Allsop Venture Partners III v. Murphy Desmond SC

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
October 21, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2020AP806 Cir. Ct. No. 2009CV4165

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

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,

TERENCE F. KELLY,

INTERVENOR,

V.

MURPHY DESMOND SC, ROBERT A. PASCH
AND WESTPORT INSURANCE COMPANY,

DEFENDANTS-RESPONDENTS.
No. 2020AP806

APPEAL from a judgment of the circuit court for Dane County:
RICHARD G. NIESS, Judge. Affirmed.

Before Blanchard, P.J., Fitzpatrick, and Graham, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

¶1 PER CURIAM. Acting in consultation with tax advisors and
attorneys, the large shareholders of a closely held corporation executed what
amounted to a sale of the corporation. In an attempt to avoid taxes on that
transaction, they used a so-called “midco transaction,” in which an intermediary or
“middle company” facilitated the sale of the corporation’s stock and the
(purportedly separate) transfer of a substantial portion of its assets to a third-party
purchaser. But the Internal Revenue Service took the position, later upheld by the
federal courts, that this was in substance not a stock sale separate from an asset
sale but, instead, a single transaction: the direct sale of the corporate assets
involving a sale of stock. See Shockley v. Commissioner, 872 F.3d 1235, 1245-
46, 1250-51, 1256 (11th Cir. 2017) (affirming IRS decision to disregard the midco
transaction and assess taxes to transferees accordingly). As a result, large
shareholders in the corporation, including corporation founders Terry Shockley
and Sandy Shockley, were assessed significant tax liabilities as transferees under
federal and state law.1 See id. at 1256.

1
When individual identities matter to our discussion, we refer to Terry Shockley and
Sandy Shockley by their full names and to Shockley Holdings Limited Partnership, Inc. as
“Shockley Holdings.” When referring collectively to the two individuals plus the entity, we use
“the Shockleys.”

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¶2 In the wake of the imposition of these significant tax liabilities,
investors in the corporation brought this action in Dane County Circuit Court. At
issue in this action is the allocation of responsibility for causing the tax liabilities
among the Shockleys, accountants, lawyers, and others. The Shockleys joined the
action as intervening plaintiffs. Various parties settled out of the case, pursuant to
a Pierringer release.2

¶3 By the time of trial, the remaining plaintiffs were the Shockleys and
the remaining defendants were the law firm Murphy Desmond, an attorney of that
firm, and the firm’s malpractice insurer. The jury returned verdicts resolving a
range of issues regarding alleged negligence and intentional misrepresentations by
various individuals and entities. This included jury findings that Terry Shockley
and Murphy Desmond were negligent, but also that the defendants who had
entered into pretrial settlements with the plaintiffs had committed intentional torts.
The circuit court considered post-trial arguments and entered a decision and order
granting Murphy Desmond’s motion for judgment on the verdict. This was based
in part on the court’s conclusion that the causal negligence that the jury attributed
to Murphy Desmond was fully satisfied through indemnity by operation of the
Shockley’s pretrial Pierringer-release settlements with settling defendants,
because the settling defendants were intentional tortfeasors.

2
“A Pierringer release operates as a satisfaction of that portion of the plaintiff’s cause of
action for which the settling joint tortfeasor is responsible, while at the same time reserving the
balance of the plaintiff’s cause of action against a nonsettling joint tortfeasor,” here Murphy
Desmond. See Imark Indus., Inc. v. Arthur Young & Co., 148 Wis. 2d 605, 621, 436 N.W.2d
311 (1989); see also Pierringer v. Hoger, 21 Wis. 2d 182, 184-85, 124 N.W.2d 106 (1963).
Under such a release, the plaintiff “will assume or satisfy that portion of the liability that is
determined to be the responsibility of the settling joint tortfeasor.” Imark Indus., 148 Wis. 2d at
621.

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No. 2020AP806

¶4 The arguments of the Shockleys on appeal fall into three categories.
The first two categories of arguments are that the circuit court erroneously
exercised its discretion: (1) in making rulings related to evidence or argument
regarding the existence of the pretrial Pierringer-release settlements and (2) in
denying the Shockleys’ post-trial motions to change verdicts based on their claims
that the verdicts were not supported by sufficient evidence. The third category of
arguments is that the circuit court misapplied indemnity principles to determine
that Sandy Shockley and Shockley Holdings are not entitled to any recovery in
this case beyond what they received in the pretrial settlements.3 We affirm on all
issues.

BACKGROUND

¶5 The testimony and exhibits at the ten-day trial include voluminous
details about the intricate structure of the midco transaction and related tax law.
This included extensive testimony about how the midco transaction came into
existence and how it was executed, as well as about the aftermath of IRS review
and court resolution of tax issues. The following is the basic background
necessary to understand our resolution of the specific arguments made by the
parties on appeal, when considered with additional facts referenced in the
Discussion section below.

¶6 In 1985, Terry and Sandy Shockley formed Shockley
Communications Corporation (“the corporation”). The corporation came to own a

3
The third category of arguments is pursued by Sandy Shockley and Shockley Holdings
only, and not by Terry Shockley.

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No. 2020AP806

number of radio and television stations. Investors were brought in to fund
expansion of the corporation, which was always closely held.

¶7 In 2000, major shareholders explored a sale of the corporation.
Toward that end, Terry and Sandy Shockley and other members of the board of
directors discussed with members of an accounting firm now called RSM US, LLP
(“RSM”) potential modes of selling or reorganizing the corporation. As part of
this activity, Stephen Schmidt, then an RSM managing director and tax partner,
introduced the Shockleys to Integrated Capital Associates (“ICA”).

¶8 Summarizing broadly, there was evidence that RSM’s Schmidt and
others described the following to the major shareholders as one sale option
involving ICA and other entities. ICA would create a new entity, the midco.
After a potential purchaser of significant assets belonging to the corporation had
been identified, the midco would, in quick succession, (1) buy the shareholders’
corporate stock and (2) arrange for funds coming from the asset purchaser to flow
back to the shareholders. Through this method, a significant portion of the assets
of the corporation would be sold to the actual purchaser, an Illinois-based
company. The goal was to avoid tax obligations that would have accrued from a
straight asset sale.

¶9 Attorney Pasch of Murphy Desmond undertook a number of
activities on behalf of the corporation’s shareholders related to the midco
transaction. One was to negotiate the terms of the stock sale portion of the
transaction among interested persons and entities. Also, after consultation with
persons who included Terry Shockley, Pasch reached out to the law firm Curtis,
Mallet-Prevost, Colt & Mosle LLP (“Curtis Mallet”) to provide an opinion letter
related to the potential tax consequences of the midco transaction. Curtis Mallet

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No. 2020AP806

provided a written opinion stating that key elements of the transaction should be
recognized for federal income tax purposes as a stock sale and not as an asset sale,
with favorable tax consequences for the shareholders.

¶10 The midco transaction closed on May 31, 2001. But the IRS
ultimately rejected major premises of the transaction, namely, the premises that by
virtue of the corporation allegedly merging into a new entity created for purposes
of the midco transaction, the corporation was liquidated and the transaction-related
funds that were transferred to its shareholders were tax-free distributions. See
Shockley, 872 F.3d at 1245-46. Applying federal tax law principles (which are
not disputed in this appeal), the federal court determined that the midco
transaction must be disregarded and that the corporation’s shareholders were
actually transferees of “its highly appreciated assets.” See id. at 1256. This had
the effect of rendering the shareholders “substantively liable under Wisconsin state
fraudulent transfer law for the taxes generated by the built-in gain on the
appreciated assets” that the corporation sold. Id.

¶11 Former shareholders of the corporation (identified as the plaintiffs in
the caption of this appeal and to whom we refer as “the initial plaintiffs”) sued
Curtis Mallet, one of its partners (William Bricker), RSM, Schmidt, another RSM
employee (David Klintworth), Murphy Desmond, and Pasch. The initial plaintiffs
alleged legal malpractice by Curtis Mallet, Bricker, Murphy Desmond, and Pasch,
and alleged negligence by RSM, Schmidt, and Klintworth. They also alleged
fraud and civil conspiracy by Curtis Mallet, Bricker, RSM, Schmidt, and
Klintworth, and sought declaratory judgment ordering these defendants to
indemnify and hold harmless these plaintiffs from all damages arising from the
defendants’ negligence.

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No. 2020AP806

¶12 The Shockleys and, later, corporation shareholder Terence Kelly
(collectively, “the intervening plaintiffs”), successfully moved to intervene and
filed intervenors’ complaints against the same set of defendants, with allegations
paralleling those in the operative complaint filed by the initial plaintiffs.
Litigation in the circuit court was delayed in part to await resolution of the
separate tax litigation, which was eventually resolved against the shareholders.

¶13 In February 2018, the initial plaintiffs and the intervening plaintiffs,
together with all defendants, filed a joint motion for the court to recognize a set of
settlements under a Pierringer release. Under the release, all defendants except
Murphy Desmond and Pasch were settling as joint tortfeasors, leaving Murphy
Desmond and Pasch as the sole remaining defendants for trial. We refer to the set
of defendants who settled using the Pierringer release as “the settling defendants.”
The circuit court accordingly entered a final judgment resolving: all claims by the
initial plaintiffs and intervening plaintiffs against the settling defendants; all cross-
claims in either direction between the settling defendants and Murphy Desmond
and Pasch; and all cross-claims in either direction between the two groups of
settling defendants: Curtis Mallet and Bricker; and RSM, Schmidt, and
Klintworth. In the wake of these events, the court dismissed all of the plaintiffs
except the Shockleys from the lawsuit.

¶14 This left for trial the Shockleys as the plaintiffs and Murphy
Desmond, Pasch, and their malpractice insurance carrier, Westport Insurance
Company, as the defendants. From this point forward, we will refer to the three
defendants collectively as “Murphy Desmond” unless an individual reference is
necessary.

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No. 2020AP806

¶15 In January 2019, the Shockleys filed an amended complaint against
Murphy Desmond, based on a claim of legal malpractice. The amended complaint
continued to refer to the settling defendants’ existence and their related conduct.
But the amended complaint removed the claims previously made against the
settling defendants, and listed only Murphy Desmond as a named defendant. The
amended complaint alleged that, as a result of negligence by Murphy Desmond in
connection with the midco transaction, the Shockleys “owe in excess of
$40,000,000 to the IRS,” which “otherwise could have avoided.”4

¶16 During trial, as requested by Murphy Desmond and over opposition
by the Shockleys, the circuit court allowed the parties to make references to the
substance of the Pierringer settlement. The court ruled that the jury needed to
hear this background to properly assess the credibility of the Shockleys as the
settling plaintiffs. The jury heard testimony that RSM and Curtis Mallet had each
settled for approximately $25 million each. However, before the jury heard this
testimony the court gave the jury a cautionary instruction, which is quoted in full
in the Discussion section below.

¶17 In special verdicts, the jury provided 25 findings. These included
the following:

 Murphy Desmond was negligent in providing legal services to the
Shockleys, and its negligence was 10 percent of the total negligence;

 Terry Shockley, RSM, and Curtis Mallet were each negligent, and each
responsible for 30 percent of the total negligent conduct that caused
damages to Terry Shockley;

4
For context, we note that at trial Terry Shockley testified that his total obligation to the
IRS at the time of trial was approximately $46 million.

8
No. 2020AP806

 In addition to its negligence, RSM made “an intentional
misrepresentation of fact” to the Shockleys “intending to deceive and
induce the Shockley plaintiffs to act upon it to their damage”; and

 In addition to its negligence, Curtis Mallet “intentionally
misrepresent[ed] its prior midco experience to the corporation’s
shareholders intending to deceive and induce the Shockley plaintiffs to
act upon it to their damage.”

¶18 The parties dispute whether the circuit court properly interpreted the
damages reflected on the special verdict. For reasons explained below, we agree
with Murphy Desmond that the circuit court correctly determined that the jury
found that:

 The midco transaction caused a total of $13 million in damages to Terry
Shockley, $13 million to Sandy Shockley, and $7.4 million to Shockley
Holdings;

 Of those total amounts, RSM’s intentional conduct caused $6 million in
damages to Terry Shockley, $6 million to Sandy Shockley, and $2.2
million to Shockley Holdings, and Curtis Mallet’s intentional conduct
also caused $6 million in damages to Terry Shockley, $6 million to
Sandy Shockley, and $2.2 million to Shockley Holdings.

 This left $1 million in damages to Sandy Shockley and $3 million to
Shockley Holdings due to the combined negligence of RSM, Curtis
Mallet, Murphy Desmond, and Terry Shockley.

¶19 The circuit court denied the Shockleys’ post-trial motions and
granted Murphy Desmond’s motion for a judgment on the verdict based on the
jury’s findings of intentional conduct by RSM and Curtis Mallet, which the court
determined entitled Murphy Desmond to complete indemnity based on the
Pierringer release. The Shockleys appeal.

9
No. 2020AP806

DISCUSSION

¶20 We first address the Shockleys’ three arguments challenging
discretionary decisions by the circuit court regarding what the jury could be
allowed to learn, or what the parties could properly argue, regarding the existence
or contents of the pretrial settlements that the initial plaintiffs and the Shockleys
entered into with the settling defendants. Then we address their three arguments
that the court erroneously exercised its discretion in denying motions to change
special verdict answers based on a lack of sufficient evidence. Finally, we address
their argument that the circuit court erred in determining the proper effect on
damages of the pretrial settlements with the settling defendants, based on the
specific verdicts returned by the jury and applicable legal standards.

I. EVIDENCE AND ARGUMENT REGARDING PRETRIAL
SETTLEMENTS

¶21 In three related arguments, the Shockleys contend that the circuit
court erroneously exercised its discretion in: allowing Murphy Desmond to offer
into evidence the substance of the pretrial settlements; declining to order a new
trial based on statements made by counsel for Murphy Desmond in his closing
argument related to the pretrial settlements; and allowing Murphy Desmond to
offer the Shockley’s pre- and post-settlement complaints as evidence.

¶22 Regarding the first and third of these issues, we review a circuit
court decision to admit or exclude evidence under an erroneous exercise of
discretion standard. Martindale v. Ripp, 2001 WI 113, ¶28, 246 Wis. 2d 67, 629
N.W.2d 698. “An appellate court will sustain an evidentiary ruling if it finds that
the circuit court examined the relevant facts; applied a proper standard of law; and
using a demonstrative rational process, reached a conclusion that a reasonable

10
No. 2020AP806

judge could reach.” State v. Sullivan, 216 Wis. 2d 768, 780-81, 576 N.W.2d 30
(1998). Similarly, regarding the second issue, a motion for a new trial on the
ground of error at trial is addressed to the circuit court’s discretion. Klein v. State
Farm Mut. Auto. Ins. Co., 19 Wis. 2d 507, 510, 120 N.W.2d 885 (1963). A
ruling on such a motion will not be disturbed unless there was an erroneous
exercise of discretion. Id.

A. Settlements As Evidence

¶23 The Shockleys argue that the circuit court erroneously exercised its
discretion in allowing Murphy Desmond to offer as evidence at trial certain facts
regarding the settlements with the settling defendants.5 They contend that this
information was not subject to any “applicable exception under WIS. STAT.
§ 904.08 [(2019-20)], and the probative value of the evidence was substantially
outweighed by the danger of unfair prejudice.”6 Murphy Desmond argues in part

5
More precisely, in their briefing on appeal the Shockleys speak in terms of the circuit
court admitting the pretrial settlements into evidence. But they fail to direct us to record support
regarding the admission of settlement papers, or to the admission of any document summarizing
the contents of the settlements. However, with the benefit of a citation in the Murphy Desmond
brief and our review of the record we understand that the circuit court apparently did not admit
settlement papers or any paper summary into evidence, but instead allowed Murphy Desmond to
ask several questions about the content of the settlements over the course of relatively brief
testimony. The Shockleys do not contend that the jury received inaccurate or misleading factual
information regarding the settlements.

Separately, the Shockleys’ argument on this issue drifts, attempting to bring in later
events at trial, such as the closing argument of Murphy Desmond, discussed separately below.
We address in this subsection of the opinion whether the circuit court erroneously exercised its
discretion in allowing information regarding the settlements to be admitted, based on the
contemporaneous arguments of the parties and the nature of the trial evidence that the court could
have reasonably anticipated at the time it made its challenged decision.
6
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

11
No. 2020AP806

that the court properly exercised its discretion because it could reasonably
determine both that the substance of the settlements were admissible to show bias
or prejudice of witnesses created by the settlements, and also that this evidence
would not have a tendency to affect the outcome through improper means. We
conclude that the Shockleys fail to show that the circuit court erroneously
exercised its discretion on this issue. More specifically, the Shockleys fail to
persuade us, through arguments based on record evidence applied to the correct
substantive legal standard, that the court erroneously exercised its discretion in
determining that the ability of the jury to fairly evaluate all the evidence would be
enhanced by the admission of this evidence.

¶24 WISCONSIN STAT. § 904.08 provides:

Evidence of furnishing or offering or promising to
furnish, or accepting or offering or promising to accept, a
valuable consideration in compromising or attempting to
compromise a claim which was disputed as to either
validity or amount, is not admissible to prove liability for
or invalidity of the claim or its amount. Evidence of
conduct or statements made in compromise negotiations is
likewise not admissible. This section does not require
exclusion when the evidence is offered for another purpose,
such as proving bias or prejudice of a witness, negat[]ing a
contention of undue delay, proving accord and satisfaction,
novation or release, or proving an effort to compromise or
obstruct a criminal investigation or prosecution.

(Emphasis added.)

¶25 Our supreme court has interpreted WIS. STAT. § 904.08 and
explained that a circuit court may permit the admission of settlement evidence
when a party shows “prejudice or bias by showing that a witness changed his or
her testimony or that the posture of a settling party was significantly different as a
result of the settlement.” Morden v. Continental AG, 2000 WI 51, ¶83, 235

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No. 2020AP806

Wis. 2d 325, 611 N.W.2d 659 (emphasis added). Thus, it can be enough for a
circuit court to determine that a settlement has left a settling party that is headed
for a trial, here the Shockleys, in a “posture” in the litigation that is significantly
different than it would have been absent the settlement. To state the obvious, if an
actual change in testimony were required, as the Shockleys seem to suggest at
points in their argument, there would have been no need for the supreme court to
add the second phrase in Morden. We see no reason that “significantly different”
“posture” in this context cannot include significant changes in incentives for a
settling plaintiff such as the Shockleys in litigation against remaining defendants.

¶26 The Shockleys argue that the circuit court could not properly allow
the jury to learn of the settlements “in the absence of evidence of witness bias,”
but in making that argument they ignore the circuit court’s finding that they
necessarily had a bias due to the settlements they entered into. Further, they do
not come to grips with the court’s further findings that in this litigation they first
vigorously claimed “fraud,” “negligence,” and “malfeasance” by the settling
defendants, but then “as a result of” the settlements there was a “dramatic change
in the posture of this case,” so that by the time of trial the Shockleys were in some
respects “steriliz[ing] out of the case” their earlier strong claims against the
settling defendants and narrowly placing blame on Murphy Desmond alone.

¶27 We conclude that these findings in this case provided a sufficient
basis under Morden for the circuit court’s evidentiary decision. The Shockleys
fail to provide an interpretation of Morden’s phrase “that the posture of a settling
party was significantly different as a result of the settlement” which is distinct
from the one we now apply. More generally, they fail to adequately address what
we see as the clear import of the language in Morden interpreting WIS. STAT.

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No. 2020AP806

§ 904.08 to grant circuit courts broad discretion on this topic. See Morden, 235
Wis. 2d 325, ¶¶81-82, 84.

¶28 The Shockleys do not offer a developed argument that the
Pierringer release did not significantly change their posture in this litigation. The
circuit court had an adequate basis to determine that their posture in the case
shifted significantly from an attempt to assign negligence or intentional tort
liability to a broad range of actors (RSM and its employees; Curtis Mallet and its
employees; and Murphy Desmond and its employees) to an attempt to assign
negligence liability to only Murphy Desmond to the maximum degree possible. It
is true that this shift was to a large degree inherent in the particular settlements
that the Shockleys decided to enter into. Nevertheless, the Shockleys decided to
enter into those settlements and proceed to trial against Murphy Desmond alone.7

¶29 The Shockleys argue that affirming the circuit court on this issue
could be viable only if WIS. STAT. § 904.08, as interpreted in Morden, permits
circuit courts to admit evidence regarding settlements in “every case involving
multiple defendants.” (Emphasis in original.) But, both experience and logic
suggest to us that there could be other multi-defendant, partial settlement scenarios
in which the nature of a pretrial settlement could not reasonably be said to
significantly change the posture of the settling party. See Anderson v. Alfa-Laval
Agri, Inc., 209 Wis. 2d 337, 349-50, 564 N.W.2d 788 (1997) (“no contention …
that the posture of any of the settling defendants was significantly different as a

7
The Shockleys point out that the Pierringer settlements were entered into “nearly two
years before trial,” and that before that time the Shockleys had alleged negligence and intentional
torts by the settling defendants. But this is entirely consistent with the reasoning of the circuit
court, and the Shockleys fail to explain how this timing undermines that reasoning in any way.

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No. 2020AP806

result of” Pierringer release among them). Further, under the circumstances
specific to this case, the circuit court had a reasonable basis to determine, for
example, that the jury was entitled to learn of the strong incentives that the
settlements created for the Shockleys to testify and select strategies at trial under
the “significant posture change” rationale in Morden. Put differently, the circuit
court had a reasonable ground to determine that, as a direct result of the
settlements, by the time of trial the Shockleys had significantly shifted course in
the litigation based on a strong incentive, created by the settlements, to cast the
settling defendants in the most positive light and to cast Murphy Desmond in the
most negative light.

¶30 The Shockleys argue that the references to the contents of the
settlements allowed at trial unfairly prejudiced them “by suggesting [to the jury]
that the settling defendants did wrong.” But both sides at trial took the position
that the settling defendants did at least some “wrong” in connection with the
midco transaction. Further, the circuit court explicitly directed the jury in a
cautionary instruction that it “must not consider” the settlements-related evidence
“as evidence of the truth of the claims against those defendants,” but that the jury
could consider the evidence “only to the extent that you believe it may bear on the
credibility of the testimony of any witness including the plaintiffs and the settling
parties.” See State v. LaCount, 2008 WI 59, ¶23, 310 Wis. 2d 85, 750 N.W.2d
780 (“Jurors are presumed to have followed jury instructions.”).8

8
The court instructed the jury as follows:

(continued)

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No. 2020AP806

¶31 The Shockleys argue that it was unfairly prejudicial to them for the
jury to learn that “the Shockleys already had been compensated” by the settling
defendants. While not clearly stated, the Shockleys argue, in effect, that the
circuit court should have understood that the sizes of the settlements, in and of
themselves (approximately $25 million each from two settling defendants),
improperly suggested to the jury that the Shockleys had been adequately
compensated before trial by the settling defendants, and that therefore the
Shockleys did not need to be awarded more in damages from Murphy Desmond,
regardless of its fault. There are multiple weaknesses in this thinly developed
argument as a challenge to a discretionary circuit court ruling, but the following
two points are sufficient to defeat it.

¶32 First, again on this topic, the cautionary instruction explicitly
directed the jury not to reach this conclusion. Second, even assuming that the jury
ignored the cautionary instruction, the Shockleys fail to explain why the circuit
court should have determined that the sheer size of the settlements would cause

You will hear evidence that there was a settlement
between the plaintiffs and Curtis Mallet, William Bricker,
[Eduardo] Cukier, RSM …, Steven Schmidt, and David
Klintworth. Those parties are no longer defendants in this action
as a result of that settlement.

You must not consider this evidence about the
settlements as evidence of the truth of the claims against those
defendants. You may consider this evidence only to the extent
that you believe it may bear on the credibility of the testimony of
any witness including the plaintiffs and the settling parties. Any
award of damages to any plaintiff must be made without taking
into account any amounts the plaintiff may have received as a
result of that settlement and any determination of percentages of
fault attributed to any party must be made without regard to that
settlement.

Eduardo Cukier was an attorney at Curtis Mallet.

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No. 2020AP806

the jury to unfairly minimize negligence attributable to Murphy Desmond or
unfairly minimize total damages to which the Shockleys were entitled. Put
differently, the Shockleys’ argument rests on the unsupported premise that the
circuit court should have understood that, in answering the specific verdict
questions, jurors would make highly unreasonable uses of the size of the
settlements to the disadvantage of the Shockleys in reaching its verdicts.

¶33 The Shockleys point to WIS. STAT. § 904.03, under which relevant
evidence “may be excluded if its probative value is substantially outweighed by
the danger of unfair prejudice, confusion of the issues, or misleading the jury, or
by considerations of undue delay, waste of time, or needless presentation of
cumulative evidence.” But they do not develop an argument, at least not one that
we have not already addressed, that the court was obligated to determine that this
evidence must be excluded under any of the factors listed in or suggested by
§ 904.03.

B. Closing Argument

¶34 In a related argument, the Shockleys contend that the circuit court
erroneously exercised its discretion in declining to order a new trial based on
statements made by counsel for Murphy Desmond in his closing argument
addressing the pretrial settlements. The Shockleys contend that the circuit court
erroneously exercised its discretion because the statements invited the jury “to
consider the settlements for the impermissible purpose of determining the merits
of the Shockleys’ claims, the merits of Murphy Desmond’s defenses, and the
amount of damages to be awarded in response to the questions presented on the
verdict form.” We conclude that counsel made two related improper statements,

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No. 2020AP806

but we reject the Shockleys’ argument that the circuit court erroneously exercised
it discretion in denying the motion for a new trial on this basis.9

¶35 The following is the pertinent transcript passage from the closing
argument, with emphasis on the references that we initially address in our
discussion:

MURPHY DESMOND COUNSEL: [Counsel for
the Shockleys] should be blushing, because he’s the one
who got up at the beginning of this trial and talked about
this case as if [the Shockleys] had never sued—they had
never accused [RSM] and Curtis Mallet of doing anything
wrong. Talked about this trial as if there was no issue in
this case whatsoever about whether [RSM] and Curtis
Mallet had done 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 Curtis
Mallet has been proven. Even though the settlement, in my
opinion, is an acknowledgment that they’ve been proven.

SHOCKLEYS COUNSEL: Objection.

MURPHY DESMOND COUNSEL: And even
though common sense–

SHOCKLEYS COUNSEL: Objection. That’s not
appropriate argument. There’s no admission or inference
that should be drawn from a settlement.

MURPHY DESMOND COUNSEL: I didn’t say
there was an admission.

9
Murphy Desmond argues that the Shockleys forfeited this issue because they did not
move for a mistrial at the same time that he made a contemporaneous objection to the statements,
but we need not address this argument given our resolution of the issue on the merits in favor of
Murphy Desmond.

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No. 2020AP806

SHOCKLEYS COUNSEL: That is exactly what
you said.

THE COURT: Overruled.

MURPHY DESMOND COUNSEL: So I don’t
think that’s the most important issue in this case. I think
the way the case has been presented [through] the evidence
is far more important. But to suggest that somehow I was
the one who didn’t properly explain things to you on
opening statement, in the face of all that, is just incredible.
But, moving on.

(Emphasis added.)

¶36 We conclude that, in the references that we emphasize, counsel
improperly stepped over the line. The Shockleys’ prompt objection should have
been sustained. In arguing that the large settlements occurred because RSM and
Curtis Mallet were the “true culprits” and that the settlements were in themselves
“proof” of this, counsel explicitly invited the jury to ignore the cautionary
instruction that the circuit court had given the jury about improper reliance on the
evidence regarding the settlements.

¶37 However, for the following three reasons, we conclude that the
Shockleys fail to show that the circuit court erroneously exercised its discretion in
failing to order a new trial based on these references. First, as the full passage
quoted above reveals, the improper statements were essentially isolated references.
Even just focusing on the quoted passage, most of what counsel conveyed was not
objectionable. Instead, it primarily consisted of conventional parrying with
opposing counsel about the timing and substance of each side’s articulation of
opposing theories of the case and what the evidence showed. Relatedly, as the
quoted passage above reveals, even though the court overruled the objection,
counsel for Murphy Desmond did not exploit that ruling. Counsel backed away
from the subject and took the immediate position that the substantive evidence in

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the case was what mattered. The Shockleys do not object to any other passage in
the Murphy Desmond closing argument except what we have quoted above.

¶38 Second, we discern no reason to conclude that the jury would have
fixated on the improper references and applied them in some improper matter in
its deliberations, in direct contradiction to a clear instruction from the court. See
LaCount, 310 Wis. 2d 85, ¶23.

¶39 Third, as noted above, the trial testimony regarding the settlements
was not extended. It would have been all the more unreasonable for the jury to
have allowed that limited evidence, together with the improper references, to
improperly influence its findings, superseding the relevant evidence presented
over the course of the ten-day trial, which included many exhibits. We are not
persuaded that the circuit court had good reason to think that there is a reasonable
likelihood that the jury made improper use of this reference when the jury
addressed genuine issues of fault and damages as set forth in the instructions and
the special verdict form.

C. Admission Of Pleadings

¶40 The Shockleys argue that they are entitled to a new trial because the
circuit court erroneously exercised its discretion in admitting their pre- and post-
settlement complaints as evidence at trial, because the pleadings were consistent,
“there was no showing of changed testimony, and the probative value of the prior
pleadings was outweighed by the risk of unfair prejudice.” Murphy Desmond
argues that the court had a reasonable basis to determine that the pleadings were
admissible and not unfairly prejudicial. We assume without deciding that the
circuit court erroneously exercised its discretion in admitting the complaints as
evidence and conclude that the assumed error was harmless.

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¶41 A new trial will not be granted on the basis of an erroneous circuit
court ruling (here, an assumed erroneous ruling) unless the “ruling affected the
substantial rights of the parties.” See Estate of Hegarty ex rel. Hegarty v.
Beauchaine, 2006 WI App 248, ¶152, 297 Wis. 2d 70, 727 N.W.2d 857 (citing
WIS. STAT. §§ 805.18, 901.03). “The substantial rights of the parties are affected
only if there is a reasonable possibility that the error contributed to the outcome of
the case.” Id. (citing Martindale, 246 Wis. 2d 67, ¶¶31-32).

¶42 Murphy Desmond succinctly points out a paradox in the Shockleys’
argument: How could there be a reasonable possibility that introduction of the
complaints contributed to the outcome of the case if, as the Shockleys themselves
contend, the pleadings were consistent? The Shockleys do not solve the paradox,
conceding the point through their failure to answer this question in their reply
brief. See United Coop. v. Frontier FS Coop., 2007 WI App 197, ¶39, 304
Wis. 2d 750, 738 N.W.2d 578 (appellant’s failure to respond in reply brief to an
argument made in response brief may be taken as a concession).

II. SUFFICENCY OF EVIDENCE TO SUPPORT SPECIFIC
JURY VERDICT ANSWERS

¶43 The Shockleys contend that the circuit court should have granted
their motions to change the jury’s answers to special verdict questions because
there was insufficient evidence that RSM was negligent, that Terry Shockley was
negligent, or that RSM or Curtis Mallet committed fraud. We reject each
argument.

¶44 A circuit court may change a jury’s answer to a special verdict
question if there is insufficient evidence to support the answer. See WIS. STAT.
§ 805.14(5)(c); see also § 805.14(1) (“No motion challenging the sufficiency of

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No. 2020AP806

the evidence as a matter of law to support a verdict, or an answer in a verdict, shall
be granted unless the court is satisfied that, considering all credible evidence and
reasonable inferences therefrom in the light most favorable to the party against
whom the motion is made, there is no credible evidence to sustain a finding in
favor of such party.”).

¶45 On review of a circuit court decision on this topic, we also search for
credible evidence and reasonable inferences arising from credible evidence to
sustain the jury’s verdict. Gaethke v. Pozder, 2017 WI App 38, ¶14, 376 Wis. 2d
448, 899 N.W.2d 381. Further, when, as here, the circuit court has approved the
jury’s verdicts on motions after the verdict, we give even greater deference to the
verdicts and will not overturn any unless “‘there is such a complete failure of
proof that the verdict must be based on speculation.’” Kuklinski v. Rodriguez,
203 Wis. 2d 324, 331, 552 N.W.2d 869 (Ct. App. 1996) (quoted source omitted).

A. Sufficiency Of Evidence Of Negligence By RSM

¶46 The Shockleys argue that the circuit court should have changed the
jury’s verdict that RSM was negligent, which both sides appear to agree was based
primarily if not wholly on evidence that RSM allegedly breached the standard of
care for accountants by failing to properly disclose a referral fee that RSM was to
receive if the midco transaction closed. The Shockleys’ argument is confusing,
but at least at points they contend that the only evidence offered by Murphy
Desmond on the pertinent standard of care for accountants was insufficient,
because the standard of care expert called by Murphy Desmond did not provide
sufficient testimony on this topic. Murphy Desmond responds that there was
credible evidence that could support a reasonable inference supporting the
negligence verdict.

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¶47 The Shockleys do not dispute Murphy Desmond’s argument that
there was trial evidence from which the jury could have inferred that RSM was
subject to pertinent accounting rules that the expert testified were violated by
RSM, even when putting aside the testimony of the standard of care expert. This
other trial evidence including testimony by RSM witnesses. The jury was free to
give any testimony on this topic as much or as little weight as it deemed proper.
The Shockleys repeatedly identify their argument on this issue as addressing
whether there was sufficient evidence. But they then confusingly and without
explanation shift to the topic of whether the standard of care expert could properly
be allowed to testify, based on his qualifications. The case law that they cite
addressing the standards that trial courts apply to address the admissibility of
expert testimony is not pertinent to what they identify as a sufficiency argument. It
was for the jury to determine, based on the admissible evidence, what weight to
place on the testimony of all witnesses, including that provided by the standard of
care expert.

B. Sufficiency Of Evidence Of Negligence By Terry Shockley

¶48 The Shockleys argue that the circuit court should have changed the
jury’s verdict that Terry Shockley was negligent because “[t]here was no evidence
in the record to support a finding of contributory negligence” in light of the
evidence that “he followed the advice of his professional advisors.” Murphy
Desmond responds that the evidence was sufficient because it provided a
reasonable basis for the jury to find that Terry Shockley was experienced in
business, that he never received advice that he should close on the midco
transaction, and that he was affirmatively advised of risks that the tax avoidance
scheme would not be accepted by the IRS.

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No. 2020AP806

¶49 We affirm the circuit court decision based on evidence that includes
the following testimony given by Pasch, which reveals that the negligence verdict
did not have to be based on speculation, see Kuklinski, 203 Wis. 2d at 331:

 “[F]rom the get-go” on the midco transaction, Pasch’s “contact was
Terry Shockley,” and other corporation shareholders formally
authorized Shockley to act for them in connection with the transaction;

 Pasch’s own confidence in the midco transaction was influenced by
background information that Terry Shockley had obtained regarding
ICA and its principals, and it was Shockley who informed Pasch about
at least some of the tax advice provided by Curtis Mallet;

 Before the agreement for the midco stock purchase was signed, Pasch
told Terry Shockley that Pasch had asked RSM for warranties or
indemnification agreements and RSM had said no, and this concerned
both Pasch and Shockley;

 Before the closing of the midco transaction, RSM and Curtis Mallet
warned of the possibility of a “recharacterization” of the transaction by
the IRS, which would disregard the midco aspect, and Pasch never told
Terry Shockley that there was no risk of a recharacterization;

 Even though Pasch worked with Terry Shockley and others on the
midco transaction, Pasch was never asked to provide an opinion on the
potential tax consequences and he was not qualified to provide such an
opinion;

 More generally, Pasch was not asked by anyone to estimate the tax
liability that might be incurred if the IRS recharacterized the
transaction;

 Pasch was not aware of Terry Shockley soliciting professional advice on
the midco transaction from anyone other than RSM and Curtis Mallet;

 Terry Shockley never said anything to Pasch that indicated that
Shockley did not understand the risk that the midco transaction might
result in recharacterization by the IRS and a large tax obligation; and

 Pasch never told Terry Shockley that he should sell his stock in the
midco transaction, and Shockley never asked Pasch if he should do so.

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No. 2020AP806

¶50 We conclude that, when considered in light of other evidence at trial,
this evidence raised reasonable inferences that Shockley: took an active role in the
midco transaction; was aware of a significant risk that, as eventually occurred, it
would not survive IRS scrutiny, with calamitous tax consequences; and failed to
follow up on this knowledge by sufficiently investigating this significant risk, and
ultimately made the unreasonable decision to proceed with the transaction
anyway.10

¶51 After Murphy Desmond cites to this evidence, the Shockleys fail to
explain why it is not sufficient to show some degree of negligence on his part
under our extremely deferential standard of review, even if there was evidence
contrary to Pasch’s testimony and even if Terry Shockley received at least some
bad advice from professionals. The jury was not obligated to accept the Shockleys
argument at trial that Terry Shockley was not at all negligent because he merely
passively relied on bad professional advice, and the circuit court reasonably
determined that the jury had a basis to weigh the evidence to reject this position.

10
This conclusion is consistent with the well-informed view of the circuit court in
addressing post-trial motions:

Viewing the evidence in the light most favorable to the jury
verdict, [Terry Shockley] is a savvy businessman who was fully
involved throughout the many months of negotiations and
consummation of the midco transaction, and understood its
significant risks for substantial tax liability. He was integrally
involved in all major decisions regarding the stock sale and
midco transaction, and was the prime mover on behalf of all the
plaintiffs.

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No. 2020AP806

C. Sufficiency Of Evidence Of Intentional Torts By RSM And
Curtis Mallet

¶52 The Shockleys argue that the circuit court should have changed the
jury’s verdicts that RSM and Curtis Mallet both committed fraud in connection
with the midco transaction, because fraud was not shown to have been committed
by either RSM or Curtis Mallet through evidence that was clear, satisfactory, and
convincing.11 Murphy Desmond responds that there was ample evidence that
RSM and Curtis Mallet representatives affirmatively lied about their relevant
experience and that RSM, at least for a time, failed to disclose a $1 million
commission, and this evidence was sufficient to support fraud verdicts.

¶53 Regarding the representations of relevant experience, the Shockleys’
brief argument, when boiled down, amounts to the assertion that what the jury
heard was evidence of mere “exaggeration” that the jury was obligated to view as
mere “puffery.” The Shockleys do not challenge the substance of Murphy
Desmond’s summary of evidence, including admissions by RSM and Curtis
Mallet representatives about the nature of their representations and the lack of
basis for them. The Shockleys fail to show that this evidence did not provide a
reasonable basis for the jury to find by clear, satisfactory, and convincing evidence
that both RSM and Curtis Mallet made material, intentional misrepresentations
that they had experience in these complex transactions, which were not mere
“puffery.” The Shockleys do not contend that the jury was improperly instructed

11
Civil fraud claims must be proven by clear, satisfactory, and convincing evidence,
which means evidence that produces a greater level of certainty than the preponderance standard
that required to prove many civil claims. See Wangen v. Ford Motor Co., 97 Wis. 2d 260, 299,
294 N.W.2d 437 (1980) (citing Kuehn v. Kuehn, 11 Wis. 2d 15, 26, 104 N.W.2d 138 (1960)).

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No. 2020AP806

regarding what constitutes a material, intentional misrepresentation.12 Because a
material, intentional misrepresentation of any kind by RSM would suffice to
sustain the fraud verdict against it, we need not address the commission issue
involving RSM.

III. INDEMNIFICTION CONSEQUENCES OF JURY FINDINGS
OF INTENTIONAL TORTS BY RSM AND CURTIS MALLET

¶54 As summarized above, in contrast to Terry Shockley, neither Sandy
Shockley nor Shockley Holdings was found at fault by the jury and Murphy
Desmond was found to be 10 percent responsible for all negligence causing
damage. Based on those facts, Sandy Shockley and Shockley Holdings filed a
post-trial motion arguing that, if the circuit court did not grant a new trial,
“judgment should be entered against Murphy Desmond for 10% of the jury’s
finding of damages caused by negligence” in favor of each of them, which they
argued was “$1.3 million to Sandy Shockley, and $740,000 to Shockley
Holdings.”

¶55 Murphy Desmond made an argument based on the indemnity
doctrine and the existence of the Pierringer releases that would result in a
judgment in its favor, dismissing all claims. The argument was that, under
Fleming v. Threshermen’s Mutual Ins. Co., 131 Wis. 2d 123, 388 N.W.2d 908
(1986), a negligent tortfeasor is entitled to indemnity from an intentional tortfeasor
when the intentional tortfeasor’s liability is joint with that of the negligent

12
The special verdict form did not ask the jury to identify a specific misrepresentation
made by RSM but instead asked only if RSM made “an intentional misrepresentation of fact to
the Shock[l]ey plaintiffs intending to deceive and induce the Shockley plaintiffs to act upon it to
their damage?”

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No. 2020AP806

tortfeasor. Said more completely, Murphy Desmond’s argument follows two
steps. First, a defendant found by the jury to be a negligent tortfeasor (here,
Murphy Desmond) has a right to indemnity from any defendants found by the jury
to be intentional tortfeasors (here, RSM and Curtis Mallet) whose liability was
joint with each other and the negligent tortfeasors. See id. at 130. Second, the
Pierringer release of RSM and Curtis Mallet relieved Murphy Desmond of
liability to Sandy Shockley and Shockley Holdings, because the liability of
intentional joint tortfeasors RSM and Curtis Mallet must be imputed to Sandy
Shockley and Shockley Holdings as settling plaintiffs. See id. at 131 (effect of
Pierringer releases to impute settling defendant’s liability for contributions to
settling plaintiff applies to indemnity as well).

¶56 The circuit court agreed with Murphy Desmond’s argument, and we
concur with the court’s analysis.

¶57 Whether a party has a right to indemnification in the context of a
Pierringer release is an issue of law that we review de novo. Fleming, 131
Wis. 2d at 127.

¶58 Sandy Shockley and Shockley Holdings rest their entire indemnity
argument on the proposition that the intentional conduct of RSM and Curtis Mallet
was, as they put it, shown to be “unconnected” from the negligent conduct of
Murphy Desmond, and therefore Murphy Desmond may only be indemnified for
the portion of its negligence that is “fairly attributable to the conduct of” the
intentional tortfeasors. However, as the circuit court noted and Murphy Desmond
now contends, the Shockleys did not pursue a theory at trial that any damages
were caused exclusively by negligent conduct. Instead, their claim at trial was for
damages for attorneys’ fees, taxes, interest, and penalties all flowing from the

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No. 2020AP806

adverse tax determinations as a result of the combined effects of the negligent and
intentional conduct of multiple parties.

¶59 This readily distinguishes the trial evidence that was at issue in the
primary authority on which Sandy Shockley and Shockley Holdings rely, Imark
Industries v. Arthur Young & Co., 148 Wis. 2d 605, 436 N.W.2d 311 (1989).
Our supreme court concluded in Imark that specific evidence had been adduced at
trial that could have supported both (1) joint liability between negligent and
intentional tortfeasors, which would call for indemnification, and (2) negligence
that was “unaffected by any intentional misrepresentations” by the co-defendants
whose liability was discharged by covenants not to sue, which would not call for
indemnification. Id. at 628-29. For this reason, the court concluded, a new trial
was required to determine, for indemnity purposes, what portion of the liability for
negligent misrepresentation was “attributable” to negligent reliance on intentional
misrepresentations. Id.

¶60 It is not necessary for us to determine whether Sandy Shockley and
Shockley Holdings possibly could have tried their case in a different way that
would have brought Imark into play. They concede through silence that they
cannot point to evidence of damages caused by negligence of Murphy Desmond
that could not also be attributed to, or related in some manner to, intentional
misrepresentations of RSM and Curtis Mallet. The circuit court pointed out in its
decision on this issue that, even after the court explicitly invited them “to cite to
any record evidence of causal negligence on the part of Murphy Desmond that was
not joint with RSM and Curtis Mallet’s liability within the meaning of Imark and
Fleming,” they were unable to do so. This remains the case in their briefing on
appeal.

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No. 2020AP806

¶61 It is unclear, but Sandy Shockley and Shockley Holdings may intend
to argue that their position that there should be no indemnification is bolstered by
an interpretation of the damages verdicts that at least in some respects differs from
the interpretation of the circuit court. In any case, we fail to discern a developed
argument undermining the damages interpretation of the circuit court, much less
one that could affect the indemnity issue. The court’s interpretation was that, by
its terms, the special verdict stated the damages as summarized supra at ¶18. We
agree with this interpretation of the verdict form, and Sandy Shockley and
Shockley Holdings are unclear in expressing a contrary view.

¶62 They argue at one point that “the jury intended to award $19 million
to Sandy Shockley, allocated between negligence ($13 million) and intentional
conduct ($6 million).” As part of this position, the Shockleys argue that the fact
that the jury found identical sums attributable to the intentional tortfeasors ($6
million for each) demonstrates that these separate findings were of “a single, joint
amount” of damages due to intentional conduct. We fail to see a basis for this
position. The jury found that there was not only $6 million in damages to Sandy
Shockley due to intentional conduct of RSM but also $6 million in damages to her
due to intentional conduct of Curtis Mallet. And to repeat, whatever the
Shockleys intend to argue regarding the proper interpretation of the special
verdicts, they fail to explain how any such argument could support their argument
against indemnity.

¶63 For all of these reasons, we affirm the judgment of the circuit court.

By the Court.—Judgment affirmed.

This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.

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