Sufficiency of Evidence.

• Author: Hawkins, Derek
• Position: Allsop Venture Partners III, et al., v. Murphy Desmond SC, et al.

Byline: Derek Hawkins

WI Court of Appeals District IV

Case Name: Allsop Venture Partners III, et al., v. Murphy Desmond SC, et al.,

Case No.: 2020AP806

Officials: Blanchard, P.J., Fitzpatrick, and Graham, JJ.

Focus: Sufficiency of Evidence

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. See id. at 1256.

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. 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...