Business Contracts Which state to file lawsuit in?

[Wallace Mench]

Jurisdiction

Colorado

I think I know the answer to this but want to double-check.

We had a business in Colorado and had/have a verbal agreement (backed up by documents -- just not a signed contract) with another business in that state.

A few years ago we moved our business from Colorado to Nevada. Recently the other party has breached the contract and we're planning to file suit against them.

Q: Do we file suit in Colorado or Nevada?

Thanks for any and all help!

 

[army judge]

Q: Do we file suit in Colorado or Nevada?

If your defendant is located in Colorado, it might be easier to sue it in Colorado.

 

[Tax Counsel]

I think I know the answer to this but want to double-check.

We had a business in Colorado and had/have a verbal agreement (backed up by documents -- just not a signed contract) with another business in that state.

A few years ago we moved our business from Colorado to Nevada. Recently the other party has breached the contract and we're planning to file suit against them.

Q: Do we file suit in Colorado or Nevada?

Thanks for any and all help!

With just the information you provided, you must file in Colorado — suing in Nevada isn't an option because you've not given any indication that the defendant has sufficient ties to Nevada to be subject to suit in that state or that the defendant has consented in the contract to be sued in Nevada.

 

[zddoodah]

We had a business in Colorado

Had? As in no longer have? What is the entity form of this business (e.g., general or limited partnership, corporation, LLC, etc.)?

Do we file suit in Colorado or Nevada?

That depends on a lot of facts not included in your post. The only thing anyone can say for sure based on your post is that a lawsuit arising out of a contract between two businesses who, at the time of formation of the contract, were based in Colorado, and where the defendant is still based in Colorado, may properly be filed in Colorado. Do you have any reason to believe that filing in any other state would be appropriate?

 

[Wallace Mench]

Thanks all for your responses. I'll try to fill in some of the blanks based on your questions:

A decade ago we came to an agreement with another company for hosting sales referrals. The agreement was reached via email and neither of us believes a contract was actually signed (and/or can't find one).

Both companies at the time were Colorado LLCs. In 2019 we moved our business to Nevada and modified our old Colorado business registration to Foreign Corp status.

We have operated under this agreement and received commission checks at the end of each year for every year since the original agreement. This year there was a disagreement over business practices and the other party declared the agreement ended (which is why I said "Had"). They sent us our annual check and told us it would be our last.

As the commission payments are supposed to be ongoing (as long as our referred client stays with them), we believe there's a breach of contract and will be contacting an attorney to make sure this is true.

So what's confusing is that we're a Nevada LLC, they are a Colorado LLC, the original agreement was established while we were both Colorado LLCs but has been operated the last two years between a Colorado LLC and a Nevada LLC.

This is why I need to understand whether we should be filing in Colorado or Nevada. My thinking is if we're filing in Colorado we'd want a Colorado attorney (which I guess is an assumption I would also like advice on).

Thanks for any and all help!

 

[Zigner]

Does your contract specify how long payments will last?

EDIT: It's quite possible that your contract is not enforceable under the Colorado Statute of Frauds due to the length of time for performance being greater than one year. Definitely speak to a Colorado attorney about it.

 

[zddoodah]

This is why I need to understand whether we should be filing in Colorado or Nevada. My thinking is if we're filing in Colorado we'd want a Colorado attorney (which I guess is an assumption I would also like advice on).

Nothing in your follow up posts provides any reason to believe a lawsuit in Nevada would be appropriate because nothing you've posted indicates the other company is subject to jurisdiction in Nevada. A State X corporation or LLC is not subject to jurisdiction in State Y solely because it conducts business with a State Y corporation or LLC.

And yes, if you're suing in Colorado, you'll need an attorney admitted in Colorado. Obviously, most attorneys admitted in Colorado are located in Colorado. You might be able to find an attorney in Nevada who is also admitted in Colorado, but finding such an attorney could prove difficult.

 

[Wallace Mench]

Does your contract specify how long payments will last?

EDIT: It's quite possible that your contract is not enforceable under the Colorado Statute of Frauds due to the length of time for performance being greater than one year. Definitely speak to a Colorado attorney about it.

We don't have an actual contract (that we know of), just an oral agreement based on emails. In the original email I explained the relationship we had with another company and that the commissions were ongoing -- this is essentially what they agreed to.

I noticed the first condition in the Colorado Statute of Frauds but couldn't quite understand it. It basically says:

...the following types of contracts are governed by Colorado's statutes of frauds:
– Contracts that are for a longer period than 1 year​

It's also noted that the courts can ignore this to get to the heart of the contract. Indeed, while we don't have a "contract" everything was written down, just not signed. Furthermore, the actions of the other party over the last decade has been to adhere to the agreement with regard to payment. The question is whether they can simply cancel the agreement and stop paying commissions on things we've already sold on their behalf.

Biggest question for me right now is whether I need a Nevada attorney or Colorado attorney based on the above.

Thanks!

 

[Tax Counsel]

Biggest question for me right now is whether I need a Nevada attorney or Colorado attorney based on the above.

Thanks!

A Colorado attorney. Nothing in your posts suggests that Nevada would have personal jurisdiction over the Colorado defendant.

 

[Wallace Mench]

A Colorado attorney. Nothing in your posts suggests that Nevada would have personal jurisdiction over the Colorado defendant.

Thank you!

 

[Zigner]

It's also noted that the courts can ignore this to get to the heart of the contract.

Umm...no.

I'm not sure whom you believe "noted" this.

 

[zddoodah]

I noticed the first condition in the Colorado Statute of Frauds

The statute of frauds is a law that has little to nothing to do with fraud. It's a law that says certain types of contracts must be in writing to be enforceable (although there are exceptions). One type of contract is a contract that cannot, under any circumstances, be completed within a year after it is made. There is zero chance that the contract you described would fall within this law.

 

[Zigner]

There is zero chance that the contract you described would fall within this law.

Maybe I'm misunderstanding what you mean. Why would a contract that cannot be completed in a year (such as the one described by the OP) not fall under the statute of frauds? As an alternate question that would serve the same purpose...how does the OP's description not describe a contract that cannot be completed within a year?

 

[zddoodah]

Maybe I'm misunderstanding what you mean. Why would a contract that cannot be completed in a year (such as the one described by the OP) not fall under the statute of frauds? As an alternate question that would serve the same purpose...how does the OP's description not describe a contract that cannot be completed within a year?

I'll start by noting that I may very well not be understanding the nature and workings of the deal correctly. However....

The OP described an agreement whereby one of the companies "host[ed] sales referrals" (whatever that means) in exchange for "commission checks," which were "supposed to be ongoing (as long as our referred client stays with them)."

"As long as [the] client stays with them" could be one day, one month, one year or 50 years, so the agreement could be fully performed in more or less than a year. The agreement could also be terminated at will.

 

[Zigner]

I will agree with you. I found information on attorney websites that would seem to imply that contracts of indefinite duration are a different matter, but the Colorado statutes don't appear to actually have such an exception.

 

[zddoodah]

I've not researched this issue in Colorado, but I believe it is almost universal that, if there is any way a contract can be fully performed in less than a year, it will not be found to violate the SOF.

 

[Wallace Mench]

Let me see if I can simplify this. Sorry for the length, after reading your posts I think it's warranted.

Imagine you're really good and getting people to rent houses. So you propose a deal with a property management company that you make 10% of the rent in perpetuity for every renter you bring them.

So in January you bring them Jack and Jill and they rent the house on Main street for $1,000/month.
Also in January you bring them Sam and Sally and they rent the house on Johnson street for $1,000/month.

At the end of the year 1 they have collected $24,000 in rent and they pay you a commission of $2,400.
If both couples stay on through year 2 and the rent stays the same, you get another $2,400 and this continues every year until they move out.

For the last 11 years you've been working your sales magic and they've been collecting the rent and paying you your commissions.

But in June of 2021 they said something nasty about you to one of the renters and so you stop sending them new renters. At the end of 2021, they send you a check (for all of 2021) and tell you your agreement is over. You complain, they say you cashed the check so you must have agreed, and the argument continues.

Now, the problem is this, you can't find a signed contract and don't remember whether one was signed. In the beginning, you sent them an email describing the agreement you wanted in detail and they sent you a rough draft describing it in their own terms. The idea was to put together a contract but as neither party can find it nobody believes it exists. However, you do have in electronic form the original email and their response.

Somewhere during those first days they verbally changed the deal so that they pay you a fixed fee of $100 instead of 10% and we both verbally agreed to it. This isn't written anywhere that you can find.

They are now saying:

1. You broke the agreement in June when you stopped referring new renters to them. Note -- there was nothing in any agreement that said you couldn't refer to other property management companies.
   
   
2. The rents were never supposed to be in perpetuity even though that's exactly how you described the agreement in the initial email and exactly how they've been paying you for 11 years.
   
   
3. As you don't have a signed contract (or it can't be found) this is a verbal agreement and as it cannot be completed in one year it has to be renewed each year and is thus now void.

My thoughts:

As the agreement was written out in emails and with the evidence of their payments to me according to those terms (though a slightly different fee), this seems like an oral agreement backed up by written proof and actions.

The first paragraph on the following page "seems" to support this:
Oral contracts - Colorado - Stutheit & Gartland P.C.

It does go on though to say the following:

The Colorado "statute of frauds" does require that certain contracts be in writing. Section 38-10-112 of the Colorado Revised Statutes says the following are void agreements, if not written:
(a) Every agreement that by the terms is not to be performed within one year after the making thereof;​

That's what's royally confusing me. Is the oral contract voided by the fact that this agreement extends beyond one year?

Lastly, as to where I found the info that the courts can overrule this -- it's from the bottom of that same page where it says:

However, Colorado courts have the authority to enforce an oral contract, despite the statute of frauds, in cases of part performance of such agreement. The part performance must be substantial, not minimal. The theory behind this is that a party to an agreement should not be able to use of the statute of frauds as an instrument or shield for fraud against the party who performs the contract, whether or not it is oral.​

I've done a lot of reading on the subject but I'm not an attorney and I can't figure out whether the one-year issue voids everything or even whether the proof of our oral agreement is enough to make it valid. It's frustrating as I've done all the work in getting them their clients and even spend time convincing the clients not move to other companies each year but now I no longer get commissions. I can tell my clients to move to another company but that's a pain for them (and me!).

Thoughts?

 

[Zigner]

Thoughts?

Yes - see an attorney.