Full opinion text
DECISION AND ORDER MARRERO, District Judge. TABLE OF CONTENTS I. INTRODUCTION.334 II. STANDARD OF REVIEW .334 III. FACTS AND PROCEDURAL HISTORY. CO CO Cn A. THE FUNDAMENTALS OF COOPERATIVES, COOPERATIVE FINANCING AND THE PROPOSED INVESTMENT. CO CO O B. NATIONAL WESTERN’S INVESTMENT EXPERIENCE AND THE 1988 CHARMS TRANSACTION. CO ^ O C. THE TRANSACTION, NATIONAL WESTERN’S INTERNAL DELIBERATIONS AND THE AGREEMENT. D. THE ADMISSIBILITY OF RELATED DISCOVERY AND TRANSACTION DOCUMENTS. CO CO 1. The Howard Notes. CO CO 2. The D & P Rating. CO Cl 3. The Appraisal . CO “J E. NATIONAL WESTERN’S RECEIPT OF THE NOTICES OF THE COOPERATIVE’S DEFAULT CO 00 IV. THE APPLICABILITY OF THE STATUTE OF LIMITATIONS TO NATIONAL WESTERN’S TSA CLAIM.349 V. NATIONAL WESTERN’S COMMON LAW FRAUD CLAIM. CO cn Oi A. NATIONAL WESTERN WAS A SOPHISTICATED INVESTOR. CO cn QO B. AS A SOPHISTICATED INVESTOR, NATIONAL WESTERN KNEW, OR SHOULD HAVE KNOWN, THAT THE SPONSOR’S ABILITY TO MEET ITS OBLIGATIONS WAS SUBSTANTIALLY DEPENDENT ON SALES OF APARTMENT UNITS. o CO CO 1. The CHARMS Documents . CO 05 ! — * 2. The D & P Rating. CO 05 3. National’s Western’s Own Deliberations CO 05 cn VI. CONCLUSION AND ORDER . .367 I. INTRODUCTION The case before the Court has the dubious distinction of approaching its tenth year of litigation. National Western Life Insurance Co. (“National Western”) commenced the present action in May 1993 against Merrill Lynch, Pierce, Fenner and Smith, Inc. (“Merrill Lynch”) asserting violations of the Texas Securities Act (the “TSA”) and common law arising out of National Western’s investment in a real estate loan financed by Merrill Lynch. Since then, the case passed through the dockets of four district judges, first in Texas, where it originated, and then in New York, where it was transferred, before finally settling down in this Court. On August 16, 2000, after seven years of the parties’ protracted pretrial wrangling, the Court ruled on Merrill Lynch’s motion to dismiss the complaint, or in the alternative for summary judgment. On the record of the pleadings then before it, the Court dismissed certain claims while permitting National Western to proceed with discovery on others, in particular the causes of action under the TSA and for common law fraud relating to its allegations that Merrill Lynch had failed to provide certain material information pertaining to the loan transaction at issue. Discovery, as it is designed to do, has put National Western’s allegations to the test, placing them in the real life context in which they arose. Upon the conclusion of discovery, Merrill Lynch moved for summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure on the balance of National Western’s claims. For the reasons set forth below, the Court finds no genuine issues of material fact that warrant extending this dispute into its tenth year of litigation. Merrill Lynch’s motion for summary judgment is granted. II. STANDARD OF REVIEW Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment shall be rendered “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir.1994). In considering the motion, the Court must resolve all ambiguities and draw all reasonable inferences in favor of the non-moving party. See Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record supporting a genuine issue as to any material fact. See Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir.1994). If, however, a moving party satisfies its burden under Rule 56(c), it is incumbent on the opponent to produce sufficient evidence of genuine, triable issues supported with specific facts as set forth in Rule 56(e). In this regard, “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted). Furthermore, “[wjhere the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’ ” Id. at 587, 106 S.Ct. 1348 (citations omitted). III. FACTS AND PROCEDURAL HISTORY The present dispute arose out of National Western’s purchase in March of 1989 of a sub-participation interest in a loan provided to a New York City residential cooperative corporation. The loan was made contemporaneous with the property owner’s conversion of the residential portion of the building into a cooperative. In the Decision, the Court performed a comprehensive review of the factual background, the investment at issue and the parties’ contentions. See National Western I, 112 F.Supp.2d at 296-98. That review, however, occurred in the factual vacuum confined to the pleadings and related material, as provided for under Federal Rule of Civil Procedure 12(b)(6). The Court was obliged to accept all well-pleaded allegations in the complaint as true and to draw all reasonable inferences in favor of National Western. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds, Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982); National Western I, 112 F.Supp.2d at 298-99. Even within this limited universe of facts, the Court found that National Western had failed to state claims entitling it to relief on its allegations of fraud pursuant to Article 581-33(A)(2) of the TSA and Texas common law relating to the valuations of the Property. See National Western I, 112 F.Supp.2d at 314, 318. On related grounds, the Court dismissed National Western’s claim of negligent misrepresentation. See id. at 319. As to National Western’s claim of breach of fiduciary duty, the Court granted Merrill Lynch’s alternative motion for summary judgment, finding that the claim was barred by the applicable two-year statute of limitations. See id. at 323. Nevertheless, drawing all reasonable inferences in favor of National Western, the Court sustained its claims under the TSA and for common law fraud, as they pertained to the alleged failure of Merrill Lynch to provide material information about the financial condition of the sponsor of the cooperative (the “Sponsor”). See id. Those two remaining claims are the subject of the present motion. Discovery, however, has provided the parties an opportunity to explore these remaining allegations in their proper context — the actual circumstances and events surrounding National Western’s investment. Outside of the factual vacuum, National Western’s allegations take on entirely different meanings, augmented by what happened before, during and after the consummation of the transaction. Thus, although the Court has previously produced a comprehensive summary of the facts from the pleadings, another similarly detailed assessment of the fuller record is necessary for purposes of the present motion. A. THE FUNDAMENTALS OF COOPERATIVES, COOPERATIVE FINANCING AND THE PROPOSED INVESTMENT A review of the basic principles governing real estate cooperatives and cooperative financing is essential to an understanding and proper resolution of the issues raised by the present motion. As the Court’s analysis below demonstrates, certain pertinent documents exchanged by the parties in connection with the relevant transactions provided National Western with a clear explanation of these underlying principles. Cooperative apartments are a form of residential property ownership found predominantly in the northeastern United States, particularly in New York City. In a residential cooperative, a corporation assumes ownership of an apartment building, and the current tenants may participate in that ownership, along with non-tenant buyers, by purchasing shares of the corporation corresponding to their particular residential units. The shareholders’ right of occupancy is subject to a proprietary lease, a variant of the typical apartment lease with some similar provisions. Their right of occupancy is evidenced by their ownership of shares in the corporation. The board of directors of a cooperative, elected by all the shareholders, determines the corporation’s cash requirements, which include the costs of operation, maintenance, any contemplated renovations, appropriate cash reserves and any mortgage loan payments owed by the corporation. All of the cooperative’s expenses are borne by the shareholders, who pay a pro rata portion of those costs based on the number of shares allocated to each unit in the cooperative. These obligations are commonly referred to as “maintenance payments,” which ordinarily are made on a monthly basis. Because cooperative purchasers participate in the ownership of a building as shareholders in the corporation, it has been noted that they assume more responsibility and play a larger role in the maintenance of their building and that conversion of rental apartments to cooperatives improves communities and increases property values, thus making cooperative financing an attractive investment for some institutional lenders. Nevertheless, it is apparent, even from this rudimentary description of cooperative ownership, that a cooperative corporation depends on a consistent and responsible shareholder base to meet its cash requirements. There are at least three basic types of cooperative financing that should be distinguished for purposes of this litigation. First, a potential purchaser may obtain bank financing for the purchase of shares associated with a particular apartment in a cooperative building. In contrast to the typical home mortgage, cooperative apartment loans are secured, not by the real estate, but by the shares of the cooperative corporation that are assigned to the particular apartment which is the subject of the financing. Second, an existing cooperative corporation itself may obtain a mortgage loan secured by the value of the entire apartment building, including the land if it is part of the corporation’s property. By availing itself of additional financing, an existing cooperative can make necessary improvements to the building, refinance prior mortgages or replenish a reserve fund. Presumably, capital improvements would tend to increase the value of the cooperative’s shares, or the market price for each apartment. Third, a prospective cooperative corporation may seek a mortgage loan pursuant to its conversion of a property, typically one that was previously a rental, into a newly-formed cooperative. Whether mortgage financing is offered to existing cooperative corporations or to corporations converting a property into a new cooperative, it remains fundamentally true that the corporation’s ability to repay the loan will necessarily depend on a steady stream of monthly maintenance payments from shareholders and rents from non-purchasing tenants. Most central in the process of conversion of property to cooperative ownership, and in the cooperative’s operation thereafter, is the role of the sponsor. Typically, the sponsor owns the property and, upon approval of the conversion, holds all the shares of the newly-formed corporation. The sponsor transfers title of the property to the cooperative corporation in exchange for payment of the purchase price, which may include assumption or discharge of any underlying mortgages. To finance its purchase of the building, the new corporation obtains a mortgage loan secured by the value of the converted property, including the cash flow from maintenance and rental payments by shareholders and tenants. As initial owner of all the shares of the cooperative corporation, the sponsor sells the apartments and related shares to current tenants who elect to purchase, as well as to outside buyers who acquire either vacant or occupied units. The sponsor retains ownership of and remains responsible for the maintenance and any other financial obligations associated with unsold units. Thus, ordinarily, especially during the early years following conversion, the sponsor continues to be the cooperative’s largest shareholder and bears the corresponding liabilities. For this reason, it is generally in the interest of the sponsor, the cooperative and lenders for the sponsor’s units to be sold as rapidly as possible. The longer the sponsor holds a large number of unsold units, especially if they are vacant or occupied by rent-regulated tenants, the deeper will be the sponsor’s attendant financial commitments, outlays and risks. It is also noteworthy that the risks in lending to an existing cooperative differ from those associated with cooperative conversion loans. First, an existing cooperative has a measurable tenant and shareholder base and quantifiable monthly maintenance payments. Second, an existing cooperative may have a history of prior sales from which a prospective lender can gauge how quickly apartments turn over, how long they remain on the market and the pricing trends of recent sales. By contrast, a lender to a newly formed cooperative lacks these measurable indicators of risk because the corporation comes into being only upon conversion of the building. From these basic principles it, therefore, readily follows that repayment of a loan pursuant to a cooperative conversion hinges fundamentally on the sponsor’s prompt sales of apartments to establish a tenant and shareholder base sufficient to meet all of the new corporation’s expenses, including payment of the underlying cooperative mortgage. As a consequence, a substantial downturn in economic conditions or change in the residential market that impedes the sponsor’s ability to sell units within the time limits and bounds of its resources enhances the sponsor’s financial exposure, concomitantly bearing on the risks of the cooperative, the shareholders and their lenders. A cooperative conversion in New York City is further complicated by the State’s rent regulation and eviction laws. In brief, cooperative conversion plans differ in their treatment of existing tenants who choose not to purchase the cooperative corporation’s shares associated with their apartments. In an “eviction plan,” non-purchasing tenants are permitted to remain as renters for a specified period of time, as long as they continue to pay their monthly rent, as determined by statutory regulation. Only after their statutory right of post-conversion occupancy has expired may non-purchasing tenants be evicted. In a “non-eviction plan,” non-purchasing tenants are fully protected if they wish to remain as tenants and they continue to pay their monthly rent, as determined by applicable rent regulation. Based on these principles, it is also reasonably simple to deduce that as regards a mortgage loan to a cooperative corporation in connection with a conversion, repayment of the underlying loan will depend on sales of apartments to shareholders upon conversion. To the extent that there are non-purchasing tenants under either an eviction or non-eviction plan, the cooperative’s ability to repay the loan will be hampered if the total monthly rent paid by all non-purchasing tenants — as determined by rent regulation — when added to the total monthly maintenance payments made by the shareholders, is less than is required to pay the building’s operating expenses, taxes and the cooperative mortgage loan. These potential hindrances to cash flow are greater under a non-eviction plan because of the non-purchasing tenants’ virtually unlimited right of occupancy after conversion. Against the backdrop of these essential principles, the Court turns to the specifics of National Western’s investment. Prior to 1988, Gracie Associates (“Gracie” or the “Sponsor”) owned the property at issue here, a rent-stabilized apartment building located at 401 East 89th Street, Manhattan (the “Property”). In August 1988, Gracie converted the Property into a condominium with two discrete parts: a residential unit with 198 apartments and a separate commercial unit. Subsequently, on January 25, 1989, Gracie, as Sponsor, commenced the conversion of the Property into a cooperative. The Sponsor transferred title to the residential part of the building to 401 East 89th Street Owners, Inc. (the “Cooperative”). The conversion took place pursuant to a non-eviction plan, entitling non-purchasing tenants to continue occupancy at rent-stabilized rates. According to National Western, the closing of the conversion was a complex transaction involving as many as six discrete steps. The operative transaction occurred, however, when CorEast Savings Bank (“CorEast”) provided a $12 million loan to the Cooperative. Merrill Lynch Mortgage Capital, Inc. (“ML Mortgage”) purchased the $12 million loan from CorEast. See National Western I, 112 F.Supp.2d at 297. Several weeks after the closing, on March 1, 1989, ML Mortgage sold a 25 percent sub-participation interest in the CorEast loan to its affiliate, defendant Merrill Lynch. See id. On the following day, Merrill Lynch assigned its rights under the sub-participation agreement to National Western in exchange for National Western’s payment of $2,816,215 (the “Transaction” or the “Investment”). See id. In essence, National Western had purchased a right to participate in the mortgage loan to the Cooperative, in effect becoming a lender to the Cooperative in the amount of its investment. By its purchase, National Western was entitled to 25 percent of the income stream from the loan, which consisted of the monthly payments of interest and/or principal by the Cooperative. By the express terms of the Transaction, CorEast remained as the ser-vicer of the loan and was obligated to pay up to three monthly payments on behalf of the Cooperative if the latter was unable to pay. CorEast made the mortgage loan to the owners of the residential portion of the Property, that is, the Cooperative corporation. For purposes of the loan, however, the interests of the Cooperative and the Sponsor initially were closely interrelated. As the Offering Summary for the CorEast loan certificates explains, the shares associated with all vacant apartments and apartments occupied by non-purchasing tenants were retained by the Sponsor, clearly identified as Grade. Thus, if the Cooperative’s cash flow was insufficient to meet all of its expenses, the Sponsor assumed responsibility to make up the necessary payments, including any shortfalls stemming from the tenant-occupied, rent-regulated apartments. And, as discussed above, it was apparent that the nature of the conversion and the structure of the loan were such that repayment of the Co-rEast loan was contingent upon the Cooperative’s and the Sponsor’s ability to sell, or otherwise rent, apartment units to generate sufficient monthly maintenance payments from its shareholders and tenants. In retrospect, the conversion of the Property into the Cooperative occurred during one of the most inopportune cycles of the New York City real estate market— the years following the stock market crash of 1987. See, e.g., DeSantis v. White Rose Assocs., 152 Misc.2d 567, 578 N.Y.S.2d 363, 364 (N.Y.Sup.1991). The Sponsor failed to sell apartment units at projected rates and at expected prices. On February 27, 1991, the Sponsor was forced involuntarily into bankruptcy. See National Western I, 112 F.Supp.2d at 297. After National Western had purchased its 25 percent sub-participation interest, it was revealed that National Western was not the only lender to the Sponsor. Before the transaction, Marine Midland Bank had loaned the Sponsor $19.95 million which was only partially repaid from the proceeds of the CorEast loan. B. NATIONAL WESTERN’S INVESTMENT EXPERIENCE AND THE 1988 CHARMS TRANSACTION Throughout this litigation, National Western has attempted to balance itself precariously on the rather thin edge of conflicting arguments and representations about its investment knowledge and experience. National Western here maintains that it was a relative neophyte investor in the New York City residential cooperative market. This contention must be viewed against the reality of National Western’s large corporate size and extensive real estate lending portfolio, as well as the legal concept of the “sophisticated investor.” In fact, the record reveals investment activity on the part of National Western that far exceeds that of an ordinary investor. By 1989, National Western had assets valued at approximately $1.6 billion. In that year alone, National Western acquired long-term investments totaling approximately $381 million. As of 1989, it had financed commercial mortgage loans with an aggregate value of $105 million and owned outright real estate investments worth $10 million. Even if true that only a small percentage of these sizeable investments concerned cooperatives in New York City, that fact alone hardly qualifies National Western to rank as a neophyte. On the record before the Court, as of 1989, National Western was clearly a seasoned lender and investor in a broad range of ventures and securities, and it must have possessed a fundamental working knowledge of diverse financial markets to participate in real estate investment activity totaling $115 million and in other securities valued at $381 million. Furthermore, the record unambiguously reflects at least one prior investment by National Western in the residential cooperative market in New York City. Sometime in 1988, Merrill Lynch approached National Western for the purpose of discussing an investment product known as the Cooperative Housing Amortizing Real Estate Mortgage Securities (“CHARMS”). National Western contends, and the Court acknowledges, that there were differences between CHARMS and National Western’s 25 percent sub-participation interest in the Transaction. CHARMS were participation interests in a pool of eight mortgage loans to existing residential cooperatives in New York City. Nevertheless, the striking aspect of National Western’s investment in CHARMS is not how it differed from the Transaction at issue here, but rather the germane information conveyed to National Western relating to the product and the relevance of that same information to the fundamentals of the Transaction. In connection with its presentation of the CHARMS investment, Merrill Lynch provided National Western with two documents: the CHARMS Offering Summary and a memorandum entitled “Cooperative Housing” prepared by the law firm of Paul, Hastings, Janofsky & Walker (the “Paul Hastings Memo”). The CHARMS Offering Summary contains two sections entitled “Co-op Financing and Foreclosure Proceedings” and “Cooperative Apartment Mortgage Loans.” The document clearly describes the financial obligations of a residential cooperative and the importance of a consistent, reliable stream of monthly maintenance payments from shareholders and tenants. It also discusses the possibility, albeit represented as unlikely, of individual shareholder default and of reversion of a cooperative to a rental apartment following a foreclosure sale. The CHARMS Offering Summary stated that either prospect would be “highly unlikely in any but a severely depressed economic climate.” The Paul Hastings Memo contains similar descriptions of the consequences of individual shareholder default. More importantly, the Paul Hastings Memo contains a specific section entitled “Coop Conversion; Applicability of Rent Control/Rent Stabilization.” This section sets forth the basic steps necessary for converting a residential property into a cooperative and the critical differences between a conversion with an eviction plan and one with a non-eviction plan. In addition, the Paul Hastings Memo clearly alludes to the possible financial obligations of the sponsor of a cooperative conversion in the event of shareholder default or non-purchase of individual units. It is undisputed that National Western received both the CHARMS Offering Summary and the Paul Hastings Memo. After discussing the investment product with Merrill Lynch, reviewing the CHARMS Offering Summary and the Paul Hastings Memo and deliberating on the merits of the investment, National Western purchased a $4 million participation interest in the CHARMS issue on November 14, 1988. National Western’s investment in CHARMS occurred approximately three months before Merrill Lynch contacted it about participating in the Co-rEast loan. C. THE TRANSACTION, NATIONAL WESTERN’S INTERNAL DELIBERATIONS AND THE AGREEMENT Shortly after National Western purchased a participation interest in the CHARMS product, Merrill Lynch approached National Western about the Transaction at issue here. John Cutting (“Cutting”), a Merrill Lynch Vice President in the company’s New York office, initiated the solicitation relating to the Transaction. On February 7, 1989, Cutting sent National Western an Offering Summary detailing the participation interests in the CorEast loan. At National Western, John Howard (“Howard”), Vice President of Finance, and Hans Weber (iCWeber”), Assistant Vice President, were the only officers who communicated directly with Merrill Lynch with regard to the CorEast loan participation interests. After the initial discussions between Merrill Lynch and National Western, Howard presented the investment opportunity to a number of officials inside National Western, including Robert L. Moody (“Moody”), the Chairman and Chief Executive Officer, Charles Milos (“Milos”), Vice President in charge of the company’s real estate portfolio, and Will Davis, Esq. (“Davis”), National Western’s regular outside counsel. The details of these internal deliberations are central to understanding how much National Western knew about the investment at issue and the degree of sophistication exhibited by the company in connection with its participation in the Transaction. Specifically, some of these internal deliberations reveal a sophisticated understanding on the part of National Western as to the nature of the CorEast loan and a critical approach to the cash flow model used to evaluate the Transaction. They substantially negate National Western’s contention that in entering into the Transaction it relied entirely on Merrill Lynch’s expertise and material representations or omissions concerning the New York residential cooperative market. Moody himself concedes that he had some concerns about the cash flow of the investment in the event that it reverted to a rental and that he directed Howard to recalculate the model consistent with his instructions. After adjusting the cash flow model for the Transaction and reviewing the Offering Summary and related documents, Howard presented the Transaction to National Western’s Investment Committee at its regularly scheduled meeting on February 24, 1989. After that meeting, according to Milo’s testimony, National Western’s Investment Committee raised additional questions, this time relating to the independent investment rating assigned to the Transaction, the state of the market for apartment units and valuations of the Property. Once again, Howard was instructed to obtain more information. Apparently, the Investment Committee approved National Western’s participation in the Transaction shortly thereafter, as National Western entered into an Assignment and Assumption Agreement (the “Agreement”) with Merrill Lynch on March 2, 1989. The Agreement was signed by Weber for National Western and by Matthew T. Kaiser, Vice President of Merrill Lynch. Notably, section 3(d) of the Agreement contains an express warranty by the Assignee, National Western, that it considers itself a substantial and sophisticated institutional investor. D. THE ADMISSIBILITY OF RELATED DISCOVERY AND TRANSACTION DOCUMENTS It is an unfortunate and macabre reality of litigation that extends as long as this action that crucial witnesses have passed away since the dispute first arose. See National Western I, 112 F.Supp.2d at 296. Both Howard and Weber are deceased, which leaves the parties and the Court partially without the benefit of their personal recollections. The parties’ ability to authenticate documents has also been hampered by this circumstance. In particular, in connection "with its motion, Merrill Lynch has submitted and relies upon three documents which go to the heart of the dispute at bar and which National Western argues are inadmissible: (1) the notes taken by two separate attorneys at separate interviews of Howard (the “Howard Notes”); (2) the independent rating assigned to the Transaction by the firm of Duff & Phelps (the “D & P Rating”); and (3) the appraisal of the Property at issue by the firm of William A. White/Tischman East, Inc. (the “Appraisal”). Because of the importance of the Howard Notes to this litigation and the circumstantial guarantee of trustworthiness in them, the Court finds that the Howard Notes are admissible under Rule 807 of the Federal Rules of Evidence. Based in part on the Howard Notes and other verifiable facts, the D & P Rating is also admissible. A genuine issue of fact remains, however, with respect to the Appraisal, and the Court continues to hold that it cannot admit more of the Appraisal than was warranted at the outset of this litigation. See National Western I, 112 F.Supp.2d at 301. 1. The Howard Notes In August and September of 1993, after the commencement of this litigation, attorneys for both Merrill Lynch and National Western interviewed Howard. In a memorandum dated August 9, 1993, Jonathan D. Siegfried, counsel to Merrill Lynch, memorialized the substance of his interview with Howard. An attorney for National Western also interviewed Howard on September 23,1993. The notes from these two sources are largely consistent, with a few notable exceptions. In the National Western version, Howard admits to having reviewed portions of the Appraisal and the D & P Rating. His recommendation to participate in the Transaction was based on these documents, the cash flow projections he calculated and Merrill Lynch’s “stature” in the business. Howard also opined that Merrill Lynch had made adequate disclosures to National Western. Finally, the National Western version of the notes reflect a basic understanding by Howard of the fundamental nature of the Transaction, that “the Sponsor had to pay its obligations.” In the Merrill Lynch version, Howard evidences the same fundamental understanding of the Transaction and of the nuances in eviction versus non-eviction conversion plans. He also confirms relying on the D & P Rating and portions of the Appraisal, although the memorandum implies that Howard had the benefit of the entire Appraisal. The Merrill Lynch version also contains Howard’s account of the history and reputation of the Moody family, which was less than flattering, as well as his unsubstantiated speculations as to National Western’s motives in this litigation. There is no question that the Howard Notes are the written recollections of attorneys who had interviewed Howard, and as such, they are hearsay. On this ground and others, National Western contends that the Howard Notes are inadmissible. Merrill Lynch acknowledges the hearsay issue, but asserts that the Howard Notes are admissible pursuant to Rule 807 of the Federal Rules of Evidence (“FRE”), the residual exception to the hearsay rule. In pertinent part, Rule 807 states: A statement not specifically covered by Rule 803 or 804 but having equivalent circumstantial guarantees of trustworthiness, is not excluded by the hearsay rule, if the court determines that (A) the statement is offered as evidence of a material fact; (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts; and (C) the general purposes of these rules and the interests of justice will best be served by admission of the statement into evidence. Fed.R.Evid. 807. See also United States v. Bryce, 208 F.3d 346, 350 (2d Cir.1999) (as amended Mar. 7, 2000) (“the catchall exception to the hearsay rule ... permits the admission of hearsay if (i) it is particularly trustworthy; (ii) it bears on a material fact; (in) it is the most probative evidence addressing that fact; (iv) its admission is consistent with the rules of evidence and advances the interests of justice; and (v) its proffer follows adequate notice to the adverse party.”) (citations omitted). At the outset, the criteria set forth in Rule 807 and Bryce weigh heavily in favor of admission of the Howard Notes. The facts to which the Howard Notes relate are not only “material,” they are crucial to the dispute at hand. Howard assumed primary responsibility for assessing investment opportunities for National Western during the relevant time period. His understanding of the Transaction and the documents that he acknowledged receiving pursuant to the deal are central to this litigation. He presented the Transaction to National Western’s CEO, had substantial discussions with Moody and other National Western officials — some of which Moody acknowledges occurred — and conducted relevant analysis material to National Western’s decision to proceed with the investment. There is also no question that as to Howard’s recollection of the operative events, no more probative evidence exists than that which comes from Howard himself, even if through an intermediary. For these reasons, the Court cannot envision how the interests of justice would be served by precluding the Howard Notes, given his direct and crucial involvement in the Transaction. There is also no dispute that Merrill Lynch provided notice in its memorandum in support of summary judgment of its intent to seek admission of the Howard Notes and that National Western not only had ample time contest Merrill Lynch’s offer of evidence, but did so vigorously in this motion and in prior, submissions to the Court. Thus, the considerations set forth in Rule 807 favor admission of the Howard Notes. See Bryce, 208 F.3d at 351; Copperweld Steel Co. v. Demag-Mannesmann-Bohler, 578 F.2d 953, 964 (3d Cir.1978). National Western takes issue primarily with the trustworthiness of the Howard Notes and the possible bias in his statements. It points out that the notes were taken from interviews that occurred more than four years after the Transaction and after this litigation had commenced. See United States v. AT & T, 516 F.Supp. 1237, 1241 (D.D.C.1981) (“ ‘substantial contemporaneity of event and statement negate the likelihood of deliberate or conscious misrepresentation.’ ”). In addition, National Western suggests that the bar for trustworthiness is much higher, requiring objective tests such as proof that the witness reviewed and edited hearsay notes. See, e.g., Copperweld, 578 F.2d at 964 n. 16. Furthermore, National Western notes that the company fired Howard in part because of the failure of the Transaction and that Howard offered a self-serving and critical account of the Moody family. From all of this National Western implies that Howard’s four-year old recollections are untrustworthy, that the recently filed litigation led him to misrepresent his own failings, choosing instead to highlight National Western’s, and that Howard had a retaliatory motive against the company because of his termination. The Court is not persuaded that National Western’s purely speculative musings are sufficient to overcome the underlying importance and probative value of Howard’s statements, given their uniqueness. First, the fact that the parties had commenced litigation at the time the notes were taken may cut both ways. Although National Western speculates that Howard was trying to absolve himself of liability, the fact that a federal court action had been filed would have also urged caution and truthfulness. Howard would have known that his statements might soon be tested in a court of law, where, as a central player in the Transaction, he undoubtedly would be called to testify under oath. In addition, whatever biases he may or may not have held, Howard recounted substantially identical versions of the events to the attorneys from both National Western and Merrill Lynch, about six weeks apart, after being presented with Transaction documents. As the Court’s analysis in Bryce indicates, trustworthiness is a fact-specific inquiry not conveniently reduced to rigid rules. See Bryce, 208 F.3d at 351. Balancing the specific marks of trustworthiness present here with the paramount importance of Howard’s recollections and the absence of an alternative source of that critical information, the Court finds that the Howard Notes are admissible for purposes of the present motion. See AT & T, 516 F.Supp. at 1240 (“Thus, the admission of these documents would contribute to the ultimate goal of the determination of the truth through the adversary process, and would thereby serve the interests of justice.”). 2. The D & P Rating Merrill Lynch’s marketing • of the Co-rEast loan participation interests included obtaining an independent rating by a professional rating agency. In February 1989, Duff & Phelps Credit Rating Co. (“D & P”) was assigned by Merrill Lynch to issue an independent rating on the Transaction. D & P concluded that the Co-rEast. loan participation interests were worthy of a “4” rating, corresponding to an AArating on the scale commonly used by other rating agencies. An investment with a “4” rating is characterized by high credit quality, strong protection factors and modest risk that “may vary slightly from time to time because of economic conditions.” The D & P rating analyzed the property valuations of the Cooperative, evaluated the cash flow model and applied stress tests to those valuations. Most importantly, the D & P rating clearly states that the risk involved in the Transaction was that of the Cooperative’s shareholders’ defaults — which would have included the Sponsor as the largest shareholder' — on the mortgage payments, possibly resulting in losses that would be borne by the holders of the participation interests. Although it has not explicitly challenged the admissibility of the D & P Rating, National Western has attempted to raise an issue as to whether it considered the rating before making its investment in the Transaction. The Court finds this implication disingenuous. First, Howard stated in both of his interviews that the D & P Rating was one of the primary documents upon which he relied when assessing the Transaction. Second, Moody himself repeatedly emphasized that National Western relied heavily on independent ratings when evaluating investment opportunities. For instance, in his deposition Moody confirmed that “the main thing important to me was the things I had previously testified to about the appraisal and the rating and the things that to me make a real estate go is the cash flow,” and that “[w]e rely at National Western very heavily on ratings from rating agencies.” Merrill Lynch offered the D & P Rating for the Court’s consideration pursuant to FRE Rule 803(6), the business records exception to the hearsay rule. As the Second Circuit has held, the “principal precondition to admissibility is that the record have sufficient indicia of trustworthiness to be considered reliable.” United States v. Williams, 205 F.3d 23, 34 (2d Cir.2000) (internal quotations and citations omitted); see also SEC v. Credit Bancorp, Ltd., No. 99 Civ. 11395, 2000 WL 968010, at *9 (S.D.N.Y. July 3, 2000) (as amended Aug. 8, 2000). Trustworthiness under Rule 803(6) is established by laying a proper foundation for the record. Williams, 205 F.3d at 34. Specifically, a “custodian or other qualified witness must testify that the document was kept in the course of a regularly conducted business activity and also that it was the regular practice of that business activity to make the [record].” Id. (internal quotations and citations omitted). Furthermore, “[t]he custodian need not have personal knowledge of the actual creation of the document.” Id. To establish the proper foundation, Merrill Lynch submitted, pursuant to FRE Rule 902(11), the sworn affidavit of Francis Phillip, Assistant General Counsel of Fitch, Inc., which acquired D & P, and the deposition of Erin E. Stafford, an employee of Fitch in its commercial mortgage group. Both Phillip and Stafford represented that the D & P Rating was made in or near February 1989 by a D & P employee likely to have had knowledge about the transaction at issue, that such documents were generated as pari of D & P’s regularly conducted activity and that the D & P Rating was kept in the company’s files in the ordinary course of business. The representations of these witnesses properly establish the foundation for the D & P Rating, and National Western’s objections are unavailing. Insofar as National Western protests the inclusion of the opinion evidence, the plain text of Rule 803(6) contemplates the admission of opinions contained in business records. The cases cited by National Western are inapposite and relate to instances where the proponent of a document made no effort to introduce it as a business record, or where the evidence was insufficient to establish that the document was generated as part of regularly conducted activity. See, e.g., Velsicol Chemical Corp. v. Monsanto Co., 579 F.2d 1038, 1048 (7th Cir.1978); Waddell v. Commissioner, 841 F.2d 264, 267 (9th Cir.1988). Furthermore, adopting National Western’s position here would require ignoring the Second Circuit’s admonition that “Rule 803(6) favors the admission of evidence rather than its exclusion if it has any probative value at all.” Williams 205 F.3d at 34. For these reasons, the Court finds that Merrill Lynch laid a proper foundation for the D & P Rating through the affidavit of Phillip and the deposition of Stafford. Pursuant to Rule 902(11), the D & P Rating was properly authenticated. Given Howard’s acknowledgment of receiving the D & P Rating and National Western’s stated policy, confirmed by Moody, of reliance on independent ratings, the Court finds it inherently implausible that National Western would have purchased the Co-rEast loan participation interests without having reviewed the D & P Rating. Therefore, pursuant to Rule 803(6), the D & P Rating is admissible for the purposes of this motion, and National Western should be charged with knowledge of the contents of the rating. 3. The Appraisal The Court first confronted the parties’ dispute over the admissibility of the Appraisal in the Decision. National Western I, 112 F.Supp.2d at 301. That dispute remains unresolved for purposes of the present motion. National Western contends that “Merrill offers no evidence that it sent an Appraisal to [National Western]. [National Western] denies having seen the Appraisal.” For its part, Merrill Lynch argues that several National Western officials, including Howard and Moody, have confirmed receiving and relying upon the Appraisal. Furthermore, Merrill Lynch contends that the entire Appraisal should be admitted because in a separate complaint filed by National Western against the appraiser, National Western stated that “[i]n deciding to purchase the sub-participation interest in the CorEast loan from Merrill Lynch, plaintiff reasonably relied on the representations contained in both the Offering Summary and the appraisal incorporated therein.” According to Merrill Lynch, this statement in a signed pleading should be treated as an admission by National Western, one that would support the Court’s consideration of the entire Appraisal. After reviewing the parties’ arguments and the documents relevant to the Appraisal, the Court finds no more grounds to admit the entire Appraisal now than when the Court first confronted this issue. First, the alleged admission of National Western in its complaint against the appraiser does not necessarily conflict with National Western’s contention here that it relied on “portions of’ the Appraisal. See National Western I, 112 F.Supp.2d at 301. “Representations contained in” and “portions of’ may reasonably refer only to certain parts of the Appraisal. In addition, while National Western officers speak generally about their reliance on an Appraisal, Howard speaks more clearly in terms of reviewing specific sections. Although Howard concedes that he might have received the entire Appraisal, he specifically recalls pages 28-29 and the possibility that Cutting faxed him selected portions without transmitting the entire Appraisal. Given Howard’s specific recollections of receiving only portions of the Appraisal, and drawing reasonable inferences in favor of the opponent of a summary judgment motion, the Court finds that the more prudent course of action requires admitting only the “portions of’ the Appraisal that the evidence suggests National Western must have reviewed and relied upon, at minimum pages 28-29. As the Court has already noted, that section pertains to the projected value of the Property as a rental. E. NATIONAL WESTERN’S RECEIPT OF THE NOTICES OF THE COOPERATIVE’S DEFAULT Little over a month after National Western purchased its sub-participation interest in the CorEast loan, the Cooperative began defaulting on its mortgage payments. On April 12, 1989, CorEast as servicer of the loan sent the Cooperative a letter (the “April 1989 Letter”) stating that the latter was in default and that the lenders were entitled to exercise their right under an acceleration provision calling for payment of all amounts due under the loan. The April 1989 Letter was copied to Weber at National Western. Apparently, the default detailed in the April 1989 Letter was cured, as monthly payments resumed and no other documents generated in 1989 reflect any action on the part of either the servicer or the certificate holders to foreclose on the Cooperative. One year later, however, on March 20, 1990, CorEast sent a letter (the “March 1990 Letter”) directly to Weber, referencing National Western’s sub-participation interest. The March 1990 Letter unambiguously notified National Western that, irrespective of past attempts to cure prior non-payment, the Cooperative had been in default since December 1, 1989. Furthermore, CorEast informed National Western that, pursuant to the mortgage servicing agreement, CorEast had made three payments on behalf of the Cooperative and that it no longer had any obligation to make up for the Cooperative’s missed payments, thus giving rise to po-. tential risk to National Western’s investment. Notably, the March .1990 Letter also explicitly set forth the possibility of foreclosure proceedings against the Cooperative. One month later, on April 19, 1990, Co-rEast sent another letter (the “April 1990 Letter”) to Weber. In addition to the defaults detailed in the March 1990 Letter, this notification alerted National Western to another subsequent default in April 1990. This time, foreclosure against the Property was so clearly on the table that the April 1990 Letter requested National Western’s agreement not to foreclose on the Property pending a possible block sale of apartments to a single buyer. Weber indicated National Western’s assent to waive foreclosure by initialing at the bottom of the April 1990 Letter. It is undisputed that National Western received all three notices of default. IY. THE APPLICABILITY OF THE STATUTE OF LIMITATIONS TO NATIONAL WESTERN’S TSA CLAIM The statute of limitations applicable to a claim under the TSA is three year's. See Sioux, Ltd. v. Coopers & Lybrand, 901 F.2d 51, 53 (5th Cir.), superseded by, 914 F.2d 61 (5th Cir.1990). In order to determine the date on which the limitations period began to run, the Court must look to the date on which National Western had “ ‘either inquiry or actual notice of the alleged fraudulent acts.’ ” Sioux, 901 F.2d at 52-53 (citing Jensen v. Snellings, 841 F.2d 600, 607 (5th Cir.1988)). In particular, Merrill Lynch avers that National Western had inquiry notice more than three years before instituting this action, that is, that National Western knew or “ ‘should have known of facts sufficient to excite such inquiry as would have been made in the exercise of reasonable diligence.’ ” Id. at 53 (citing Rutherford v. Exxon Co., U.S.A., 855 F.2d 1141, 1145 (5th Cir.1988)). The concept of inquiry notice has some nuances which require elaboration. As the court noted in Jensen, the “standard for whether facts sufficient to commence the limitations period would have been discovered upon reasonable inquiry is an objective one.” Jensen, 841 F.2d at 608 (citing Koke v. Stifel, Nicolaus & Co., Inc., 620 F.2d 1340, 1343 (8th Cir.1980)). Inquiry notice asks whether a reasonable person would have been alerted to circumstances that would arouse suspicion or concern or incite further investigation that, if diligently pursued, may reveal elements of the fraud which is subsequently charged. Furthermore, inquiry notice imposes an affirmative duty upon a potential plaintiff to conduct a diligent inquiry when confronted with facts tending to forewarn of the circumstances that may suggest or constitute fraud. Jensen, 841 F.2d at 607 (“The requirement of diligent inquiry imposes an affirmative duty upon the potential plaintiff. Plaintiff is not permitted a ‘leisurely discovery of the full details of the alleged scheme.’ ”) (citations omitted); see also Martinez Tapia v. The Chase Manhattan Bank, N.A., 149 F.3d 404, 409-10 (5th Cir.1998). In short, when objective “storm warnings” would alert a reasonable investor to concerns or facts suggesting the possibility of fraudulent statements or omissions, plaintiff must inquire further and conduct a diligent investigation. Jensen, 841 F.2d at 607. In the Decision, the Court accepted National Western’s well-pleaded allegations as true and examined the few documents properly before it in ruling on Merrill Lynch’s motion for summary judgment on National Western’s breach of fiduciary duty claim. Based on this review, the Court found that the defaults by the Cooperative in “late 1990 and early 1991 constituted sufficient warning to National Western, as acknowledged by Mr. Weber, to have created a duty for National Western to inquire into the circumstances surrounding the defaulted loan payments.” National Western I, 112 F.Supp.2d at 323. In light of the additional notices of default produced in discovery in connection with the instant motion, however, the Court is compelled to revise this conclusion. The supplemental evidence now available makes clear that the storm warnings National Western possessed triggered inquiry notice much earlier than the period of late 1990 and early 1991 referred to in the Decision. A little over one month after it purchased its sub-participation interest in the CorEast loan, National Western received the April 1989 Letter. Although not addressed directly to National Western the notice was copied to Weber. The April 1989 Letter leaves little room for misinterpretation, as CorEast informed the Cooperative that “[y]ou are in default under the Note, the Mortgage and the Loan Agreement in that, interest at the rate stated in the Note, interest at 4% over such stated rate, escrow late payment charges, and other sums due and payable have not been paid when due.” CorEast also invoked its right to accelerate the full amount due on the mortgage: “Demand is hereby made for payment of the foregoing accrued and unpaid interest, escrow, and all other amounts due and payable under the Note, the Mortgage, [and] the Loan Agreement ... all of which amounts we now declare to be due and payable in full, immediately.” Although it declined to specify measures to be taken in the event of non-payment, CorEast referred to possible adverse consequences: “[i]f you fail to pay all of the same immediately upon receipt of this demand, we shall be constrained to exercise our rights under the Loan Documents and as may be provided by law.” In the Court’s view, the substance of the April 1989 Letter, and more importantly the timing of it, should have raised substantial questions in the mind of a reasonable investor. To receive the April 1989 Letter just over a month after committing more than $2.6 million to the Transaction would have been, at a minimum, unsettling. Such grounds for concern would have been doubly alarming to an investor, such as National Western here proclaims to be, who professes the neophyte’s ignorance and inexperience in the relevant market and claims sole reliance on the expertise and representations of the securities dealer. Nevertheless, National Western contends that in April 1989 there was no reason for concern: “The first notice, in April 1989, was not unusual. As Moody explains, such notices are often the result of technical errors that are resolved with a simple phone call.” Drawing all reasonable inferences in favor of National Western, the Court is prepared to accept the proposition that the single April 1989 notice of default, by itself, may not have sufficiently alarmed National Western to the degree necessary to trigger inquiry notice. That situation changes dramatically, however, with the transmittal of the March 1990 Letter. At the outset, it is noteworthy that the March 1990 Letter is addressed not to the defaulting Cooperative, but rather directly to Weber and National Western. In addition, the scope of the Cooperative’s defaults as of March 1990 far exceeds that described in the April 1989 Letter, leaving no reasonable doubt that the notice was not the product of a mere technical error, nor a matter curable with a simple phone call. CorEast informed National Western that: amounts due under the Mortgage Note have not been paid since December 1, 1989. As required by Section 6.3 of the Servicing Agreement, [CorEast] has from its own funds remitted to Certificate holders amounts in respect of three delinquent Monthly Payments due under the Mortgage Note. [CorEast] is not obligated to make any further remittances to Certificate holders from its own funds with respect to any other delinquent payments due or coming due under the Mortgage Note. These passages are notable for several reasons. First, in addition to the default referenced in the April 1989 Letter, the March 1990 Letter details three additional missed payments. These subsequent, sequential defaults clearly signal the Cooperative’s recurring inability to meet its financial obligations. Closer to the point of the issues here in contention, because at the time of the Transaction the Sponsor held the shares corresponding to such a large portion of unsold units, and thus carried the attendant obligations to make those payments, four instances of default by the Cooperative occurring within one year may reasonably be read as a telltale sign indicating that the cause of the delinquencies may fundamentally have related to the Sponsor’s financial condition, notably its inability to sell units rapidly enough and/or inadequate resources to continue carrying the obligations associated with the shares and units it still held. Moreover, whatever cushion CorEast agreed to provide as the original owner and current servicer of the mortgage had evaporated because it already had paid its obligatory three months of mortgage payments on behalf of the defaulting Cooperative. Thus, on a going-forward basis, the Cooperative, the Sponsor and the investors in the loan, including National Western, lost a good measure of security that put each at risk of financial exposure should the delinquencies continue. The most striking aspect of the March 1990 Letter, however, is its reference to foreclosure. As of March 20, 1990, National Western was on notice that foreclosure was not only a legal possibility, but also an option on the minds of the servicer. CorEast informed Weber that “[b]y reason of the above-mentioned defaults [CorEast] is entitled to accelerate the maturity of the Mortgage Note and to commence foreclosure proceedings in respect of the property ... subject to the Mortgage.” Thus, the March 1990 Letter would have alerted any reasonable investor to conclude that the Cooperative already had failed to make as many as four timely mortgage payments within the first year of the loan and that CorEast would no longer remit its own funds in the future if the Cooperative missed additional payments. Even if these facts had escaped the attention of an unobservant investor, the Court cannot fathom how National Western could ignore the warning in CorEast’s invocation of possible foreclosure proceedings. Taken together, the situation described in the April 1989 and March 1990 Letters reveals that the Cooperative’s liquidity was so dire that CorEast felt compelled to give legal notice to National Western that foreclosure against the Property was now on the table. Whatever the state of National Western’s specific knowledge of the New York City residential cooperative market’s finer points, the words “default” and “foreclosure,” especially when appearing together on the same legal notice, have a universally alarming ring that at minimum would awaken, or provoke some reflexive shudder, in any ordinary investor, let alone a sophisticated institutional lender holding real estate interests of the scope of National Western’s portfolio. National Western responds to these warnings by noting that, “[t]he March and April 1990 notices were supplemented by explanatory communications. [National Western] was told that the proposed sale of apartments to a hospital would permit the loan to be brought current and that foreclosure was not recommended. [National Western] saw no reason to make further inquiry so long as the loan was brought current and stayed current thereafter.” The Court finds these arguments unpersuasive and fails to see how a reasonable, even neophyte investor could respond to ominous notices with such lack of concern, and later complain that it was defrauded. That National Western believed that the loan somehow could be brought current soon enough by the proposed sale of apartments to the hospital is entirely beside the point. The relevant questions the default notices should have prompted in the mind of an objectively reasonable investor under the circumstances prevailing on that occasion are: why had the Cooperative’s finances reached such a grave state so soon in the first place; what role the Sponsor’s condition may have played in the matter; and whether, objectively, National Western at that point faced a sufficient risk to its investment to warrant diligent inquiry as a basis for protecting its rights and preserving any potential claim that may have accrued in the event National Western did suffer some loss on account of the Transaction — even if on that particular occasion the default eventually were to be cured. Any reasonable investor faced with four missed payments in the first year of a mortgage loan, the evaporation of cushion payments from the loan servicer and the possibility of foreclosure on the Property, would have looked twice at the $2.6 million invested just a year earlier and would have taken more vigorous steps to protect it. This response would be the reasonably expected course of action especially in the case of an interest acquired in a market of which the i