LAW OF ACCOUNTANTS A QUESTION OF ETHICS-- Agency Formation and Duties: Emergency One, Inc. (EO), makes re and rescue vehicles. Western Fire Truck, Inc., contracted with EO to be its exclusive dealer in Colorado and Wyoming through December 2003. James Costello, a Western salesperson, was authorized to order EO vehicles for his customers. Without informing Western, Costello e-mailed EO about Westerns dif culties in obtaining cash to fund its operations. He asked about the viability of Westerns contract and his possible employment with EO. On EOs request, and in disregard of Westerns instructions, Costello sent some payments for EO vehicles directly to EO. In addition, Costello, with EOs help, sent a competing bid to a potential Western customer. EOs representative e-mailed Costello, You have my permission to kick [Westerns] ass. In April 2002, EO terminated its contract with Western, which, after reviewing Costellos e-mail, red Costello. Western led a suit in a Colorado state court against Costello and EO, alleging, among other things, that Costello breached his duty as an agent and that EO aided and abetted the breach. [ Western Fire Truck, Inc. v. Emergency One, Inc., 134 P.3d 570 (Colo.App. 2006)]

(a) Was there an agency relationship between Western and Costello? Western required monthly reports from its sales staff, but Costello did not report regularly. Does this indicate that Costello was not Westerns agent? In determining whether an agency relationship exists, is the right to control or the fact of control more important? Explain. (b) Did Costello owe Western a duty? If so, what was the duty? Did Costello breach it? If so, how? (c) A Colorado state statute allows a court to award punitive damages in circumstances of fraud, malice, or willful and wanton conduct. Did any of these circumstances exist in this case? Should punitive damages be assessed against either defendant? Why or why not?