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Thursday, February 9, 2006

Does an E-Mail Ending in a Company's Domain Name Cloak the Sender with Apparent Authority?

Is it reasonable to believe that a person who sends an e-mail from an address ending in a company’s domain name has authority to act on behalf of that company? The District Court of Massachusetts recently held that, as a matter of law, it was not reasonable for the recipient of an e-mail sent from a company’s domain name to believe that the sender had authority to act on behalf of the company.

Albert Arillotta, representing to be both from Interstate Demolition and Recovery Express (“IDEC” and “Recovery”) sent an e-mail to Len Whitehead of CSX, a business that sells out-of-service railcars and parts. The e-mail (typos and all) proposed the following:

From: Albert Arillotta [albert@recoveryexpress.com]
Sent: Friday, August 22, 2003 4:57 PM
To: Whitehead, Len Jr.
Subject: purchase of out service railcars

lynn

this is albert arillotta from interstate demolition and recovery express we are interested in buying rail cars for scrap paying you a percentage of what the amm maket indicator is there are several locations i suggest to work at the exsisting location of the rail cars. we will send you a brocheure and financials per your request our addressis the following:
interstate demolition/recoveryexpress
180 canal street 5th floor boston mass 02114
phone number617-523-7740
fax number 617-367-3627
email address albert @recoveryexpress .com
thank you for your time

After some telephone conversations, Arillotta and Whitehead apparently proceeded with this proposed deal, and the railcars were delivered by CSX to a location specified by Arillotta. After delivery, CSX sent invoices to IDEC for the scrap railcars totaling $115,757.36. When IDEC and Recovery apparently refused to pay, CSX brought an action alleging, among other things, breach of contract and unjust enrichment.

Whitehead alleged that, at all times during his dealings with Arillotta, he believed that Arillotta was representing, and authorized to act on behalf of, Recovery and IDEC. Whitehead apparently based this belief on the e-mail's domain name (recoveryexpress.com) and the representations of Arillotta to him both in the e-mail and in subsequent telephone conversations. However, Recovery claimed that Arrillotta never worked for it, and was not authorized to represent or transact business on behalf of Recovery or IDEC.

Apparently, Arillotta obtained a Recovery e-mail address by becoming involved in the separate IDEC venture with Recovery’s president and treasurer. IDEC and Recovery shared offices and some resources, including e-mail services. Other than physical resources, there was no evidence that Recovery ever shared anything with IDEC -assets, funds, books of business, bank accounts, or insurance coverage.

The court noted that “CSX genuflects to the possibility that Arillotta was granted actual authority by Recovery,” but quickly dismissed any argument that Arillotta had actual authority to act on behalf of Recovery. Thus, the issue was whether Arillotta had apparent authority to act on behalf of Recovery. The court defined the issue narrowly as “whether a domain name, by itself, cloaks a purported agent with authority sufficient as matter of law to be called ‘apparent.’”

The court wrote:

Because apparent authority depends on that knowledge held by Whitehead and CSX of Arillotta's authority, which knowledge was derived from actions of Recovery, the only relevant conduct by Recovery is that it issued Arillotta an e-mail address with its domain name. Such associations as Recovery having the same offices, mailing address, phone number, or fax number are red herrings; these facts-if Whitehead even possessed them prior to entering the contract-emanated from Arillotta by way of his e-mail signature or telephone representations. There is no evidence of the manifestation of those facts by Recovery to Whitehead and CSX (i.e., by way of its website, as CSX asserted at oral argument) until after the contract was entered and collection efforts had begun.

The only act taken by Recovery known to Whitehead and CSX prior to entering the contract and upon which Whitehead could rely, was its issuance to Arillotta of an e-mail address sporting Recovery's domain name (@recoveryexpress.com). The Court holds that Whitehead and CSX were unreasonable, as matter of law, in their reliance solely on an e-mail domain name. Such a manifestation by Recovery cannot be sufficient to sustain a claim of apparent authority. Granting an e-mail domain name, by itself, does not cloak the recipient with carte blanche authority to act on behalf the grantee. 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.

Though e-mail communication may be relatively new to staid legal institutions, the results in analogous low-tech situations confirm this conclusion. The Court could find no cases where, for example, giving someone a business card with the company name or logo, access to a company car, or company stationery, by themselves, created sufficient indicia of apparent authority … An e-mail domain name is sufficiently analogous to business cards, company vehicles, and letterhead for these cases to be persuasive. 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.

The court chided Whitehead for his “gullibility,” and stated that

CSX and Whitehead should have been more suspicious of an unsolicited, poorly written e-mail that arrived late one Friday afternoon. There are means by which CSX could have protected itself (e.g., requiring a purchase order form from IDEC or Recovery). Before delivering goods worth over $115,000 to a stranger, one reasonably should be expected to inquire as to the authority of that person to have made such a deal. Given the anonymity of the Internet, this case illustrates the potential consequences of operating-even in today's fast-paced business world-as did CSX.

CSX Transp., Inc. v. Recovery Express, Inc. (D. Mass. Feb 1, 2006).

[Meredith R. Miller]

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