Full opinion text
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER OF JUDGMENT SARIS, District Judge. INTRODUCTION This case involves a mismanaged construction project. In August 1994, The George Hyman Construction Company (“Hyman”) became the general contractor on a project to build a mail processing center in Waltham, Massachusetts for the United States Postal Service (“USPS”). Hyman subcontracted with a brand-new company, defendant Cal-vesco, Inc. (“Calvesco”), for demolition and site work scheduled to begin immediately. Within weeks and with Hyman’s consent, Calvesco was replaced by a different corporation with the same owners, defendant Iron Holdings, Inc. doing business as Charles A. Jaékson Co. (“Jackson”), which previously existed only as a shell. Site and demolition work proceeded apace, albeit without a signed subcontract or a payment and performance bond, both of which are normally required by. Hyman. By February 1995, the “vendors,” i .e. sub-subcontractors and suppliers, hired by Jackson had not been paid sums totaling in the hundreds of thousands of, dollars. Hyman stopped paying Jackson, and Jackson walked off the site on March 1, 1995. Twenty-six unpaid vendors, who together with their attorneys filled the courtroom, sued Hyman under the Miller Act, 40 U.S.C. § 270a et seq. Hyman brought this action. In the meantime, both corporate defendants, Calvesco and Jackson, effectively ceased to exist and defaulted. One individual with an ownership interest, Anthony DeFeo, defaulted as well and apparently is nowhere to be found. The other two principals of Calvesco and Jackson, defendants Jackson D. Gate-man and Charles G. Moretto, are now all who remain. Hyman seeks to reach these two individuals for the contract and civil RICO liability of Jackson, obtained by default, on a corporate veil-piercing theory. Hyman also alleges claims against the individuals for common law fraud, indemnity and violations of the Massachusetts Consumer Protection Act, Mass.G.L. c. 93A, § 11. Moretto and his daughter Christine, for their part, move for judgment on their counterclaim that Hy-man violated e. 93A by bringing this action, which they claim was frivolous and baseless. After thirteen days of evidence, extensive briefing and argument, the Court ORDERS entry of default judgment for Hyman against the corporate defendants and entry of judgment for defendants Gateman and Moretto on all counts of the complaint. The Moret-tos’ motion for judgment on the counterclaim is DENIED, and the Court ORDERS entry of judgment for Hyman on the counterclaim. FINDINGS OF FACT The George Hyman Construction Company is a large, nationwide general contractor based in Bethesda, Maryland. On August 31, 1994, Hyman was awarded a $27.8 million contract for the construction of a mail processing facility for the USPS in Waltham, Massachusetts (the “Post Office Project”). Work on the Post Office Project was scheduled to begin almost immediately, around mid-September 1994. One of the major “divisions” of Hyman’s work on the Post Office Project was “site and demolition work,” which involved removal of existing structures and preparation of the site for construction of the facility. Hyman’s bid to the USPS incorporated a subcontract estimate for the site and demolition division of slightly more than $2.94 million, a bid which Hyman had derived from subcontract bids from several of its regular site subcontractors in New England. Within minutes after Hyman had submitted its final bid for the general contract to the USPS, James Finklea, Hyman’s Chief Estimator for the New England and Midwestern Regions, received a faxed “unsolicited bid” from Calvesco to perform “Specific Demolition Work” and “Removal Work” on the Post Office Project for $1.05 million. Neither Finklea, who was in charge of solicitation, nor anyone else at Hyman had spoken to anyone at Calvesco about the Post Office Project. Interested in the low bid by Calves-co, Finklea telephoned the bid’s point of contact, defendant Anthony M. DeFeo at Calves-co, in the early days of September and asked DeFeo to meet with him to discuss the bid. Before describing the relationship that ultimately brought the parties to federal court, Calvesco’s brief existence prior to September 1994 bears recounting. A Calvesco, Inc. in the Summer of 199J Calvesco was, at the time Finklea received the demolition bid on the Post Office Project, only in its fourth month of active operation. In May 1994, defendant Charles G. Moretto introduced defendant Jackson D. Gateman, a former business associate, to DeFeo. DeFeo was interested in starting a demolition subcontracting business. Though DeFeo had experience in that line of work, he had run into financial problems, including bankruptcy, with earlier contracts and needed financial backing. DeFeo and his father told Mor-etto that DeFeo had no ability to manage money and asked him for help in getting back into the construction business. Moretto agreed and recruited Gateman to get involved in a small business with DeFeo. The verbal understanding among the men was that Gateman and Moretto would each put up half the necessary funds but that profits would be divided three ways. In contrast to DeFeo, Moretto and Gate-man had no construction experience. They had each been involved in a variety of other kinds of businesses. Beginning in the early 1960s, Moretto, a high school dropout, had ownership interests in several gas stations, nightclubs, restaurants, apartment buildings and other real estate. He later opened a chartering company called Fleet Yacht Charters. His practice has been to hold most or all of his business investments in the name of a trust, a limited partnership or some entity other than his personal name. Gateman’s prior business endeavors had been similar to Moretto’s: insurance, gas stations, boats, real estate, restaurants and night clubs. In all of his businesses, Gateman has acted primarily if not exclusively as an investor. Moretto and Gateman did business together before in mortgage pools and real estate. Gateman, Moretto and DeFeo agreed to use a “shelf’ corporation, Calvesco, Inc., as the vehicle for their nascent contracting business. Calvesco had been incorporated about a year earlier by Moretto’s attorney, Michael Yerardi, for a different client and had never been used. On May 26, 1994, Yerardi filed for Calvesco a Certificate of Change of Directors or Officers, which named Moretto as President, Gateman as Treasurer, Moretto’s daughter Christine Moretto (“Christine”) as Clerk, and Yerardi as Assistant Clerk. Mor-etto, Gateman and DeFeo were listed as the only Directors of Calvesco. According to stock certificates, Gateman and one of Moret-to’s entities, Clearwater Trust, each own one half of Calvesco. No actual stocks were issued to DeFeo, but in keeping with their oral agreement, DeFeo would get one-third of the profits of Calvesco, in addition to a salary for his work. There was no fraudulent purpose in the formation of Calvesco. Calvesco initially set up shop at 164 Northern Avenue, Boston, in the offices of Moret-to’s Fleet Yacht Charters. Calvesco was initially and solely funded by “loans” from Gateman and Clearwater Trust (or other Moretto-controlled entities), as it would be throughout its short lifetime. Though no loan documents were executed, Calvesco’s computer-generated check registers and the cheeks themselves referred to the payments as loans. The loans came with no established interest rate, and the owners drew no substantive distinction between the funding being “loans” or “investments.” Going forward, Calvesco was to be funded on an “as-needed basis,” with either one or the other investor depositing money into the Calvesco checking account when the company required it. Gateman and Moretto controlled the flow of monies into and out of the corporation. Calvesco was initially funded with loans of $10,000 each from Gateman and from Moret-to’s Clearwater Trust on May 23 and June 3, respectively, and an additional $8,333 loan from Gateman on June 1. DeFeo, who in addition to his profit sharing was paid as an “independent contractor” at a “salary” of $1,000 to $1,500 per week, got right to work. Shortly after working a small contract at the Woburn Bindery worth $7,000, he contracted on behalf of Calvesco to do site and demolition work at MIT, another small $75,000 job with a projected profit of $30,000. Emboldened by the successful undertaking of these two subcontracts, DeFeo approached Moretto later in June about his desire to submit a bid to the Torrey Company (“Torrey”), a general contractor, on a much larger job: demolition of an existing building and site work, excavation work, paving and landscaping on a project to build a Home Depot store in Waltham, Massachusetts. Though Gateman and Moretto were reluctant to expand so quickly the scope of Cal-veseo’s work solely on DeFeo’s word, they agreed to bid on the project if it was first reviewed by Edward Zeytoonjian, a longtime friend of Gateman. Zeytoonjian had extensive experience in the construction industry, and that experience, largely in heavy earth-moving and construction, complemented, DeFeo’s, which was primarily in demolition. Zeytoonjian reviewed DeFeo’s proposed $1.3 million bid and agreed that the subcontract would turn a profit of about $200,000. Additionally, Zeytoonjian estimated that the project could potentially provide Calvesco with the opportunity for profitable “extra” work, that is, work above and beyond the original subcontract price and specifications. Torrey awarded Calvesco the Home Depot subcontract on June 20, 1994. As required by Torrey, Calvesco obtained a bond for the job, but both Gateman and Moretto had to sign as personal indemnitors to get it. As with the earlier projects, DeFeo managed the Home Depot Project in the field, where Moretto and Gateman were rarely involved. Zeytoonjian joined DeFeo in the field on the Home Depot Project as a part-time “independent contractor” in July 1994, but he quickly became devoted full-time to the project. Soon after the Home Depot project began, the scope and dollar value of the contract increased dramatically due to DeFeo’s success in convincing Torrey that the removal of ledge (i.e. solid rock) from the Home Depot site should be charged as an extra. As a result, the total contract cost extraordinarily rose from $1.3 million to approximately $5.3 million. Calveseo’s expected profit margin on the roughly $4 million in extras was 50%, or approximately an extra $2 million in profit on top of the $200,000 expected on the contract itself. The work of Calvesco’s rock-crushing sub-subcontractor, Ferreira Construction, alone resulted in an additional profit to Calvesco of $1.1 million. This extra work created tons of processed gravel, the product of the crushed ledge, which was stored on the Home Depot site. Moretto ran the Calveseo office. Gateman, a self-proclaimed “passive” investor, spent most of his time at the Comedy Connection, one of his nightclubs, and had no defined duties in the office or on site. As might be expected, the Calveseo office, without experience in construction, struggled to keep up with the pace of expansion. Calvesco initially set up its office during the summer of 1994 with several “girls,” including Moretto’s daughter Christine Moretto (“Christine”), to keep track of the payroll and vendors due money on the Home Depot project. A graduate of Wheaton College, Christine had worked as a part-time administrative assistant at Fleet Yacht Charters. She had secretarial but no financial background. ADP, a well recognized payroll processing company, was hired to do the payroll. Calvesco’s accounting system was rudimentary during this early period. Its only operative record was a check register, for which Moretto assumed day-to-day responsibility and at which Gate-man rarely peeked. The check register was maintained through the software program “QuickBooks 3.0,” which was capable of tracking several different companies in different computer files. Often, checks were written on the Calvesco account but not distributed until either Moretto or Gateman “loaned” more money to Calvesco, resulting in frequent negative balances in the check register. Moretto himself referred to the records at Calveseo’s office as “mishegas,” or “mess,” and Gateman described the files as being in a state of some “confusion.” Moretto relied on DeFeo’s word and input from other sources, including Zeytoonjian and a manager at Tor-rey, to check periodically the progress of the projects. Moretto admittedly relied on his “personal comfort level” with the way these projects were going from week to week as he made financial decisions for Calvesco. During the summer, Calvesco hired an accountant, who observed that the company did not have sufficient control over its finances and recommended changes including cost accounting, but, due to personality conflicts with Moretto, he quickly left Calvesco. Three or four other accountants met with Calvesco during the summer of 1994, but none was hired. By August “there were a lot” of invoices coming in, and the office was understaffed and unorganized. Zeytoonjian began working out of the Calvesco offices instead of on site at Home Depot. Moretto and Gateman, as agreed, provided a steady stream of capital through the summer of 1994. Beginning with the $10,000 loan on May 28, Gateman put $91,105.50 into Calvesco before August 23, 1994. Moretto, during the same time period, loaned Calvesco $84,999 through Clearwater Trust. Additionally, Moretto borrowed $100,000 short-term to lend to Calvesco in August 1994. The money received by Calvesco was deposited by Gateman and Moretto in relatively small amounts: up until August 23, Gateman made eleven separate “loans” to Calvesco ranging from $1,200 to $15,000, while Moret-to made six separate “loans” ranging from $10,000 to $23,333.33. All monies invested in the company continued to be termed “loans.” Despite the confusion in the financial record keeping of the new company, Calvesco performed its several subcontracts without incident through the summer of 1994. On August 23, Calvesco received its first check from the Torrey Company in the amount of $376,000 for work on the Home Depot project. Subsequently, after four months of operation, Calvesco’s owners decided that there was sufficient money in the company to allow some payback of their loans. The first payments to Gateman and Moretto were made on August 25 and August 30, with Gateman receiving $71,321 and Moretto $35,000 in “loan repayments.” DeFeo, meanwhile, had been receiving payments from the get-go, having been paid over $36,000 by the end of August 1994. A portion of these funds was cash for salary and the rest was payment by the company of personal expenses such as hotel bills and cellular phone charges. All such personal expenses, however, were considered to count against the equal profit De-Feo was to receive from the company. All amounts taken from Calvesco in whatever form were documented in the Calvesco cheek register. In August, at about the same time that DeFeo was expressing interest in the Post Office Project, he also was negotiating for a second major subcontract with the Torrey Company. This one involved work on the construction of a Wal-Mart in Lynn, Massachusetts similar to that on the Home Depot project: demolition of a building and subsequent preparation of the subsurface and surface of the site. Zeytoonjian prepared a base bid of $950,000, which included an expected profit margin of approximately 10%. Torrey and Calvesco entered into the Wal-Mart subcontract on September 1, 1994. Because Torrey also required that job to be bonded, Gateman and Moretto had to personally guaranty the payment and performance of the subcontract, as they had the Home Depot project. With Calvesco’s business growing by leaps and bounds, the company moved its offices to 88 Broad Street in downtown Boston in late summer 1994. Money was finally flowing into the company. In addition to the August 23 payment, Torrey made two more payments in September on the Home Depot project: on September 2 for $260,654 and on September 17 for $518,630. Gateman and Moretto were paid back their start-up loan amounts in full on September 21. Though each would make several smaller loans to Calveseo later, each remained comfortably in the black on their personal investments in Calveseo from that point forward. As of August 31, 1994, Calveseo was earning a gross profit of 55 percent. According to defendant’s expert Howard M. Newberg, it had an assets to liabilities ratio possessed by the strongest members of the construction industry. B. The Post Office Project Begins Just before Gateman and Moretto reached their break-even point on their investment in Calveseo, DeFeo and Zeytoonjian met Fink-lea at Hyman’s Boston office on Thursday, September 8, 1994 to discuss the last-minute unsolicited bid DeFeo had sent to Hyman for demolition work on the Post Office Project. Bernard Morrissey, the Regional Manager of Hyman’s Northeast Division, was also present at the meeting. Finklea, aware of Cal-veseo’s stash of gravel at Home Depot, told DeFeo and Zeytoonjian at the meeting about the possibility of a “claim for extra work” on the Post Office project involving the expected discovery of about 25,000 cubic yards of unsuitable soils that would have to be removed and replaced. Finklea revealed to Calveseo the extra to “make the job more attractive to” Calveseo and to induce a lower bid from it. DeFeo told Finklea that Calveseo could bond the job and indicated his desire to expand Calvesco’s bid to perform site work in addition to demolition. The meeting adjourned after Finklea asked DeFeo quickly to revise his bid to include a price for site and demolition work together. DeFeo and Zeytoonjian informed Gateman and Moretto over the weekend after the September 8 meeting about the potential site and demolition job on the Post Office Project. Zeytoonjian told the others: “You are stepping into the big leagues, you are going to work for a real big contractor.... [Y]ou ha[ve] to dot your I’s and cross your T’s.” Gateman initially did not want Calveseo to get involved because of the fact that the Hyman job was a government and union contract. Moretto also was hesitant, but he and Gateman “reluctantly acquiesced to go forward with the project.” Calveseo, using the work of Zeytoonjian over the weekend to prepare the additional bid for site work, faxed a revised subcontract bid on Monday, September 12,1994 for $2.95 million, which was roughly the same as the other bids received by Hyman before it had won the general contract. Finklea balked at the number in a phone conversation with Zeytoonjian and suggested $2.8 million. De-Feo then took over the conversation and agreed with Finklea, by phone, to a site and demolition subcontract price of $2.8 million, or $142,000 less than the estimate for that division incorporated in Hyman’s general contract bid. Finklea personally considered the bid price of $2.8 million to include a “performance and payment bond.” Zeytoon-jian expected a profit of approximately $400,-000 on the agreed subcontract price. Hyman did not demand financial statements from Calveseo, but they did run a Dun & Bradstreet credit report on the company sometime in September. Hyman had conducted a cursory investigation of Calvesco’s background, primarily by sending a Hyman representative to the Home Depot project site to view Calvesco’s work. Though no one at Hyman spoke to anyone at Torrey, Calves-co received a positive reference from South-worth-Milton, its lessor of heavy equipment. Hyman also had learned about Calvesco’s stash of screened gravel during this tour. Finklea sent two copies of the detailed subcontract agreement to DeFeo at Calveseo on September 16, 1994, asking DeFeo to return an executed copy within ten days. Expressed in the cover letter to the subcontract was the caveat that “Your compliance with the above will enable us to place your future payment requisitions in line for payment.” The subcontract contained the following key provision: Subcontractor shall insure that all lower-tier subcontractors and employees, at all times, are timely paid all amounts due in connection with the performance of this subcontract. After the first partial payment hereunder, Hyman shall have the right to withhold any subsequent partial payments until subcontractor submits evidence satisfactory to Hyman that all amounts owed in connection with perfor-manee of this subcontractor have been paid. The subcontract would never be signed or returned. Meanwhile, Calvesco immediately began working on the Post Office Project. Zey-toonjian was in charge of the day-to-day operation of Calvesco’s work and reported to DeFeo, who also was supervising the two Torrey projects. Erin DeBruyn was Hy-man’s “project manager” for the Post Office Project and had daily contact with Zeytoonji-an and frequent contact with DeFeo. The relationship between DeBruyn and Zeytoon-jian was amicable. DeBruyn, 28 years old at the time, was beginning her first assignment as a Hyman project manager and reported to Morrissey, the regional manager, who was also frequently onsite. DeBruyn did not deal with either Gateman or Moretto, who both had only minimal personal contact with any Hyman representative throughout the relationship of the parties. Without question, DeFeo was viewed by Hyman as the man in charge of the Calvesco subcontract. C. The Union Problem and the Switch to Jackson The first of the Project’s many problems developed within two weeks. Because Hy-man had collective bargaining agreements with trades involved in site and demolition, DeFeo had orally agreed that Calvesco’s work on the Post Office Project would be performed by union labor. The unions, however, subsequently refused to allow Calvesco a “job only” agreement, which would have allowed Calvesco to use union labor on the Post Office Project without using exclusively union labor on its other projects. Calvesco, which had never used union labor, did not want to sign a general union agreement because, if it had to do all of its work union, it would lose its “bread and butter work” on the Home Depot site. DeFeo and Zeytoonjian told DeBruyn about the union problem in late September 1994. DeFeo told DeBruyn that he could solve the union problem by substituting another company for Calvesco. DeBruyn called Morrissey to ask him if that would be acceptable to Hyman, and Morrissey, who thought the substitution was a “solution” to the problem, said: “As long as it is the same deal, the same people, a bond and all the same things we already agreed to, it doesn’t matter to me what they call themselves.” Within days, Hyman had fully endorsed the change of corporations doing the site and demolition subcontract under this “double breasting” arrangement, which is relatively common in the construction industry. Fink-lea himself had “no particular reaction” to the change and assumed the deal would be the same. Wilson Shook, the Executive Vice President of Hyman, also was aware of the double-breasting arrangement. Soon thereafter, Zeytoonjian informed De-Bruyn and Morrissey that “Charles A. Jackson Company” (“Jackson”) would be doing the site and demolition work. Morrissey again raised no objection so long as they tried to get a bond. DeBruyn had no problem with it either because she “just wanted to get the work started.” Hyman did not run a Dun & Bradstreet report on Jackson. Shook “told [DeFeo] to change the name on the subcontract agreement [which Calvesco had not yet returned] to Jackson; line out Calvesco, fill in Jackson, sign it, and return it.” DeFeo agreed, but never did it. Soon thereafter, on September 27, Zeytoonjian signed a union agreement with the International Union of Operating Engineers Local 4 as “Vice President” of Jackson. A crisis had been averted, and work on the Post Office Project continued unabated. The corporation that DeFeo proposed to use was actually named Iron Holdings, Inc., a corporation previously formed by DeFeo for another purpose. The company name used on the Post Office Project was derived from a combination of the first names of the three principals: “Charles” Moretto, “A.” DeFeo, and “Jackson” Gateman. The formalities associated with the new company were slow and incomplete. A Certificate of Change of Directors or Officers was filed on October 21, 1994, naming Moretto as President, Treasurer and a Director and Gateman as Clerk and a Director. Christine Moretto was Assistant Clerk. Jackson established a separate bank account from Calvesco, had a different federal identification number and had a separate payroll account. Jackson did not then, or ever, sign the subcontract with Hyman for the Post Office Project. No d/b/a certificate was filed on behalf of the company. The named shareholders of Jackson, according to stocks issued November 16, were Christine Moretto, Charles Moretto’s daughter, and Laurie Gejawski, Gateman’s daughter, but neither of them exercised any control over the corporation and functioned as straws for their fathers. The basic setup of Jackson indicates that the lines between it and Calvesco were at best blurry. Jackson operated out of the same offices as Calvesco at 88 Broad Street. There was only a single phone line, registered with the phone company in the name of “Jack Gateman d/b/a Calvesco,” and the phones were answered “Corporate Offices.” Most of the employees were paid by only one company, but worked for both. For example, Christine Moretto acted simultaneously in the same administrative capacity for both Jackson and Calvesco. However, she was an employee of and was paid only by Calvesco, from which she received a W-2. The companies shared bookkeepers during the last few months of 1994. Zeytoonjian thought Jackson “was the same company” as Calvesco throughout the period he was connected to it. In fact, the majority of his compensation for his work on the Post Office Project came from Calvesco. Gateman, Moretto and DeFeo agreed to finance Jackson “as it was necessary” from “the excess money that was in Calvesco until such time as the Hyman requisitions were paid.” Like the transfers from Gateman and Moretto to Calvesco, all of the funds transferred from Calvesco to Jackson were termed “loans.” Similarly, there were no loan documents, promissory notes, established interest rate or payback period for any of the loans. The principals agreed with each other that “before we would take any loan pay backs for money that we funded [Jackson] with that there were provisions to make sure that all the vendors were current, or would immediately be current, and part of that would be looking at the invoices from the vendors” and “requisitions due from Hy-man.” The first loan from Calvesco to Jackson occurred on September 26, 1994 in the amount of $20,000. Calvesco made weekly loans, totaling $339,000, to Jackson from the beginning of October until mid-November, the first time Calvesco reclaimed any funds from Jackson. During this period, no funds were transferred from Jackson to either Moretto or Gateman. Calvesco made a total of nineteen separate small loans to Jackson between September 26 and January 26. There is no evidence that Hyman had any knowledge of, or expressed any interest in, the financial structure of either company. D. The Next Problem: No Bond As it searched for a bond for the Post Office work, Jackson discovered that it could not obtain one without personal guaranties. Gateman and Moretto, liable for bonds on both Torrey projects, agreed that they, as individuals, “didn’t want to sign any more or guarantee any more bonds.” Gateman, specifically, did not want to sign either performance or payment bonds because he “was on $7 million worth of bonds at that time and that was as far as I wanted to go.” DeFeo told Finklea, Shook and Morrissey at a meeting in Hyman’s Boston office in early November 1994 that Jackson would be unable to get a bond for the project as Finklea had required. This inability came as no surprise to Morrissey, but, according to him, “by that time the job was pretty well underway. We were both committed.” De-Feo asked if there was any other way to get around the requirement. Though no one at Hyman investigated the bonding history of either Calvesco or Jackson, Shook suggested that Hyman could increase the amount of retainage from ten to twenty percent. “Re-tainage” is a percentage amount of a contractor payment withheld from each requisition payment to its subcontractors as a form of security. Hyman agreed at the meeting to waive the requirement that Jackson obtain a bond after calling DeBruyn to ensure that Jackson was performing. Though Hyman had used this procedure in the past, this offer was “special” for this particular subcontract and was not in line with any Hyman corporate policy. The absence of a bond necessitated increased focus on Jackson’s performance, especially its vendor payments. As a condition of the waiver, therefore, DeFeo agreed that Hyman would more proactively monitor vendor payments before it paid Jackson on the subcontract. Finklea and Shook specifically instructed DeBruyn that day “to get a list of the subs ... and suppliers, and to monitor payments to be sure that they were getting paid.” DeBruyn shortly thereafter confirmed with Zeytoonjian on the site that Hy-man would be checking monthly on the payment status of Jackson’s vendors because its-subcontract was unbonded. Additionally at the November meeting, Shook suggested the possibility that Hyman might issue jointly-payable checks to Jackson’s vendors at some point during the performance of the subcontract as a result of the waiver of the bond requirement. DeFeo “generally agreed” to the possibility of joint cheeks, but the parties reached no specific agreement about when, how, and under what circumstances joint checks would be issued. DeFeo also agreed to make a written change in the subcontract about the higher level of retainage. As before, however, DeFeo never sent an executed subcontract, with or without changes, to Hyman. E. The Early Requisitions In accordance with its business practice, Hyman paid its subcontractors after reviewing and approving a completed standard requisition form submitted by each subcontractor. The requisitions typically were submitted monthly for the previous month’s work, i.e., each requisition covered a specific work period. To each requisition was attached a “Continuation Sheet” that contained the bid amount for each portion of the particular subcontract along with an estimate of current percentage completion in each portion, which was then talked to arrive at the total requisition figure. Hyman’s practice was to review the subcontractor’s requisition and, if it was acceptable, to approve the amount for payment, less any agreed-upon retainage. Hyman, which operated on a “pay-when-paid” basis, would typically issue checks to its subcontractors seven to ten days after it received payment from the owner, in this case the USPS. Jackson submitted two requisitions to Hy-man on November 4, 1994 by walking them over to the Hyman office trailer, which was only about 50 feet away from the Jackson trailer on the Post Office site. Requisition 1 covered the work period from the beginning of the Project until October 19, 1994, and Requisition 2 was for the abbreviated work period October 19 through November 4, 1994. The standard requisition forms each contained, above the subcontractor’s signature block, a “Certificate of the Subcontractor.” In addition to certifying that the work requisitioned had actually been performed, this contained the following language: I also certify that payment, less applicable retention, have been made through the period covered by previous payments received from the contractor, to (1) all my subcontractors (sub-subcontractors) and (2) for all materials and labor used in or in connection with the performance of the Contract. Zeytoonjian signed both requisitions and had them notarized. He called into the 88 Broad Street office “to make sure everything was okay with the bills” before submitting the requisitions. Hyman, obviously, had never made a “previous payment” to Jackson at the time of the first and second certifications. Pursuant to the bond waiver agreement, Jackson also submitted on November 4 a list of “Charles A. Jackson” creditors, which included Calvesco and four vendors. DeBruyn’s assistant, Lauren Frei, verified that same day that all listed vendors had been paid. DeBruyn, pleased with Jackson’s work, approved Requisition 1 without modification on November 4 by initialing the form and writing “OK TO PAY $487,200.00” in a large bubble in the center of the form. Hy-man paid Jackson the full amount of Requisition 1, its first payment on the subcontract, on November 10, 1994. Requisition 2 was not immediately approved because it represented a later work period. Before Hyman could pay Jackson, several automatic holds on payment had to be affirmatively overridden because of the special circumstances of the deal. According to Hyman company policy, payment to subcontractors is automatically held by corporate headquarters in Bethesda if three pieces of information about a subcontract are not logged in the central computer: (i) when a subcontract was signed; (ii) when a suitable bond was issued; and (iii) when insurance certificates were placed on file. Jackson submitted appropriate insurance certificates but had not met the other two requirements. Technically, only Shook, the regional executive officer responsible for the Post Office Project, had the authority to “waive” the unfulfilled requirements. In practice, lower officials such as Morrissey actually could lift the holds, and in this case that is what happened. Morrissey lifted both administrative holds on payment to Jackson because, in his opinion, Jackson was performing satisfactorily. Though Finklea “wasn’t too happy” about the amount paid to Jackson without a signed contract, it had “happened before.” As a practical matter, Hyman often let work by a subcontractor begin without a signed subcontract. It was not uncommon at Hy-man for subcontracts, especially those with “somebody you’ve never done business with before,” to go unsigned for two or three months, and sometimes as long as eight or nine months. F. Suddenly Rolling in Cash: November 19U On November 10, the same day that Hy-man paid Jackson on Requisition 1, Jackson wrote Calvesco a check for $352,332 as a “loan payback.” On the same day of the loan payback, Moretto signed three cheeks on the Calvesco account, totaling $252,390, to the order of South Palm Beach Financial Corporation. The checks represented an initial investment by Calvesco in Joseph’s Restaurant in Florida, including first month’s rent, security deposit and construction costs. At the same time, Calvesco was taking in sums of money unprecedented in its short life. The Home Depot project alone paid Calvesco almost $2.1 million, nearly half the final $4.5 million gross on the subcontract, during the five-week period between October 28 and December 2. Beginning November 4, Calvesco was also receiving money on the other Torrey project — Wal-Mart. The Wal-Mart project brought in $578,700 gross in November alone. Moretto, Gateman and DeFeo also received some cash “off the books” from the sale of scrap metal from the Post Office site over the last several months of 1994. Moret-to received $42,500 and Gateman approximately $53,000 in income from scrap metal in 1994. Though Gateman acknowledged the metal came from demolition on the Post Office “site,” he rationalized that it had nothing to do with the Post Office Project and therefore nothing to do with Jackson. Requisition 2 on the Post Office Project was approved by DeBruyn, also without modification, on November 21. In tandem with the second requisition, Jackson gave De-Bruyn another handwritten list of vendors, each of which DeBruyn or her assistant, Frei, called to verify that there were no payment problems. On December 5, Jackson deposited a check from Hyman for $515,-200, which represented payment on Requisition 2, less 20% retainage. G. Revamping Financial Controls at the Corporate Offices With income and business growth now exponential, the casual financial record keeping system at Calvesco and Jackson quickly regressed from stressed to overwhelmed. Through the fall of 1994, Moretto continued to keep track of matters as best he could, acting on behalf of Jackson in much the same way he had on Calvesco’s behalf. For both companies, he signed checks and purchase orders, talked to vendors and ensured that each had enough money to operate, including paying its vendors. With three major projects — the Post Office, Wal-Mart and Home Depot — underway, the office structure struggled to stay afloat. The companies did not have a so-called “job-costing” system in place to monitor their financial status. Moretto was slow to follow the advice of Gerald Eidelman and Herbert Rodman, accountants hired in the summer of 1994, to implement a system which would keep daily cost and expenses recorded by job. A job-costing system records the progress of a given construction project against project receivables to determine income earned. It also tracks the expenses of the project against the bid price. The basic purpose of a job-costing system is to determine whether the company has adequate cash for current and future expenses and whether any money can be distributed to owners before the project is completed. At least until December 1994, the companies operated on a cash-basis, relying on check registers and Moretto’s judgment. Bank statements were also available, but there is no evidence that anyone in either company relied on them until December. Moretto claims to have relied on handwritten “projections” and estimates produced by DeFeo which indicated what kind of cash flow would be necessary to fund Jackson as work was being performed on the Post Office Project. Moretto found DeFeo’s estimates to be “really right on the numbers and very, very accurate.” However, all of the handwritten projections have disappeared, apparently removed from the offices by DeFeo in February 1995. Moretto also relied on three separate “profit and loss statements,” which his daughter Christine routinely updated and printed out of the computers in the corporate offices. The statements simply constituted sorted data from the companies’ check registers. One included combined data for all inputs from both companies into the computer, but the other two represented profits and losses, individually, for Calveseo and Jackson. The Calveseo profit and loss statement includes a number of enumerated expenses relating to the Post Office Project, including concrete disposal, equipment rental, hay bales, independent contractor fees, office equipment and payroll. Similarly, several expenses related to the Home Depot project appear on the Jackson profit and loss statement. Christine Moretto pinned blame for this mix-up on “categorizing error.” Around the time of the payment of the first requisition, Gateman became concerned that the record keeping system at the Cal-vesco/Jaekson office needed revamping. He brought in his acerbic sister-in-law, Linda Hill, as a bookkeeper for both companies on December 1, 1994. Hill has known Gateman for over 30 years and had acted as a bookkeeper for several of Gateman’s business interests, primarily restaurants. Hill is not an accountant, and she had no previous experience in the construction business. She was hired as a “full charge bookkeeper” with the consent of Moretto, but her primary initial duty was to establish an accounts payable ledger, i.e. an aging report. Like Christine, Hill was an employee of Calveseo, not Jackson. When Hill started working at the office, she found the cheek registers of the two companies to be “meaningless” and a “bunch of garbage” and the records to be generally a “mess” containing “huge errors.” Hill essentially started from scratch in generating a “true” accounts, payable list. Hill implemented a new computer program, “One-Write,” for tracking the finances of Calveseo and Jackson. She installed an even more sophisticated program, “MAS 90,” in December 1994, but it was never implemented because Hill insisted on first developing all other aspects of a “chart of accounts.” Hill found confusion over which vendors were owed how much money, when, and for what jobs. Hill was, however, over the course of her ten weeks of employment (terminating February 17, 1995), able to construct an accounts payable ledger that she considered reliable. Once Hill was hired, the accounting system became somewhat more formalized. Invoices for the different jobs were placed in different piles on a desk in the Calvesco/Jaekson offices. Hill would input information from the computer into the One-Write system. As many as three times per week, Hill produced aging reports detailing which vendor bills were due. There were, on occasion, insufficient funds to cover the checks that Hill wanted to issue. As a result, signed checks were often held until more money was available. Sometimes, however, signed checks were distributed before anticipated receivables were received based on the expectation that money was coming in very soon. H. Extras and Delays at the Post-Office Job Site Back at the job site, Jackson began as expected to encounter peat, a wet, nonstable material that need to be removed and replaced with gravel to prepare the site for construction. There was not enough processed gravel on the Post Office site to replace the peat, so Jackson trucked it in from off-site, primarily from the stockpile at the Home Depot site. Calvesco wrote “credit change orders” worth $247,000 to Torrey for the gravel it took off of the Home Depot site; in other words, Calvesco reduced the amount of its contract price by that much because of the gravel it removed. There is no evidence of the market value of processed gravel at that time other than the Torrey credit change orders. None of this work was covered by the initial job specifications, therefore payment had to be separately negotiated via change orders. Hyman submitted a change order request regarding the peat removal and gravel replacement to the USPS, which ultimately, on May 10, 1995, paid Hyman an additional $259,875 for work on that extra. Of that amount, $282,250 was alloeatable for payment to Jackson, which by then was long gone from the scene and would never receive payment. The unsuitable material was only one of several Hyman change orders referring to work performed by Jackson; The total amount of these changes was in the range of $400,000 to $430,000, none of which was ever paid to Jackson. On or about December 8, 1994, asbestos was discovered in one of the buildings onsite that was part of the demolition portion of its contract. All work in that particular building, including Jackson’s demolition work, stopped at this point. The Post Office ordered all Hyman personnel and their subcontractors out of the building, and Hyman would later claim $1.2 million in delay costs. Jackson was never able to go back into the building before its termination on March 2, 1995. There were other environmental problems as well, including the discovery of lead paint in the same building and another work room and contaminated water found on the site. Jackson raised the issue of delay claims with Hyman shortly after the discovery of asbestos and the other environmental delays. Zeytoonjian estimates Jackson’s delay claim at 10% of Hyman’s, or $120,000, but no payments for delay were ever passed on from Hyman to Jackson either. On December 16, 1994, Jackson submitted Requisition 3 to Hyman for $287,000 for the work period of November 4 through December 16, 1994. Additionally, Jackson submitted to DeBruyn an expanded list of “project vendors” so that Hyman could check the progress of payment in accordance with the bond waiver. Either DeBruyn or Frei did at least some checking. In the requisition, Zey-toonjian, as “V.P.” of Jackson, certified that all of Jackson’s vendors had been paid through the end of the previous requisition’s work period, November 4. Bills were in fact substantially current as of that date. Before signing the certification, he told “one of the people in our office trailer to call the main office to make sure that everything was okay with the bills.” Zeytoonjian did not know of any vendors who had not been paid through November 4. There is no evidence that Gate-man or Moretto personally supplied any vendor information to the jobsite, directly or indirectly. Requisition 3 was especially significant because, with the approval of DeBruyn, its dollar request included payment for some work that, technically, had not been completed yet. Jackson’s agreement to perform the extracontraetual work such as peat removal “was costing them money,” and Jackson was unable to proceed on the regular contract work. Because, “frankly, they [Jackson] could have just stopped and waited for an executed change order,” DeBruyn “kind of put a little bit more money in Jackson’s line item so that [she] could pay them a little bit more money up front to compensate for the fact that they were performing extra work and didn’t have an executed change order to bill to.” No one at Hyman or Jackson could quantify the exact amount of Requisition 3 allocatable to subcontract work versus extra work, but whatever padded compensation was built into Requisition 3 fell well short of the total amount of the extra work performed and delay costs incurred by Jackson. I. From Rumblings to a Roar Some of Jackson’s Post Office Project vendors, whose payment problems were being-documented by Hill, began complaining about nonpayment by the tail-end of 1994. Christine, who was in the corporate offices virtually every day, says that Jackson began having trouble paying vendors in late December 1994 or early January 1995 and that the problems were extreme by mid-January. She testified, “At that point within the office, the phones would be ringing off the hook and vendors would be looking for money.” Both Moretto and Gateman were aware of Hill’s work and the problems she discovered. On January 5, 1995, while Hill was still verifying accounts payable with each vendor, she produced an “Accounts Payable Aging Report” for Calveseo and Jackson together. She did not then, or ever, produce separate hard copy reports for the two companies. The report shows accounts payable as of January 5 of over $1.5 million for Calveseo and Jackson combined, about half of which was “current” and 7.7% of which was due over 60 days. Hill printed updated aging reports at least once a week. Her January 18 report indicates roughly stable accounts payable for the combined enterprise of over $1.4 million, again showing about half current but, by then, 15.2% due over 60 days. As she called each vendor, some were angry about not having been paid. She sometimes had difficulty determining which invoices belonged with which job, especially for vendors such as Southworth-Milton, which leased equipment to both Calveseo and Jackson. Just as the vendor problems were becoming apparent, Jackson’s key personnel were paying less attention to the corporation’s affairs. On or about New Year’s Day 1995, Zeytoonjian was hospitalized for two weeks and did not return to work until about January 19 or 20. He would again be hospitalized for the first several weeks of February. De-Feo, meanwhile, was increasingly erratic and hard to find as January wore on, likely due to a drug and/or alcohol addiction observed or suspected by, at a minimum, Christine, Gate-man and Zeytoonjian. Christine was on vacation from New Year’s until mid-January, and Moretto, who was in Hawaii for part of the month of January, claims not to have been in the office more than a “short period of time” in January and February. Amidst all of these absences, Gateman “decided that [he] did not want to be involved in [ ] Calveseo or Iron Holdings and [he] consulted an attorney and [he] made an arrangement with Mr. DeFeo.” The “arrangement,” basically, was that Gateman would ensure that the Home Depot and Wal-Mart jobs were “finished.” Among the factors motivating Gateman’s departure was that Gateman “resented that [his], two associates bought $300,000 worth of cars and never informed [him] of it or leased or whatever.” In fact, Moretto had leased an expensive Mercedes and DeFeo a Ferrari with corporate funds. Perhaps oblivious to this disarray and the quickly darkening vendor storm clouds, De-Bruyn authorized the release of payment on Requisition 3 to Jackson on January 13,1995. Jackson deposited a check for $229,600 in its bank account on January 17, 1995. DeBruyn authorized the release of the payment to Jackson after researching the payment of Jackson’s vendors appearing on the list provided by Jackson. Despite finding that Jackson was at least $110,000 behind in vendor and labor payments on the Post Office Project at the time, DeBruyn authorized the release because “they [at Jackson] were absolutely screaming for money.” This requisition payment, which covered the work period ending December 16, would be the final payment Hyman made directly to Jackson. On the same day that DeBruyn released Requisition 3, a check for $129,600 was written on Jackson’s account for a “return of loan” to Calveseo and deposited in Calvesco’s bank account. Though the signature reads “Charles G. Moretto,” Moretto claims that the signature on the check is not his. The signature is noticeably different from his signature on other documents. Regardless of who signed the check, Moretto and Gateman knew about it and ratified the transaction, which gave the loan payback to Calvesco priority over Jackson vendors with overdue bills. The check transfer left only $100,000 in the Jackson account to be paid to the vendors from Requisition 3, which was markedly lower than the first two requisitions. Importantly, however, there is no evidence that any of the $129,600 transfer from Jackson to Calvesco was then paid to either Mor-etto or Gateman individually at any point. By mid-January, to make matters worse, the cash infusion into Calvesco had slowed dramatically. Since December 2, the tail end of the five-week period that had brought in $2.1 million from the Home Depot project, only $755,187 came in from the project as it wrapped up in December and January. Wal-Mart project payments slowed from a high of $578,700 in November to none in December, $105,730 in January, and $81,000 in February. The 88 Broad Street office staff, meanwhile, was making a bona fide administrative effort to get the vendor payment problem under control. In addition to Hill’s calling the vendors to verify accounts, Christine, on January 20, 1995, sent a letter on Calvesco letterhead to “All Vendors,” informing them of “our policy for all incoming invoices.” In the letter, she announced that “[bjoth Calves-co and Charles A. Jackson will pay invoices on a Net 30 day schedule. For example, all invoices dated December l-31st will be paid Feb. 1.” The letter was sent to all vendors of both companies working on all three major projects: the Post Office, Home Depot and Wal-Mart. The letter was an attempt to establish a uniform purchase order system and a policy for payment rather than attempting to adhere to varying vendors’ terms. At the time of Christine’s letter, the key personnel at Calvesco and Jackson thought they could recover. Christine believed that the companies would be able to pay its bills in accordance with the new policy. Shortly after the letter was written, DeFeo reinforced this belief by telling Christine that he was going to bring in more checks from the projects. Hill also believed that the companies would “eventually” be able to pay the vendors because “Tony DeFeo was going to get some [money], he was picking up some checks” totaling in excess of one million dollars. Moretto, for his part, had stopped trusting DeFeo but nevertheless believed that nearly half a million dollars was owed by Hyman to Jackson in payments for extras. During January 1995, reflecting this misguided sense of optimism, Calvesco and Jackson actually expanded their offices at 88 Broad Street, taking over “a large part of the remainder of the floor and ... renovating, adding office space.” Even after the large transfer on January 17, Calvesco continued to put money into Jackson, to which it lent $75,000 on January 26 and $26,000 on February 7 to meet payroll and pay bills. Those two dates coincide with Torrey payments to Calvesco: $200,004 for Home Depot on January 26, and $81,000 for Wal-Mart on February 7. But the companies simply did not have enough cash on hand by late January to pay their debts. On or about January 24, Calvesco began to bounce cheeks with increasing frequency. Though Calvesco had bounced checks from time to time throughout its existence, all such bounced checks prior to January 24, 1995 were not bounced fraudulently but rather due to negligence or inadvertence, typically due to delays in deposits being credited to the Calvesco account. Up until January 24, all checks bounced by Calvesco were paid. Much the same can be said of checks drawn on the account of Jackson. On several occasions between its engagement on the Post Office Project and November 1994, Jackson had bounced checks due to timing problems with deposits into the account, i.e. when checks were issued as deposits were made into the account, but before the deposits cleared. All bounced cheeks were in fact paid. No cheeks were bounced in December 1994, and one cheek, also later paid, was bounced on January 24, 1995. Only after January did Jackson bounce checks with frequency and not later pay them. Before this began to occur, Moretto received two $3,000 “consulting” fees from Jackson in late January. Gateman did not receive similar fees. Despite the mounting troubles back at the office, by all accounts Jackson’s people on the Post Office site were performing their work adequately and to Hyman’s satisfaction. Zeytoonjian, returning to the Post Office site in mid-January, did not notice that anything had changed there: “We were working along, just doing our work.” He completed the preparation of Requisition 4 in late January. He had actually signed the cover form with its certificate in blank at the hospital, but he verified the continuation sheet attached to Requisition 4 before it was submitted in accordance with his understanding-of the work that had been completed as of January 19, 1995. He also went over a penciled version of the continuation sheet with DeBruyn, or at a minimum discussed the completion and dollar figures therein, prior to his having the final copy prepared. This was consistent with the parties’ practice of close daily contact and adjusting of contract numbers to account for unpaid work on extras. Requisition 4 would never be paid. De-Bruyn received it not later than February 2, but considered it to be incomplete because it was not notarized or completed as the previous ones were. Though the requisition is incomplete on its face, the larger problem of screaming unpaid vendors was obvious to DeBruyn by this time and drove Hyman’s decision to deny further direct payment to Jackson. DeBruyn recalls first hearing of “rumblings” from unpaid vendors in late January and early February. Zeytoonjian’s recollection is much the same. More significantly, many of the vendors from whom De-Bruyn heard rumblings were vendors previously unknown to her and who were not included on any of the vendor lists that Jackson gave Hyman. The frenzy at the 88 Broad offices had now clearly extended to the job site, and the end was near. Everyone wanted to find DeFeo by the beginning of February, but he was harder to locate than ever. He never showed up with the checks he had promised. When he did not, Hill, who had just begun to focus not only on payables but also on corporate funds, became worried about both Calvesco’s and Jackson’s ability to pay vendors. DeFeo was around “very, very infrequently” in February, and the job was being run exclusively onsite by Zeytoonjian. On February 2, having seen but not approved Requisition 4, DeBruyn requested a complete list of Jackson vendors from Zeytoonjian after repeated unsuccessful attempts to find DeFeo. Unlike on previous requisitions, she demanded backup documentation in the form of invoices because of the confusion over who was owed how much for what job. Zeytoonjian had no back-up documentation in the Jackson trailer on the Post Office site, but he prepared a list of vendors. DeBruyn told Zeytoonjian that Jackson was not going to be paid until the vendors got paid. She indicated to Zeytoonjian a willingness to issue joint checks, but they were not going to be issued until she received adequate documentation of vendor work. DeBruyn and Frei checked out many or all of the vendors on the list Jackson had provided, and several of them did in fact have pay problems. Based on their research, DeBruyn compiled a list of “C.A. Jackson Open Payables” to more than fourteen vendors totaling a minimum of $178,661.61. One week later on February 9, Christine, at the direction of her father, deposited a Torrey check written to Calvesco for, most likely, the Home Depot job, into a new and separate Jackson “payroll account.” She endorsed it over to Jackson because “Jackson needed money.” Immediately after the Tor-rey cheek was deposited, Moretto wired $20,-000 on February 18, 1995 directly from the Jackson Payroll account to Florida for the Joseph’s Restaurant investment. The wire transfer was made as a “distribution” to Gateman and Moretto. The wire transfer was apparently made by the bank before it determined that the $90,000 deposit should not be credited to the Jackson Payroll account, because, while the wire transfer cleared, nineteen checks written beginning the same day did not and were returned unpaid beginning February 15. Somehow, Gateman controlled the remainder of the $90,000 check after the bank rejected the endorsement into the Jackson payroll account. Eager to leave the Calvesco and Jackson businesses, Gateman took the funds and used it “to open an account for Calvesco ... to finish the Home Depot and Wal-Mart jobs.” Gateman says “that was Calveseo’s money that went to Charles Jackson Company either inadvertently or on purpose that wasn’t supposed to go there. And it went to Calvesco ultimately to complete the jobs that it was intended for.” Gate-man’s “understanding” of his role in Jackson by February was that “with respect to the post office job, [he] felt [he wasn’t] obligated to it. [He] didn’t sign a bond and [he] didn’t indemnify anyone, that whatever debts there were on the post office job were corporate debts, they weren’t [his] debts .... ” There is no evidence in the record to refute Gate-man’s statement that the diverted money went to pay debts of Calvesco on one of the Torrey jobs. J. A Hole They Couldn’t Dig Themselves Out Of Though work continued throughout February, Hyman started down the road to terminating Jackson on February 10-16, when it sent a string of five threatening letters to Jackson. Each letter complained about unpaid vendors and Jackson’s, particularly De-Feo’s, repeated inattention to the problem and refusal to meet with Hyman. Several points raised in the letters, some several times, are notable. Morrissey wrote that Hyman was considering taking over Jackson’s payroll to keep the project going, something it actually did sometime in February. Hyman mentioned the possibility of joint checks but never once demanded backup documentation in writing. It complained that, in the process of