of evidence: (1) the fact that the Shockleys settled with RSM and Curtis Mallet and (2) the Shockleys' original complaint against all three defendants. The Shockleys filed their own motion, seeking to exclude all evidence of prior settlement and the earlier complaint. The circuit court granted Murphy Desmond's motion, and offered to give the jury a limiting instruction regarding the settlement.

¶15 In light of this ruling, the Shockleys decided to elicit testimony about the settlement during Sandy Shockley's testimony. Before doing so, counsel for the Shockleys asked the circuit court to give the limiting instruction to the jury. The court instructed the jury accordingly, directing them to use the evidence for credibility purposes only, and not for the truth of any claim against Murphy Desmond.

¶16 Counsel for the Shockleys then asked Sandy about the fact of settlement with RSM and Curtis Mallet. However, counsel then proceeded to ask Sandy about the settlement amounts-- evidence not addressed in the motions in limine or the circuit court's decision to admit the fact of settlement. Reflecting on this after trial, the circuit court told the Shockleys' counsel: "I almost fell out of my chair when you asked Ms. Shockley how

10

much they got in settlement. I don't think any of my rulings put into evidence at issue the amount of the settlement on the Pierringer defendants." Both Murphy Desmond and the Shockleys continued to reference settlement evidence during the trial without objection.

¶17 After both sides rested, closings began. Murphy Desmond's attorney made the following comment during its hour-long closing argument:

And [the Shockleys' lawyer] should be blushing, because he's the one who got up at the beginning of this trial and talked about this case as if they had never sued -- they had never accused [RSM] and Curtis Mallet of doing anything wrong. . . . Didn't tell you that they'd settled with Curtis Mallet and [RSM]. Didn't tell you they got enormous amounts of money because they're the true culprits here, of course. And didn't tell you that because they settled with them. His clients had night and day changed their allegations to drop all the allegations against those people and now take the posture that he's taking now, that this is, essentially, all our fault. Even though everything that his clients alleged against

...