E-mail Alone Didn't Trigger 'Apparent Authority'

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A rail company that sold railcars to an individual supposedly acting on behalf of another company can’t sue the other company for breach of contract – even though the individual used that company’s e-mail domain name as part of the transaction.

The rail company said the man’s use of the other company’s e-mail domain name gave him apparent authority to act on the company’s behalf.

But a federal judge in Massachusetts disagreed, saying the use of an e-mail domain alone is not enough to create an agency relationship.

Judge William G. Young wrote, “Granting an e-mail domain name, by itself, does not cloak the recipient with carte blanche authority to act on behalf [of the buyer]. Were this so, every subordinate employee with a company e-mail address – down to the night watchman – could bind a company to the same contracts as the president. This is not the law.”

The judge characterized his decision as a case of first impression.

The case is CSX Transportation, Inc. v. Recovery Express, Inc. (Docket No. 04-12293). The opinion is located on the web at http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=young/pdf/csxfinalopinion.pdf.

Attorney Kevin P. McMahon, who represented the company sued for breach of contract, said the ruling involved the “age-old argument of the extent of a principal’s actions inferring apparent authority on an agent.” McMahon said that while his client allowed the man to use of its domain name, nothing else supported the seller’s belief that the man was acting with authority on behalf of McMahon’s client.

“If there is a long line of other activities that supplement the use of an e-mail domain, business card or company credit card, those things may go to demonstrating apparent authority, but any one of those isn’t enough,” said McMahon, who is based in Quincy, Mass.

“Apparent authority comes from the actions of a principal, not the purported statements of an agent,” he noted.

Boston attorney Wesley S. Chused, local counsel for the seller, referred all questions to the seller’s lead attorney, Paul D. Keenan of Philadelphia, who could not be reached.

Duped in the Deal

The defendant, Recovery Express, Inc., became involved in a business venture known as Interstate Demolition and Environmental Corp. (IDEC). It allowed Albert Arillotta, a partner at fledgling IDEC, to use some of Recovery’s resources – including telephones, faxes and e-mail services.

In August 2003, Arillotta sent an e-mail using the e-mail address of [email protected] to Len Whitehead Jr., who worked for the seller, CSX Transportation, Inc., which sold out-of-service railcars and parts.

In the e-mail, Arillotta said he worked for Recovery and that he, on behalf of the company, was interested in buying railcars for scrap.

The deal moved forward and, according to McMahon, CSX Transportation sold Arillotta $115,000 worth of rail cars, which Arillotta dismantled at CSX and transported to another location.

The check Arillotta wrote to CSX to cover the cost of the railcars bounced and Arillotta has not been heard from since.

CSX subsequently sent invoices to both Recovery and IDEC for the purchase, but the companies refused to pay, prompting CSX to sue Recovery.

E-mail Not Sufficient

It was unreasonable for CSX to rely solely on the use of an e-mail domain name to conclude that Arillota had apparent authority to act on behalf of Recovery, Young ruled.

The judge likened the situation to earlier cases where apparent authority didn’t exist when third parties purporting to be agents of a principal presented “low-tech” evidence of such a relationship – such as a business card or company stationery.

“An e-mail domain name is sufficiently analogous to business cards, company vehicles, and letterhead for these cases to be persuasive,” wrote Young.

He continued: “Those indicia of apparent authority all convey some degree of association between the purported principal and agent. By themselves, however, no reasonable person could conclude that apparent authority was present. The same is true with e-mail domain names.”