David L. Phillips, Jr., Plaintiff,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-1921

David L. Phillips, Jr.,
Plaintiff,

Lisa Marie Phillips,
Appellant,

vs.

Diane L. Phillips,
Respondent,

Sheridan Properties, LLC,
Defendant,

and

3-Daves, LLC,
Third Party Defendant.

Filed February 5, 2018
Affirmed
Reilly, Judge

Rice County District Court
File No. 66-CV-14-790

Mark J. Schneider, Gary K. Luloff, Chestnut Cambronne PA, Minneapolis, Minnesota (for
appellant)

Peter W. Johnson, Excelsior, Minnesota (for respondent)

Considered and decided by Reilly, Presid ing Judge; Worke, Judge; and Rodenberg,
Judge.

2
U N P U B L I S H E D O P I N I O N
REILLY, Judge
In this appeal, appellant argues that th e district court abused its discretion by
declining to reform seven promissory notes. Appellant also challenges the district court’s
calculation of her interest in a limited liability company (LLC), and argues that respondent
is not entitled to a contribution award due to unclean hands. Because the district court did
not abuse its discretion in declining to refo rm the promissory note s or in finding that
respondent does not have uncl ean hands, and because its cal culation of appellant’s LLC
interest was not clearly erroneous, we affirm.
FACTS
In June 2005, David Phillip s, Sr. (David Sr.) and hi s spouse, respondent Diane
Phillips, formed a business, 3-Daves LLC (3-D aves), with David Sr.’s two sons and their
spouses. 3-Daves was created to invest in and develop real estate . David Phillips, Jr.
(David Jr.) and his wife, appellant Lisa Ph illips, held joint owne rship of a one-third
membership interest in 3-Daves; David Larry Phillips (David Larry) and his wife, Michelle
Phillips, held another one-third membership interest; a nd David Sr. and Diane held the
remaining one-third membership interest in 3-Daves.1
Each of the couples made in itial capital contributions to 3-Daves. With that initial
capital, 3-Daves acquired properties in Faribau lt, Dundas, and Lonsdale (the Properties).
In 2008, 3-Daves decided to develop the Faribault property for residential renters. To this

1 Appellant and respondent are referred to by their first names for clarity.

3
end, David Sr. and Diane a dvanced additional funds; these contributions were
memorialized in a series of seven “Promissory Notes” (the Notes). 3-Daves was not a party
to any of the Notes. Instead, David Jr., Lisa , David Larry, and Michelle signed the Notes
individually as borrowers and guarantors.
In 2010, David Sr. died, a nd his governing and financial interests in 3-Daves passed
to respondent, his wife, Diane. Soon after, David Jr., David Larry, and Michelle each filed
for bankruptcy. Appellant Lisa did not file for bankruptcy, which left her and respondent
as the remaining individuals with governing interests in 3-Daves. In 2011, Diane appointed
herself chief manager of 3-Daves.
Around this time, mortgage holder New Market Bank began foreclosure
proceedings on the Lonsdale property. Diane and New Market Bank reached a settlement
for the Lonsdale property an d some of Diane’s individual obligations. The settlement
agreement required Diane to pay a sum of money to New Market Bank, including $100,000
toward the balance on the Lonsdale property loan. New Market Bank also agreed to a new
amortization schedule for the remaining $160,000 balance on the Lonsdale property loan.
After settling with New Market Bank, Diane transferred th e Lonsdale property from 3-
Daves to East View LLC, of which she was the sole owner and manager. East View LLC
assumed the remaining $160,000 balance on th e Lonsdale property loan. Diane made
repairs to the Lonsdale prope rty and sold it for $168,000, receiving $1,598.60 in net
proceeds.
In 2013, David Jr. and Lisa sold their principal residence, which was encumbered,
in part, by a judgment lien held by Diane. David Jr. and Lisa sought a declaratory judgment

4
in district court that the proceeds of their home sale were exempt from liens under the
homestead exemption. Diane filed a number of counterclaims, including a claim for default
on the Notes and a claim for contribution for the settlement amount paid to New Market
Bank for the Lonsdale property loan. Lisa argued that the Notes were intended to provide
Diane priority to the proceeds from the sale of the property, and the parties never intended
the Notes to function as prom issory notes. Lisa then ar gued that she possessed a 50%
governance interest in 3-Daves because she a nd David Jr. held their interest in a joint
tenancy, and that Diane could not unilaterally act with regard to the Lonsdale property.
Lisa also claimed Diane was not entitled to contribution because she came with unclean
hands.
After a court trial, the district court gr anted Diane’s claims and entered a judgment
in favor of Diane for $256, 126.86. The district court de termined that David Jr.’s
bankruptcy filing severed his joint tenancy with Lisa. David Jr.’s governance interest in 3-
Daves then terminated on his bankruptcy, and his 25% governing interest was split between
Lisa and Diane, which left Diane with a 67% majority governing interest. Because Diane
possessed a majority governing interest, she was authorized to transfer the Lonsdale
property to Eastview LLC to protect the property from potential claims by creditors. This
appeal followed.

5
D E C I S I O N
I. The district court did not abuse its di scretion by declining to reform the
Notes.

Lisa argues the district court abused its discretion when it declined to reform the
Notes to effect her desired meaning. To support her position, Lisa argues that there was a
mutual mistake between the parties, and they did not intend for the Notes to create a loan.
According to Lisa, the parties understood that the Notes provided priority to Diane for the
proceeds of a sale of any of the Properties.
Contract reformation is an equitable remedy. SCI Minn. Funeral Servs., Inc. v.
Washburn-McReavy Funeral Corp., 795 N.W.2d 855, 864 (Minn. 2011). Appellate courts
review “equitable determinations for abuse of discretion.” City of N. Oaks v. Sarpal, 797
N.W.2d 18, 23 (Minn. 2011). A party seeking contract re formation for mutual mistake
must prove that
(1) there was a valid agreement between the parties expressing
their real intentions; (2) the written instrument failed to express
the real intentions of the parties; and (3) this failure was due to
a mutual mistake of the par ties, or a unilateral mistake
accompanied by fraud or inequitable conduct by the other
party.

SCI, 795 N.W.2d at 865 (citatio n omitted). The elements mu st be established through
“evidence which is clear and consiste nt, unequivocal and convincing.” Id. (citations
omitted). The level of proof for contra ct reformation is a “high burden.” Id. (citation
omitted).
Lisa’s argument fails on the third prong. Lisa has not shown with “unequivocal and
convincing” evidence that there was a mutual mi stake between the parties. Id. L i s a

6
testified that the Notes were to be repaid when any of the Properties were sold and that the
proceeds would go to Diane first before being paid to the other members of 3-Daves. Lisa
also testified that there were never discussions of a forced sale triggering repayment of the
Notes. She claimed that no monthly payments were ever made on the Notes and that no
interest-only payments were made either. Diane also testified that she understood the
Notes were to be repaid upon the sale of one of the Properties and that the proceeds would
be paid to her first before the other members of 3-Daves. However, Diane further testified
that she thought of the Notes as “loans,” an d that “we were making the loans to the four
individuals, and they were responsible for it. And like I said, hopefully the properties
would sell, we would all make some money.” Diane’s testimony supports the district
court’s finding that there was no mutual mi stake because respondent believed that the
Notes created indebtedness.
Lisa also claims that there is “undisput ed testimony” that the “boilerplate language
was unintentionally included through the mutual mistake of both parties.” Diane testified
that she chose the promissory note form beca use it would be “in the proper form” and “it
was [her] intention that the note would be payable.” Diane’s testimony directly rebuts
Lisa’s argument—Diane chose the form on purpose. On this record, the district court did
not abuse its discretion in determining that Lisa failed to meet the “high” bar of
“unequivocal and convincing” evidence that there was a mutual mistake between the
parties. Thus, the district court did not err by awarding Diane judgment on the Notes. See
SCI, 795 N.W.2d at 865.

7
II. Lisa failed to sustain her burden of showing that the district court erred by
determining that Lisa and David Jr.’s joint tenancy was severed by David
Jr.’s bankruptcy filing.

The district court determined that Davi d Jr. severed David J r. and Lisa’s joint
tenancy in their membership interest in 3-Daves by listing on his bankruptcy filing a “1/4
interest” in 3-Daves. Lisa argues the distri ct court erred by determining that Diane and
Lisa each took one-half of Dave Jr.’s gove rnance interest when David Jr.’s bankruptcy
caused his interest to terminate under statut e. Because Lisa has mischaracterized the
district court ruling and has failed to adequate ly show that the district court erred, we
affirm.
The district court’s ruling presents a mi xed question of law and fact, because the
court determined that the content of David Jr.’s bankruptcy filing evidenced a severance of
the joint tenancy between David Jr. and Lisa.
We give the district court’s factual findings great deference and
do not set them aside unless clearly erroneous. However, we
are not bound by and need not gi ve deference to the district
court’s decision on a purely legal issue. When reviewing
mixed questions of law and fact, we correct erroneous
applications of law, but accord the [district] court discretion in
its ultimate conclusions and review such conclusions under an
abuse of discretion standard.

Porch v. Gen. Motors Acceptance Corp. , 642 N.W.2d 473, 477 (Minn. App. 2002)
(alteration in original) (quotations and citations omitted), review denied (Minn. June 26,
2002).
Each of 3-Daves’ founding couples or iginally owned a one-third membership
interest as joint tenants. It is undisputed that, upon David Sr.’s death, Diane became the

8
sole owner of a one-third interest in 3-Daves. It is also undisputed that, upon David Larry
and Michelle’s bankruptcy, th eir one-third interest in 3-Daves was split between the
remaining couples. David Jr. and Lisa received an additional one-sixth interest, and Diane
received an additional one-sixth interest. Th is left David Jr. and Lisa with a one-half
interest as joint tenants and Diane with a one-half interest as a sole owner.
When David Jr. filed bankruptcy, he listed his interest in 3-Daves as a “1/4 interest.”
David Jr. reported $1 as the value of his interest, and he sought an exemption for his interest
under 11 U.S.C. § 522(d)(5)(2 017). The district court he re ruled that David Jr.’s
bankruptcy filing severed the joint tenancy in his and Lisa’s interest in 3-Daves, leaving
him with a 25% individual interest. The dist rict court then determined that his 25%
governing interest in 3-Daves terminated upon his bankruptcy under Minn. Stat.
§ 322B.306, subd. 1(viii) (2016).
Lisa argues that the district court erred by ruling that the termination of David Jr.’s
interest of 3-Daves under § 32 2B.306, subd. 1(viii) diminished appellant’s interest in 3-
Daves. Lisa mischaracterizes the district court’s ruling. In actuality, the district court ruled
that David Jr. severed the joint tenancy by claiming a 25% individual interest in 3-Daves
in his bankruptcy filing. The district court then found that David Jr.’s resulting 25% interest
was terminated by his bankruptcy under § 322.306, subd. 1(viii). Lisa does not address
the issue of severance in her brief and did not properly characterize the posture of the
district court ruling. Lisa offers no caselaw rebutting the district court’s determination that
the joint tenancy was severed by David Jr. cl aiming a 25% individual interest in 3-Daves
in his bankruptcy filing. Because Lisa offe rs no authority to support her argument and

9
patently mischaracterizes the decision of the di strict court, we conclude that Lisa has not
met her burden of showing that the district court erred. See Jacobson v. Chicago & N. W.
Ry. Co., 221 Minn. 454, 462, 22 N.W.2d 455, 46 1 (1946) (“The burden of showing error
is on the appellant, and where, as here, he fa ils to sustain the burden, decision must go
against him.”).
III. The district court did not abuse its disc retion in rejecting Lisa’s unclean-
hands argument.

Lisa argues that Diane is not entitled to contribution because she claimed equitable
relief with unclean hands. Li sa contends that Diane acted with a bad motive when she
transferred the Lonsdale property to Eastview LLC for personal benefit.
Contribution is an equitable remedy whereby two people who share a common
burden must share in the cost of that burden. Hammerschmidt v. Moore, 274 N.W.2d 79,
81 (Minn. 1978). A person’s request for equitable relief may be denied if they seek relief
with unclean hands, which is an action made “unconscionable by reason of a bad motive,
or where the result induced by [their] conduct will be unconscionable either in the benefit
to [themselves] or the injury to others.” Peterson v. Holiday Recreational Indus. Inc., 726
N.W.2d 499, 505 (Minn. App. 2007), review denied (Minn. Feb. 28, 2007). This court
reviews “equitable determinations for abuse of discretion.” Sarpal, 797 N.W.2d at 23.
Throughout the settlement process with New Market Bank, Diane believed she had
a governing interest, which indi cates that she did not believe she was doing anything
wrong. Furthermore, Diane did not choose to transfer the Lonsdale property to Eastview
LLC to benefit herself—the transfer was a condition of the settlement agreement with New

10
Market Bank. Diane’s other properties involved with the New Market Bank settlement
were also transferred to Eastview LLC. In fact, Eastview LLC was created to effectuate
the settlement agreement. The district court did not err in determining that Diane did not
possess a “bad motive” sufficien t to show unclean hands. See Peterson, 726 N.W.2d at
505. Accordingly, the district court did not abuse its discretion by rejecting Lisa’s unclean-
hands argument and granting Diane’s request for contribution.
Affirmed.