WI Court of Appeals rules client's guilty plea bars malpractice claim against attorney.

Byline: David Ziemer

A client's guilty plea bars her from bringing a malpractice action against her attorney, the Wisconsin Court of Appeals held on Feb. 26.

Patricia Mrozek, a financial advisor and securities agent, retained the law firm of Mallery & Zimmerman, S.C., to assist her in forming PMI, a corporation formed to construct and operate a motel.

After hiring the Mallery firm, Mrozek began soliciting investments in the project, obtaining loans from 20 or more individuals totaling over $500,000. Construction began, although no institutional financing was ever acquired.

While obtaining financing, Mrozek's securities agent license was revoked by the Wisconsin Commissioner of Securities for actions in the sale of unrelated investments.

Also during this time, the Mallery firm prepared a private placement memorandum on behalf of Mrozek for the sale of shares in the corporation and filed it with the commissioner's office for approval. The commissioner rejected the memorandum because it incorrectly represented that Mrozek held a securities agent license.

The commissioner accepted a revised offering memorandum and issued an exemption containing stringent "investor suitability standards" that restricted investors to those meeting certain net worth and income requirements.

No investors meeting the requirements for purchasing shares were found and, in late 1993, the commissioner revoked the exemption for the sale of the stock. Shortly thereafter, the Mallery firm withdrew from representing Mrozek and PMI.

Mrozek was later charged with 13 felony counts for willfully failing to disclose material facts in connection with the project. Pursuant to a plea agreement, she pleaded guilty to two counts of felony securities fraud, and three counts of misdemeanor theft by fraud.

The court placed her on probation for the misdemeanor theft convictions, with jail time and restitution as conditions. Judgment on the felonies was withheld pursuant to a deferral agreement.

PMI then filed for bankruptcy, listing a claim against the Mallery firm for malpractice as an asset of the corporation, but also identifying the firm as an unsecured creditor of the corporation for its unpaid legal bills.

The appointed trustee chose not to pursue the claim against Mallery, and the estate was ordered closed.

Mrozek and PMI then commenced a legal malpractice action against Mallery. Portage County Circuit Court Judge Frederic W. Fleishauer granted summary judgment to Mallery, holding...