Full opinion text
OPINION SWEET, District Judge. TABLE OF CONTENTS I.PRIOR PROCEEDINGS...................................................317 II. FINDINGS OF FACT......................................................317 A. The Parties and Related Entities.........................................317 B. The Securitizations.................................... 318 1. Accounting Treatment..............................................320 2. Tax Treatment.....................................................320 3. Temporary Differences..............................................320 C. The Negotiations Leading to SPA........................................323 D. The SPA..............................................................326 E. The Ganis Closing......................................................331 F. The Negotiations Leading to the DRAFCO Closing.........................333 G. The DRAFCO Closing..................................................345 H. The Dispute Following the DRAFCO Closing..............................349 I. The Accounting Treatment of the DTA ...................................365 1. The Experts.......................................................365 2. The Servicing Fee Deduction ........................................366 3. State Taxes........................................................371 J. The Liquidation Expense ...............................................372 III. CONCLUSIONS OF LAW..................................................373 A. Jurisdiction, Venue and the Applicable Law Have Been Established..........373 B. Deutsche Bank Breached the Contract....................................373 1. The Failure To Deduct the Service Fee Expense.......................374 a. Breach of §§ 2.06...............................................374 b. The Breach of §§ 3.06 and 3.07 Arising Out of the Reference Balance Sheet................................................376 c. The Breach of § 3.14............................................377 2. Deutsche Bank Has Not Established an Affirmative Defense to the Contract Claims..................................................377 a. Timely Notice..................................................377 b. Compliance with § 2.06..........................................378 c. Waiver........................................................379 d. Application of Article VII........................................380 e. Estoppel, Laches, and Standing ..................................380 3. Deutsche Bank Did Not Breach SPA §§ 5.01 and 5.02...................380 C. Deutsche Bank Did Not Commit Fraud...................................381 1. Deutsche Bank Knowingly Misrepresented the Tax Rate Applicable to the DTA......................................................381 2. E*TRADE reasonably relied upon Deutsche Bank’s representations.....382 3. Intent to Defraud by Use of the 39.55% State Tax Rate Has Not Been Established.................................................385 4. Deutsche Bank Did Not Fraudulently Conceal the Failure to Deduct the Servicing Fee Expenses........................................386 D. Deutsche Bank Did Not Commit Constructive Fraud.......................387 E. Deutsche Bank Did Not Breach Its Duty of Good Faith and Fair Dealing.....388 F. E*TRADE Has Proven Its Damages.....................................389 G. E*TRADE Is Entitled to Prejudgment Interest ...........................390 H. E*TRADE Is Not Entitled to Punitive Damages...........................390 I. E*TRADE Is Entitled to Attorneys’ Fees.................................390 IV. CONCLUSION............................................................392 Plaintiffs E*TRADE Financial Corporation (“E*Trade Financial”) and E*TRADE Bank (“E*Trade Bank”) (collectively, the “Plaintiffs” or “E*TRADE”) seek to recover over $11.5 million in damages for breach of contract and fraud, as well as prejudgment interest, costs and attorneys’ fees, from defendant Deutsche Bank AG (“Deutsche Bank” or the “Defendant”) arising from the sale of two Deutsche Bank subsidiaries, Ganis Credit Corporation (“Ganis”) and Deutsche Recreational Asset Funding Corporation (“DRAFCO”) to E*TRADE, pursuant to a Stock Purchase Agreement (the “SPA”) entered into by the parties on November 25, 2002. The parties are highly sophisticated entities, very well represented at the time of the transactions at issue and during this litigation. Through the pointillism of facts found below emerges the key issue — the proper accounting treatment for a complicated securitization. The difficulty and uncertainty of tax and accounting treatment for somewhat exotic securities that underlies our present national economic dilemma is presented paradigmatically in this action. Although expert accountants, lawyers and executives differ, through diligence and persistence it is hoped that both the challenge of this action and of the present economic dilemma can be overcome. In accordance with the Findings of Fact and Conclusions of Law set forth below, E*TRADE is entitled to judgment in its favor in the amount of approximately $18 million, including prejudgment interest, plus costs and attorneys’ fees, Deutsche Bank having breached the SPA as a result of its failure to take certain significant tax deductions. I. PRIOR PROCEEDINGS On January 26, 2005, E*TRADE filed a complaint asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, alleging that Deutsche Bank breached its obligations under the SPA by overstating the value of a deferred tax asset on the DRAFCO closing balance sheet, resulting in an overpayment in the purchase price paid by E*Trade Bank. Deutsche Bank answered the complaint on April 18, 2005, and on June 20, 2005, moved for judgment on the pleadings. On August 15, 2005, E''"TRADE moved for leave to file the First Amended Complaint (“FAC”). The motions were heard together on November 23, 2005. On March 6, 2006, the motion for judgment on the pleadings was denied, and the motion for leave to amend was granted. See E*Trade Financial Corp. v. Deutsche Bank AG, 420 F.Supp.2d 273 (S.D.N.Y.2006) (the “March 6 Opinion”). The FAC was filed March 9, 2006 alleging fraud (Count I), fraudulent inducement (Count II), fraudulent concealment (Count III), constructive fraud (Count IV), negligent misrepresentation (Count V), unjust enrichment (Counts VI and VII), violation of California Unfair Competition law (Count VIII), breach of contract (Count IX), breach of implied covenant of good faith and fair dealing (Count X), and quantum meruit (Count XI). On November 7, 2007, Deutsche Bank moved for summary judgment, and on June 13, 2008, the Court dismissed the claims in Counts VI, VII, VIII, and XI, but otherwise denied the motion. See E*Trade Financial Corp. v. Deutsche Bank AG, No. 05 Civ. 902(RWS), 2008 WL 2428225 (S.D.N.Y. June 13, 2008) (the “June 13 Opinion”). In limine motions were filed on September 29, 2008, and a thirteen-day bench trial commenced October 14, 2008. Post-trial briefs were filed on December 23, 2008, and post-trial argument was heard February 19, 2009. II. FINDINGS OF FACT A. The Parties and Related Entities Plaintiff E’"Trade Financial is a Delaware corporation with its principal place of business in New York, New York. E*Trade Financial provides online consumer financial services including securities trading, banking services, and originating mortgages and loans for retail, corporate, and institutional customers. June 13 Opinion at *1; Tr. 64 (B. Montgomery); Def. Ex. 291, 293. E*Trade Financial was formerly known as E*TRADE Group (“E*Trade Group”). E* Trade Group changed its name to E’"Trade Financial around 2003. Tr. 60 (B. Montgomery), 996 (Mackay). E*Trade Financial is, and E*Trade Group was, the parent company of all E*TRADE entities, including E*Trade Bank. Tr. 60 (B. Montgomery); June 13 Opinion at *1. Plaintiff E*Trade Bank is a federally chartered savings bank with its principal place of business in Arlington, Virginia. E*Trade Bank offers a full range of consumer banking products and services including online banking and mortgage loans. June 13 Opinion at *1; Def. Ex. 291. E*Trade Bank is a wholly-owned subsidiary of E*Trade Financial. June 13 Opinion at *1. Defendant Deutsche Bank is a German corporation with its principal place of business in Frankfurt, Germany. June 13 Opinion at *1. Its stock is traded on the New York Stock Exchange. At all relevant times it had approximately 300-400 subsidiaries in the United States. Tr. 1543 (Ferino), 1922 (H. Montgomery). Before October 31, 2002, Ganis was a wholly-owned subsidiary of Deutsche Financial Services (“DFS”), which itself was a wholly — owned subsidiary of Deutsche Bank. Tr. 553-54 (Staffeldt); Def. Ex. 70 at ET-DB 93241. Ganis originated and serviced consumer loans on recreational vehicles, boats, and trailers sold to consumers (the “Loans”). Between October 31, 2002, and December 23, 2002, Ganis was owned by G Finance Holding Company, another wholly-owned Deutsche Bank subsidiary. Id. E*Trade Bank owned Ganis between December 23, 2002, and October 31, 2005, when E*Trade Bank sold Ganis to GE Money, a unit of the General Electric Company (“GE”). Haisch Dep. 10, 79-80. DRAFCO was a subsidiary of Ganis created on May 22, 1998, to securitize and service recreational end-user financing loans originated by Ganis. Def. Ex. 70 at ET-DB 093241. DRAFCO had no employees. Tr. 460 (Berliner). The DRAFCO balance sheet contained only assets and liabilities related to securitizations of the Loans originated by Ganis. Def. Ex. 70. From October 31, 2002, until October 20, 2003, DRAFCO was owned by Ganis Financial Holding Company. Since October 20, 2003, DRAFCO has been owned by E*TRADE. DRAFCO has been renamed E*Trade Financial Asset Funding Corp. Def. Ex. 170 at SS 562. B. The Securitizations Securitizations are complicated transactions and present specialized aspects of tax accounting because of the many cash flows, multiple parties (trusts, borrowers, investors, and companies selling the loans), and substantial amounts of backup and legal documentation. Only persons with expertise in securitizations are able to understand the interplay between these multiple parties and the complicated tax accounting concepts arising from securitizations, including deferred tax assets. June 13 Opinion at *3; Tr. 1163 (Audette), 107-108 (B. Montgomery); Robertson Dep. 21-22, 82; Snow Dep. 126-127. DRAFCO completed four securitizations before its sale to E*TRADE, three in 1999 and one in 2001 (the “Securitizations”). Each Securitization had the same structure, and involved several parties: borrowers, Ganis, DRAFCO, a trust and investors. Tr. 400-401 (Berliner). The accounting for the Securitizations enabled Deutsche Bank to record a large book gain on the day the Securitization closed and defer the taxes it had to pay on that gain. Tr. 410-11 (Berliner); PI. Ex. 194. Securitization accounting “inflates income and reduces taxes immediately payable.” Tr. 410 (Berliner). Ganis provided the Loans to the borrowers, who took on an obligation to make monthly payments of principal and interest to Ganis. A portion of this interest payment was allocated to pay for the cost of servicing the Loans. Tr. 1146-1147 (Audette), 400 — 401 (Berliner); Meyers Dep. 93; Schwartz Dep. 218; PL Ex. 11. Ganis transferred the Loans to DRAFCO so that DRAFCO could securitize them. Ganis also serviced the Loans. Tr. 400-402 (Berliner); Haisch Dep. 73. After receiving the Loans from Ganis, DRAFCO sold them to a trust. Tr. 400 (Berliner). Each Securitization created a separate trust (collectively, the “Trusts”). The Loans were pooled and then grouped into “Classes” based on their relative risk and subordination levels. The Trust sold “Notes” to outside investors for each of the Classes. The Notes were collateralized by the cash flow on the Loans. While DRAFCO did not hold any of the Notes, it did retain the right to receive the “Residual Interest” generated from the Securitizations. Tr. 400-401 (Berliner); Pl. Exs. 310, 314. The investors purchased the Notes, which promised the investors a specified rate of interest. When the borrowers made their principal and interest payments on the Loans, the Trust used the proceeds to make payments to the investors. Tr. 400-401 (Berliner); Haisch Dep. 81-82; Snow Dep. 45-46; Pl. Exs. 310, 314. The Residual Interest reflected on the DRAFCO books was an estimate of the present value of future cash flows that DRAFCO would receive from the “excess interest” generated by each Securitization. “Excess interest” is the difference between (a) the interest rate paid by the borrowers on the Loans and (b) the interest rate paid to holders of the Notes plus expenses associated with the Loans. The interest rate paid on the Loans was intended to generate enough cash to more than cover the interest paid on the Notes and the expenses. Tr. 401 (Berliner); PL Exs. 310, 312, 314. The Residual Interest from the Securitizations was on E"'TRADE’S books beginning October 20, 2003, the date E*TRADE purchased DRAFCO as set forth below. The Residual Interest from the 2001 Securitization is the only Residual Interest that currently remains on E*TRADE’s books. There has been no change in the structure of the Securitizations since October 2003. Tr. 1124,1150 (Audette). Ganis serviced the Loans underlying each Securitization. Servicing a loan portfolio involved providing services such as collecting and applying the monthly payments from the borrowers, maintaining records, sending out statements, making collection calls and initiating foreclosure proceedings as necessary. Ganis performed such services for many financial institutions, including Bank of Boston, Citizens Bank, Bank of the Southwest and Bank of America. Haisch Dep. 16-17, 196-201; Snow Dep. 70-71. Ganis was entitled to receive “Servicing Fees,” calculated as a percentage of the amount of the loans, as compensation for servicing the Loans. Tr. 1147 (Audette), 401-02, 494 (Berliner), 73 (B. Montgomery); Haisch Dep. 40, 73; Robertson Dep. 59-60; PI. Ex. 116. From 1999 through December 23, 2002, Ganis received $27,501,282 in Servicing Fees. Each Trust paid the Servicing Fees directly to Ganis on DRAFCO’s behalf from the interest income. Tr. 401-02 (Berliner), 1862 (Mangieri); Schwartz Dep. 79, 218; PL Exs. 174, 310 at 104, 314 at 534, 321. In addition to Servicing Fees, each Trust paid other expenses on DRAFCO’s behalf. One of these expenses was the “Liquidation Expense,” which reflected the costs to repossess and sell repossessed assets that collateralized the Loans. From 1999 to December 23, 2002, the Trust paid liquidation fees of $502,825 on DRAFCO’s behalf. Thus DRAFCO incurred $502,825 in Liquidation Expenses. Tr. 400^402, 416 (Berliner). In securitizations, the accounting for income and expenses is different for financial reporting purposes (“book purposes”) and tax reporting purposes (“tax purposes”). Tr. 410-11 (Berliner); Munro Dep. 82. 1.Accounting Treatment For book purposes, U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) governs the reporting of income and expenses. Under U.S. GAAP, the Securitizations are considered to be a sale, meaning the Loans were treated as if DRAFCO had sold them to the Trusts. Thus, on the day the Securitizations closed, the Loans came off DRAFCO’s books. Tr. 415, 437-38 (Berliner). Also on the day the Securitizations closed, DRAFCO recorded for book purposes all income and expenses (including Servicing Fees and Liquidation Expenses) associated with the Securitizations. The difference between the resulting entry (the Residual Interest) and the up-front cash received is the “Gain on Sale,” i.e. the estimated net profit from the Securitization. Tr. 400-401, 415-16, 440 (Berliner); PL Ex. 35 at 23907. DRAFCO did not record for book purposes any income or expenses after the date of Securitization. Tr. 417-18 (Berliner). 2. Tax Treatment For tax purposes, Internal Revenue Service (“IRS”) rules and regulations govern the reporting of income and expenses. For tax purposes, the Securitizations were deemed to be a borrowing and not a sale. Under the IRS rules, DRAFCO was considered to have borrowed the cash that the Trust paid for the Loans. The Loans remained an asset of DRAFCO, and the Notes remained a liability. Tr. 410 (Berliner); PL Ex. 194 at 38714. Because the cash that the Trust paid was treated as a loan for tax purposes, DRAFCO did not record any taxable income or expense on the day the Securitizations closed. For tax purposes, DRAFCO recorded income from the Loans as it was received from the borrowers. DRAFCO also recorded expenses related to the Securitizations (including the Servicing Fee Expenses and Liquidation Expense) when DRAFCO paid them. Tr. 415 (Berliner). 3. Temporary Differences A deferred tax asset (“DTA”) resulted from the accounting treatment of the Securitizations. Deferred taxes are purely an accounting concept governed by Financial Accounting Standard 109 (“FAS 109”), a U.S. GAAP rule. Deferred taxes are not governed by IRS rules. Tr. 69 (B. Montgomery), 403-04 (Berliner), 1792 (Mangieri). A deferred tax asset arises when an entity’s income for tax purposes is temporarily higher than its income for book purposes. Taxable income may be temporarily higher than book income, resulting in a DTA, because either (a) expenses have been recorded on the books but have not been deducted on the tax return or (b) income has been reported on the tax return but has not yet been recorded on the books. Tr. 408 (Berliner). A deferred tax liability (“DTL”) is the opposite of a DTA and arises when an entity’s income for tax purposes is temporarily lower than its income for book purposes. This occurs when either (a) expenses have been deducted for tax purposes but have not yet been recorded on the books or (b) income has been reported on the books but has not yet been reported on the tax return. A DTL is a liability because it reflects the amount of future taxes to be paid. Tr. 408 (Berliner). These differences, which result from a divergence in timing of when income and expenses are recorded for book purposes and tax purposes, are called “temporary differences.” Temporary differences also are called “timing differences.” Tr. 103 (B. Montgomery), 404 (Berliner), 849-50, 853 (Ruddell). These differences are temporary because while, during the course of the securitization, there is a difference between when the taxpayer can record the income and/or expense, eventually the amount of each item of income and expense will “turn,” i.e. be the same for both tax purposes and book purposes. Tr. 404, 407 (Berliner), 1143 (Audette), 1724 (Mangieri). The differences between how the items giving rise to a securitization Gain on Sale are treated on an entity’s financial statements and how they are treated on an entity’s tax returns are monitored in a “deferred tax account.” Tr. 1726, 1733-37 (Mangieri). The value of a DTA (or DTL) in a securitization is determined by calculating the difference between the Gain on Sale-related income and expenses recorded on an entity’s books and those recognized on the entity’s tax returns (the temporary differences) and then multiplying the differences by the entity’s effective tax rate. Tr. 411 (Berliner), 1081 (Ferino), 1733-34 (Mangieri). In contrast, a “permanent difference” results when there is different treatment of income and expenses for book and tax purposes, but this difference will always exist. Permanent differences are items that typically are not deductible for tax purposes but are deductible for book purposes, such as deductions for meals and entertainment. For book purposes, meals and entertainment are fully deductible. However, for tax purposes, the general rule is that only 50% of the value of business-related meals and entertainment are deductible. This difference in treatment is permanent because the taxpayer never will be able to get the full deduction for tax purpose that it got for book purposes. Tr. 407 (Berliner); PI. Ex. 13 at 190105, 190108. The differences between DRAFCO’s treatment of income and expenses for book and tax purposes for the Securitizations created temporary differences because they reflected differences in the timing of recording the income and expenses. Tr. 407-08 (Berliner). For book purposes, all income and expenses related to the Securitization were recorded on the day the Securitization closed, and no income and expenses were recorded over the life of the Securitization. For tax purposes, no income and expenses were recorded on the day the Securitization closed, and all income and expenses were recorded as realized over the life of the Securitization. Tr. 407-10 (Berliner). In particular, the amount of Servicing Fees that would be paid over the life of the Securitization was taken into account for book purposes on the day the Securitization closed, and those fees reduced the amount of the Residual Interest and, as a result, the Gain on Sale. At the end of the Securitization the amount of the Servicing Fees DRAFCO recorded for book and tax purposes should be the same. Tr. 407 (Berliner). At the time of the Securitizations, a DTL was created because the amount of income for book purposes (the amount of the Gain on Sale) was higher than income for tax purposes (taxable income was zero because as discussed above no income was recognized on the day the Securitization closed for tax purposes). Tr. 410 (Berliner). Each month over the life of the Securitization, DRAFCO recorded for tax purposes the income from, and expenses associated with, the Loans, but for book purposes did not record any income or expenses. As income from the Loans arrived, taxable income increased; book income did not change because all income for book purposes was recorded when each Securitization closed. Taxable income ultimately equaled, and then exceeded, book income. When taxable income exceeded book income, it created the DTA. Tr. 411 (Berliner). According to E*TRADE, the Servicing Fees should have been deducted as incurred over the life of the Securitization for tax purposes, because they were included in the calculation of the Residual Interest for book purposes. Deutsche Bank did not deduct the Servicing Fees on DRAFCO’s tax returns, thereby giving rise to the principal dispute in this case. Tr. 440-41, 444^45 (Berliner); PI. Ex. 35 at 23907. The pro forma federal tax returns of DRAFCO and the calculations of its DTA (or DTL) were prepared in St. Louis by DFS employee Teresa Hickam (“Hickam”) and persons reporting to her. Tr. 1487-89 (Ferino), 1922-23 (H. Montgomery). Hickam was not a securitization expert, and she relied on DFS’s auditor, KPMG LLP (“KPMG”), to create a Microsoft Excel template to calculate the value of DRAFCO’s DTA (or DTL) (the “Template”). Tr. 1070-72, 1489 (Ferino), 1923 (H. Montgomery); PI. Ex. 159 at KPMG 01383. From the inception of the Securitizations, Hickam was responsible for inserting dollar amounts from cash flows related to the Securitizations into the Template to calculate the DTA. Tr. 1069-72, 1489, 1543 (Ferino); PI. Ex. 159. A note contained in the Template stated “Since interest income and expense is reported gross, it is not necessary to include servicing fee income. If the net spread is the starting point for M-l, service fee income will need to be added back.” PL Ex. 159 at 1384. Hickam read this as an instruction to not deduct the Servicing Fee Expenses paid by DRAFCO in the monthly calculation of the DTA. From 1999 to 2002, Hickam followed the KPMG Template mechanically, including what she understood to be an instruction not to deduct the Servicing Fee Expenses. Tr. 1488-89 (Ferino). The Template monitored all of the temporary differences related to the Gain on Sale from the Securitizations and multiplied them by an effective tax rate of 39.55%. That tax rate had been used since the inception of the DRAFCO Securitizations in 1999 and represented a “blended” tax rate composed of a 35% federal income tax rate and a 7% state income tax rate. Tr. 1070:24-1074:1 (Ferino), 454:7-15 (Berliner). In November 2002, after the sale of the St. Louis office to GE, Anthony Ferino (“Ferino”), then a director of Deutsche Bank’s New York Tax Office, took over responsibility for the monthly calculation of the DTA. Ferino continued to use the Template in the same way that Hickam had used it since 1999, and did not deduct the Servicing Fee Expenses. Tr. 1072-73 (Ferino). As discussed more fully below, the Servicing Fee Expenses should have been deducted. The failure to deduct the Servicing Fee Expenses in calculating the value of the DTA ultimately led to an overvaluation of the DTA by over $11 million on the date of DRAFCO’s sale to E*TRADE. Ferino provided and explained the operation of the Template to Brian Forschino (“Forschino”), Senior Manager at KPMG responsible for the audit of DRAFCO pri- or to its sale to E*TRADE. Forschino used the same information to audit the DTA that Hickam used to calculate the DTA. Tr. 1076-77,1080-81 (Ferino). C. The Negotiations Leading to SPA For strategic reasons, Deutsche Bank decided in 2000 to sell its “non-core businesses,” including DFS. Tr. 545-46 (Staffeldt). GE agreed to purchase DFS’s commercial financing operations, but declined to purchase its consumer end-user operations consisting of Ganis and Ganis’s subsidiaries. Tr. 553-54, 589 (Staffeldt). In the summer of 2002, Deutsche Bank’s investment bankers Goldman Sachs & Co. (“Goldman Sachs”) and Deutsche Bank Securities Inc. solicited bids for Ganis and its subsidiaries. Tr. 545^6 (Staffeldt). E*TRADE became aware of this when an executive at Deutsche Bank told Rob Snow (“Snow”), the director of the consumer finance business for E*Trade Group, that Deutsche Bank wanted to sell Ganis, its consumer finance business. Snow Dep. 26-27. Snow discussed the opportunity to purchase Ganis with Todd Mackay (“Mackay”), who led E*Trade Group’s business development group. Mackay and Snow were interested in purchasing Ganis to diversify E*TRADE’s balance sheet into non-mortgage assets, and E*TRADE believed Ganis would be a good source of non-mortgage assets. Snow Dep. 27, 40. In early summer of 2002, Ulrich Gaertner (“Gaertner”), a Director of Deutsche Bank in the Corporate and Investment Bank Group, and other Deutsche Bank officials met with E*Trade Group officers at E*Trade Group’s headquarters in Arlington, Virginia. During the meeting, Deutsche Bank presented a general overview of Ganis’s business to E*TRADE. Tr. 634-35 (Gaertner); Snow Dep. 28. In August 2002, Deutsche Bank set up preliminary due diligence sessions for those entities interested in bidding on Ganis and its subsidiaries at Ganis’s Costa Mesa, California headquarters. The Costa Mesa due diligence data room contained copies of “many, many binders, [and] thousands of pieces of paper” on Ganis’s business, including legal, audit, tax, accounting, operations, technology, and human resources. Tr. 187 (B. Montgomery); Haisch Dep. 37; PI. Ex. 233. Snow directed Belinda Montgomery, the head of E*TRADE’s corporate tax department and an employee of E*Trade Group, to conduct the preliminary due diligence on Ganis’s tax financials. E*TRADE also conducted due diligence on Ganis’s corporate structure, operational businesses, contracts and agreements. Tr. 60 (B. Montgomery); Simpson Dep. 8:24-9:18; Snow Dep. 30:16-18, 21-31:3. E*TRADE sought to determine if there were “very large deal breakers or red flags of why [they] should not” purchase Ganis. Tr. 72 (B. Montgomery). Deutsche Bank gave E*TRADE two days to look at the Ganis documents in the data room and according to Belinda Montgomery, did not allow E*TRADE to copy or remove any documents from the data room. Tr. 72, 75-76, 78-79, 169 (B. Montgomery); Snow Dep. 31-32. This review was done with the understanding that E*TRADE would ultimately have an independent audit opinion certifying the accuracy of the balance sheets of Ganis and DRAFCO. Tr. 169 (B. Montgomery). Although there was a “red flag” with respect to Ganis, E*TRADE did not identify any “red flags or deal breakers” with regard to DRAFCO. Tr. 77-78 (B. Montgomery). On August 27, 2002, Goldman Sachs sent a letter dated August 26, 2002, to E*Trade Group that set forth the guidelines for submitting a bid proposal for the acquisition of Ganis and its subsidiaries. Deutsche Bank attached to the letter a Reference Balance Sheet and draft SPA, which had been drafted by its outside counsel, Shearman & Sterling LLP (“Shearman & Sterling”). Tr. 586 (Staffeldt), 630 (Gaertner), 999-1000 (Mackay), 1602 (Rooney); PI. Ex. 1; June 13 Opinion at *4. The attached Reference Balance Sheet listed the value of Ganis and its subsidiaries (including DRAFCO) as of July 31, 2002. The Reference Balance Sheet listed the value of “Other Assets” in Ganis and its subsidiaries as $30,005,000. These “Other Assets” included the DRAFCO DTA. PI. Ex. 1. The Deutsche Bank draft of the SPA provided only for unaudited closing balance sheets of DRAFCO and Ganis because audited closing balance sheets would have been a significant expense to Deutsche Bank. Tr. 645-46 (Gaertner), 1602-03 (Rooney). E*Trade Group, as the parent company, negotiated the transaction on behalf of E*Trade Bank. Tr. 998-99,1006 (Mackay). E*TRADE’s negotiating team included Mackay, Snow and Kris Simpson (“Simpson”), all of whom were employed by E*Trade Group. Tr. 549 (Staffeldt), 631 (Gaertner), 997 (Mackay), Snow Dep. 14; June 13 Opinion at *3. Simpson was in-house counsel for E*Trade Group and worked with E*TRADE’s outside deal counsel, Hogan & Hartson LLP (“Hogan & Hartson”) to negotiate and draft the SPA. Simpson was a general corporate lawyer with acquisitions experience, but was neither a tax lawyer nor a tax expert. Simpson Dep. 9-10, 26. E*Trade Bank received financial advice from Salomon Smith Barney. Snow Dep. 66; PL Ex. 2 at ET H_H 07937. The parties negotiated at arm’s length. E*TRADE decided that E*Trade Bank, instead of E*Trade Group, should be the E*TRADE entity that ultimately purchased Ganis because (1) E*Trade Bank had access to a cheaper source of funding than E*Trade Group and (2) Ganis would originate loans that E*Trade Bank would ultimately hold. Tr. 1006 (Mackay). For Deutsche Bank, Gaertner and Till Staffeldt (“Staffeldt”), a member of Deutsche Bank’s Corporate Development Department, were jointly in charge of negotiating and executing the sale. Gaertner focused on the economic terms of the negotiations and deal, while Staffeldt focused on the legal side of the transaction. Gaertner and Staffeldt had full discretion to make decisions about the transaction. Tr. 546 (Staffeldt), 626-27, 640-41 (Gaertner); June 13 Opinion at *3. Peter Rooney (“Rooney”), a partner at Shearman & Sterling, represented Deutsche Bank in the transaction and assisted Deutsche Bank in the structuring, negotiation, and closing of the deal. Rooney was an experienced deal lawyer who specialized in complex corporate transactions. Tr. 548-49 (Staffeldt), 639-640 (Gaertner), 1582, 1628-29 (Rooney); June 13 Opinion at *3. E*TRADE typically insisted on audited closing balance sheets when it purchased a business. Consistent with this practice, E* TRADE requested that Deutsche Bank provide E*TRADE with independently audited closing balance sheets for DRAFCO and Ganis as a condition of closing. Tr. 587 (Staffeldt), 636-37 (Gaertner), 1000-01 (Mackay). On September 12, 2002, in response to the Deutsche Bank August 26, 2002 letter, Mackay, on behalf of E*Trade Group, submitted a bid proposal to purchase Ganis and its subsidiaries. E‘"TRADE modified the draft SPA to require “Deutsche Bank to deliver an updated balance sheet for [Ganis and its subsidiaries] at closing and an audited balance sheet post closing.” Tr. 585-87 (Staffeldt), 635 (Gaertner), 1000 (Mackay); PI. Ex. 2 at 7935. In addition to E‘"TRADE, several other companies bid on Ganis and its subsidiaries, including MBNA and Bank, of America. Tr. 547 (Staffeldt). Deutsche Bank eventually accepted E*TRADE’s bid in the Fall of 2002 because E*TRADE offered the highest price. Tr. 630 (Gaertner). In the early Fall of 2002, after Deutsche Bank had accepted E*TRADE’s bid, the parties began negotiating the SPA for Ganis and its subsidiaries, including DRAFCO. During the parties’ negotiations over the SPA, the parties did not have any discussions about DRAFCO’s deferred tax assets. Tr. 641 (Gaertner). Both E*TRADE and Deutsche Bank wanted to finalize the sale of Ganis and its subsidiaries by the end of the year 2002, but E‘"TRADE was concerned that because Deutsche Bank’s credit rating was higher than E*TRADE’s rating, the sale might cause the credit rating agencies to downgrade the credit rating of the Notes. Tr. 1583:14-1584:1 (Rooney); Simpson Dep. 12:22-14:10, 19:23-20:22; Snow Dep. 57:12-60:1; June 13 Opinion at *2. To allay E*TRADE’s concerns, the parties agreed that they needed assurance from the three major credit rating agencies (Moody’s, Standard & Poor’s and Fitch) that the agencies would not downgrade the Notes. The parties determined, however, that it was unlikely that they would get these assurances before the close of 2002. Tr. 550:1-7, 565:5-15 (Staffeldt); Snow Dep. 58:18-59:12; June 13 Opinion at *2. To close most of the sale by the end of 2002 and still obtain the required assurances from the credit rating agencies, the parties split the sale into two stages. In the first stage, Deutsche Bank would transfer Ganis’s stock to E*TRADE after certain conditions in the SPA unrelated to the Securitizations were met. Tr. 1584:1-10 (Rooney); Snow Dep. 56:7-57:1; PI. Ex. 4 at 3723; PI. Ex. 5 § 2.04. In the second stage, if certain additional conditions were met, E*TRADE would acquire DRAFCO’s stock after the Ganis closing date. One condition was that the parties obtain “Rating Agency Approval,” which meant that the three major credit rating agencies would have to confirm that they would not reduce, withdraw, or qualify the credit ratings assigned to the Notes. E*TRADE would not close on the DRAFCO purchase unless and until the credit rating agencies issued their no-downgrade letters. Tr. 1583:20-1584:10 (Rooney); PI. Ex. 4 at 3723; PI. Ex. 5 § 2.07; June 13 Opinion at *2. In the event that the DRAFCO Rating Agency Approval was not obtained before the Ganis closing, E*TRADE would pay Deutsche Bank a $10.5 million deposit. Deutsche Bank would refund E*TRADE this $10.5 million deposit if the Rating Agency Approval was obtained within twelve months of the Ganis closing. Tr. 550:8-13 (Staffeldt), 1051:8-10 (Mackay); PI. Ex. 5 §§ 2.02(a), 2.07. Before the sale to E*TRADE, the balance sheets of DRAFCO and Ganis had been consolidated. Because the parties had decided to split the sale into two separate sales, one for DRAFCO and one for Ganis, Deutsche Bank had to create separate balance sheets for DRAFCO and Ganis, Tr. 642:25-644:6 (Gaertner), 587:10-21 (Staffeldt); PI. Ex. 18 at 10666, and, as noted above, Deutsche Bank agreed to provide separate independently audited closing balance sheets, prepared in accordance with U.S. GAAP, for DRAFCO and Ganis. Tr. 1003:4-7, 12-17 (Mackay), 587:10-21 (Staffeldt); PI. Ex. 5 §§ 2.07, 2.07. D. The SPA The parties signed the SPA on November 25, 2002. PI. Ex. 5. Arlen Gelbard, the president of E*Trade Bank, signed the SPA on behalf of E*Trade Bank, and Staffeldt and Gaertner signed on behalf of Deutsche Bank. PI. Ex. 5 at SS 002740. The SPA governed both the impending sale of Ganis and the subsequent sale of DRAFCO. PI. Ex. 5; Tr. 1584 (Rooney). Article II of the SPA related to the purchase and sale of Ganis and DRAFCO. Pursuant to § 2.02, the purchase price for the shares of Ganis and DRAFCO was to be the “Tangible Stockholders’ Equity” of those companies (i.e. the total assets and total liabilities of the companies), plus a premium based on the value of Ganis’s recreational and marine vehicle receivables. PL Ex. 5 §§ 1.01, 2.02; Tr. 395-96 (Berliner), 635 (Gaertner), 999, 1004 (Mackay). Tangible Stockholders’ Equity was to be determined, for the purposes of E*Trade Bank’s initial closing payment, by the total stockholder equity listed on the Ganis Reference Balance Sheet (adjusted for certain technical matters) less the value of its goodwill and the items listed in the “DRAFCO” column of the Reference Balance Sheet. PL Ex. 5 §§ 1.01, 2.02. The purchase price was to be adjusted as specified in § 2.06 of the SPA (“Post-Closing Adjustment of Purchase Price”). Section (a) of the post-closing purchase price adjustment provision stated: Closing Balance Sheet. The Seller shall use its reasonable best efforts to prepare and deliver to the Purchaser, within 45 calendar days following the Closing Date but in no event more than 60 calendar days following the Closing Date, an audited balance sheet of Ganis and the Subsidiaries ... in the form of the [Reference Balance Sheet], together with the report thereon of the Seller’s Accountants. The Closing Balance Sheet shall be prepared on the basis of the accounting principles set forth on Exhibit 2.06(a) (the “Accounting Principles”) and in any event in accordance with U.S. GAAP and the terms of this Agreement. ... The Purchaser shall provide the Seller and the Seller’s Accountants reasonable access to the books and records and personnel of the Business during the period of the preparation of the Closing Balance Sheet and during the resolution of any disputes that may arise under this Section 2.06. PL Ex. 5 § 2.06(a). Section (b) of the post-closing purchase price adjustment provision stated: Disputes, (i) Subject to clause (ii) of this Section 2.06(b), the Closing Balance Sheet delivered by the Seller to the Purchaser shall be deemed to be and shall be final, binding and conclusive on the parties hereto. (ii) The Purchaser may dispute any amounts reflected on the Closing Balance Sheet to the extent the net effect of such disputed amounts in the aggregate would affect the Tangible Stockholders’ Equity reflected on the Closing Balance Sheet; provided, however, that the Purchaser shall have notified the Seller and the Seller’s Accountants in writing of each disputed item, specifying the estimated amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within 30 days of the Seller’s delivery of the Closing Balance Sheet to the Purchaser. In the event of such a dispute, the Seller’s Accountants and the Purchaser’s Accountants shall attempt to reconcile their differences, and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the parties hereto. If the Seller’s Accountants and the Purchaser’s Accountants are unable to reach a resolution with such effect within 20 days after the receipt by the Seller and the Seller’s Accountants of the Purchaser’s written notice of dispute, the Seller’s Accountants and the Purchaser’s Accountants shall submit the items remaining in dispute for resolution to PricewaterhouseCoopers, LLP (or, if such firm shall decline or is unable to act or is not, at the time of such submission, independent of the Seller and the Purchaser, to another independent accounting firm of international reputation mutually acceptable to the Seller and the Purchaser) (either PricewaterhouseCoopers, LLP, or such other accounting firm being referred to herein as the “Independent Accounting Finn”), which shall, within 30 days after such submission, determine and report to the Seller and the Purchaser upon such remaining disputed items, and such report shall be final, binding and conclusive on the Seller and the Purchaser. The fees and disbursement of the Independent Accounting Firm shall be allocated between the Seller and the Purchaser in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Independent Accounting Firm that is unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed items so submitted. PI. Ex. 5 § 2.06(b). Section (c) of the post-closing purchase price adjustment provision stated: Purchase Price Adjustment. The Closing Balance Sheet shall be deemed final for the purposes of this Section 2.06 upon the earliest of (x) the failure of the Purchaser to notify the Seller of a dispute within 30 days of the Seller’s delivery of the Closing Balance Sheet to the Purchaser, (y) the resolution of all disputes, pursuant to Section 2.06(b)(ii), by the Seller’s Accountants and the Purchaser’s Accountants and (z) the resolution of all disputes, pursuant to Section 2.06(b)(ii), by the Independent Accounting Firm. Within three Business Days of the Closing Balance Sheet being deemed final, a Purchase Price adjustment shall be made as follows: (i) In the event that the Tangible Stockholders’ Equity reflected on the Reference Balance Sheet exceeds the Tangible Stockholders’ Equity reflected on the Closing Balance Sheet, then the Purchase Price shall be adjusted downward in an amount equal to such excess and the Seller shall pay the amount of such excess to the Purchaser by wire transfer in immediately available funds to the bank account(s) as instructed by the Purchaser in a written notice to the Seller. (ii) In the event that the Tangible Stockholders’ Equity reflected on the Closing Balance Sheet exceeds the Tangible Stockholders’ Equity reflected on the Reference Balance Sheet, then the Purchase Price shall be adjusted upward in an amount equal to such excess and the Purchaser shall pay the amount of such excess to the Seller by wire transfer in immediately available funds. Pl. Ex. 5 § 2.06(c). Section (d) of the post-closing purchase price adjustment provision stated: Interest. Any payments required to be made by the Seller or the Purchaser pursuant to Section 2.06(c) shall bear interest from the Closing Date through the date of payment at the LIBOR Rate, calculated on a daily basis. Pl. Ex. 5 § 2.06(d). Deutsche Bank has contended that § 2.06 is a release of all possible claims related to the purchase price, the Closing Balance Sheet or tangible stockholders’ equity that are not raised within the 30-day time period and explicit dispute resolution procedure set forth in the section. Tr. 620-21 (Staffeldt), 1593-94 (Rooney). Rooney testified that such provisions rendering closing balance sheets final, binding and conclusive are typical in stock purchase agreements. Tr. 1589 (Rooney). Section 2.07 of the SPA, dealing with DRAFCO, stated: Postr-Closing Purchase of DRAFCO Stock, (a) In the event that the Rating Agency Approval is not obtained prior to the Closing, but is obtained within twelve months following the Closing, then the party receiving such approval shall notify the other party immediately, and on the fifth Business Day after the Rating Agency Approval has been obtained, (i) the Seller shall cause Ganis Finance Holding Corp. to transfer all common stock of DRAFCO to the Purchaser and the Purchaser shall pay to the Seller the line item “Total Stockholder’s Equity” in the column entitled “DRAFCO” as reflected on the Closing Balance Sheet, or, if the Closing Balance Sheet has not yet been prepared, on the Reference Balance Sheet but in any event subject to the adjustment pursuant to Section 2.06 .... Pl. Ex. 5 § 2.07. Article III of the SPA set forth the representations and warranties made by Deutsche Bank. In § 3.06 of the SPA, Deutsche Bank represented that the Reference Balance Sheet “present[ed] fairly in all material respects the financial condition and results of operations of the Business” and was “in accordance with U.S. GAAP.” Pl. Ex. 5 § 3.06; Tr. 1008-09 (Mackay), 1132-33 (Audette). In § 3.14 of the SPA, Deutsche Bank represented and warranted that it had filed all required tax returns for Ganis and DRAFCO in a timely manner, and that these returns were “true, correct and complete in all material respects.” Pl. Ex. 5 § 3.14. § 3.25 of the SPA states that Deutsche Bank shall not be understood to have made any representations or warranties other than those listed in Article III: None of the Seller, DFS, Ganis or any Subsidiary has or have made, or shall be deemed to have made, and none of the Seller, DFS, Ganis or any Subsidiary is liable for or bound in any manner by, any express or implied representations or warranties pertaining to DFS, Ganis or any of the Subsidiaries or any of their assets or businesses except as specifically set forth in this Agreement. Pl. Ex. 5 § 3.25. Article V dealt with additional agreements. In § 5.01, Deutsche Bank agreed to conduct the business of Ganis and DRAFCO in the normal course prior to their sale to E*Trade Bank. Pl. Ex. 5 § 5.01. § 5.02(a) stated that Deutsche Bank would provide E*TRADE Bank access to certain information: From the date hereof until the Closing, upon reasonable notice, [Deutsche Bank] shall cause Ganis and the Subsidiaries ... to: (i) afford the officers, employees and authorized agents ... of [E‘"TRADE Bank] reasonable access, upon reasonable notice and during normal business hours, to the offices, properties, plants, other facilities, books and records of Ganis and each Subsidiary relating primarily to the Business ... and (ii) furnish [E*TRADE Bank] such additional financial and operating data and other information regarding the assets ... as [E*TRADE Bank] may from time to time reasonably request. PI. Ex. 5 § 5.02(a). § 5.02(c) required Deutsche Bank to retain and make available to E*TRADE the books and records and operating data of DRAFCO until at least December 28, 2009: In order to facilitate the resolution of any claims made by or against or incurred by the Purchaser, Ganis or any Subsidiary after the Closing or for any other reasonable purpose, for a period of seven years following the Closing, the Seller shall (i) retain its books and records relating to the Business and to periods prior to the Closing and that shall not otherwise have been delivered to the Purchaser, Ganis or any Subsidiary and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of the Purchaser, Ganis or any Subsidiary reasonable access (including the right to make photocopies, at the expense of the Purchaser, Ganis or such Subsidiary), during normal business hours, to such books and records and cause those officers, employees and authorized agents, accountants, counsel and representatives of the Seller who have any knowledge relating to Ganis or any Subsidiary to cooperate with the Purchaser in respect of any claims made by or against the Purchaser. PI. Ex. 5 § 5.02(c). Article VII dealt with tax matters. The parties agreed that “Article VII shall be the sole provision governing indemnities for Taxes” under the SPA. PI. Ex. 5 § 7.08(c). Notwithstanding anything to the contrary in Section 5.02 hereto, each party shall retain all Tax Returns, work papers and all material records or other documents relating to Tax matters of Ganis or the Subsidiaries for the taxable period that includes the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods or (ii) eight years following the date (without extension) for such Tax Returns. PL Ex. 5 § 7.05. Article VII of the SPA also stated that if DRAFCO received a tax refund related to pre-sale activities, Deutsche Bank would be entitled to receive that refund, but if DRAFCO become subject to a tax liability for such pre-sale activities, Deutsche Bank would be responsible for that liability. PL Ex. 5 §§ 7.01, 7.02 (“Any Tax refund, credit or similar benefit ... relating to taxable periods or portions thereof ending on or before the Closing Date ... if received by the Purchaser, Ganis or the Subsidiaries shall be paid over promptly to the Seller.”); Tr. 1891-92 (Mangieri). Article VII of the SPA also stated that “[t]he Seller and the Purchaser shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return[.]” Pl. Ex. 5 § 7.05. The SPA Article IX granted the parties certain indemnification rights. § 9.02 stated: SECTION 9.02(a) Indemnification, (a) From and after the Closing, the Purchaser and its Affiliates, officers, directors, employees, agents, successors and assigns (each a “Purchaser Indemnitee”) shall be indemnified and held harmless by the Seller from and against all liabilities, costs or expenses (including, without limitation, reasonable attorneys’ fees), judgments, fines, losses, claims, damages and amounts paid in settlement actually suffered or incurred by them (collectively, “Losses”) arising from or in connection with (i) the breach of any representation or warranty made by the Seller contained in this Agreement, (ii) the breach of any covenant or agreement by the Seller contained in this Agreement or (iii) any and all Excluded Assets or Excluded Liabilities. No claims by a Purchaser Indemnitee shall be asserted, and the Seller shall not be liable for any claim for indemnification, pursuant to Section 9.02(a)® or Section 9.03(d) unless and until the aggregate amount of Losses that would otherwise be payable pursuant to Section 9.02(a)© and Section 9.03(d) exceeds $3.75 million (the “Threshold Amount”), in which case the Seller shall be liable for the full amount of such Losses.... The maximum aggregate liability under Section 9.02(a)© ... and Section 9.03(d) shall not exceed $57.5 million.... (b) From and after the Closing, the Seller and its Affiliates, officers, directors, employees, agents, successors and assigns (each a “Seller Indemnitee”) shall be indemnified and held harmless by the Purchaser from and against all Losses arising from or in connection with © the breach of any representation or warranty made by the Purchaser contained in this Agreement or (ii) the breach of any covenant or agreement by the Purchaser contained in this Agreement. No claims by a Seller Indemnitee shall be asserted, and the Purchaser shall not be liable for any claim for indemnification, pursuant to Section 9.02(b)® unless and until the aggregate amount of Losses that would otherwise be payable pursuant to Section 9.02(b)® exceeds the Threshold Amount (as set forth in Section 9.02(a)), in which case the Purchaser shall be liable for the full amount of such Losses.... The maximum aggregate liability under Section 9.02(b)® shall not exceed $57.5 million.... § 9.05 stated: SECTION 9.05: Third Party Claims, (a) Upon receipt by the party seeking to be indemnified pursuant to Section 9.02 (the “Indemnitee”) of notice of any action, suit, proceedings, audit, claim, demand or assessment (each, a “Claim”) against it which might give rise to a claim for Losses, the Indemnitee shall give prompt written notice thereof (which shall be within ten days of receipt by the Indemnitee of such Claim) to the party from which it seeks to be indemnified (the “Indemnitor”) indicating the nature of such Claim and the basis therefore.... Article IX also stated: “Under no circumstances shall any party be liable to the other parties for consequential, incidental or punitive damages.” PI. Ex. 5 § 9.01; Tr. 1598 (Rooney). Article IX provided that, except for certain representations and warranties not relevant to the instant case, the representations and warranties set forth in the SPA survive for only eighteen months after the “Closing Date,” which the parties agreed was to be December 23, 2002. Pl. Ex. 5 §§ 1.01, 9.01. E. The Ganis Closing By December 23, 2002, an updated November 30, 2002 reference balance sheet for Ganis and its subsidiaries (the “Reference Balance Sheet”) was provided to E*Trade Bank. Pl. Ex. 10 at SS 003913. The Reference Balance Sheet listed “other assets” of $6,302,000 related to DRAFCO. Id. Matthew Audette (“Audette”), E*Trade Bank’s former controller and current Chief Financial Officer believed that number primarily represented a deferred tax asset. Tr. 1009 (Mackay), 1135-36 (Audette). The parties closed the Ganis portion of the transaction on December 23, 2002. Def. Ex. 51. E*Trade Bank paid Deutsche Bank approximately $44.5 million based on the figures included in the Reference Balance Sheet. Pl. Ex. 112; Tr. 1010 (Mackay). Also on December 23, 2002, E*Trade Bank made a $10.5 million installment payment for DRAFCO. Pl. Ex. 112; Tr. 550 (Staffeldt). According to the SPA, E*Trade Bank also would have paid Deutsche Bank for DRAFCO based on the Reference Balance Sheet and “trued up” the price later based on the audited closing balance sheet. Mackay testified that he would have relied on the Reference Balance Sheet in making this initial payment for DRAFCO. Tr. 1008 (Mackay). However, E*Trade Bank insisted that it make a final payment for DRAFCO based on the Closing Balance Sheet. Tr. 1587 (Rooney). Thus, the Reference Balance Sheet was only used for the Ganis portion of the transaction and not for the initial payment of the DRAFCO portion of the transaction. Tr. 1009-10,1050-51 (Mackay). E*Trade Bank assumed control of all of Ganis’s functions on December 23, 2002, including its tax functions. Tr. 81 (B. Montgomery). From that point forward, E*Trade Bank prepared the servicer certificates documenting the servicing activities Ganis performed for DRAFCO. Haisch Dep. 82; Peehulis Dep. 35-37. E*Trade Bank, through Ganis, also continued to perform accounting services for DRAFCO, including tracking the inputs for the deferred tax account. Def. Ex. 67; Haisch Dep. 81-82. The monthly servicer certificates prepared by Ganis contained, among other income and expense items related to the DRAFCO securitizations, detailed information concerning DRAFCO’s servicing expenses. Pl. Ex. 13, at ET-DB 190179; Tr. 234-35, 248-51 (B. Montgomery), 478-79 (Berliner). Steven Robertson (“Robertson”), Senior Tax Manager for E*Trade, explained that “[t]he service certificate has all the information that we report for tax purposes, like the amount of interest income, the amount of interest expense, the amount of bad debts, the amount of expenses.” Robertson Dep. 18, 94. The SPA required that Deutsche Bank make its best effort to provide E*Trade Bank an audited balance sheet showing Ganis’s assets and liabilities within 45 days of the December 23, 2002 closing, but in no event more than 60 days after the closing. Pl. Ex. 5 § 2.06(a); Tr. 1052-53 (Mackay). E*Trade Bank, which owned Ganis and therefore possessed information necessary to prepare the Ganis closing balance sheet, was contractually obligated to assist Deutsche Bank in preparing that document. Pl. Ex. 5 §§ 2.06(a), 5.02(b); Tr. 1033 (Mackay). KPMG was hired by Deutsche Bank to audit the draft closing balance sheet prepared by Ganis. Tr. 550 (Staffeldt), 1927 (H. Montgomery). A draft of the audited Ganis closing balance sheet was sent to Deutsche Bank on February 19, 2003. Tr. 653-54, 656-59, 661 (Gaertner); PL Ex. 18, at DB 010661. The draft was not ready to be sent to E*TRADE Bank, although the SPA called for it to be delivered February 21, 2003. Tr. 653-54, 656-59, 661 (Gaertner); Pl. Ex. 18, at DB 010662. On February 20, 2003, Gaertner notified Harry Montgomery, Deutsche Bank’s Head of U.S. Tax, and others at Deutsche Bank that he was going to “delay the completion of the audit though tomorrow is the deadline according to the contract with ET” because the Ganis closing balance sheet, and thus the Ganis purchase price, was $4 million less than he anticipated for reasons he did not know. Pl. Ex. 18 at 10661; June 13 Opinion at *4. When Harry Montgomery reported that he and KPMG were discussing adjustments to Ganis’s value that would “reduce equity” (and thus reduce E*TRADE’s purchase price), Gaertner replied by email: H., [wjhat is actually the issue? And why would we take an action that is disadvantageous to us? PL Ex. 19. E*TRADE sought an audited closing balance sheet for Ganis to true-up its own books to account for changes in price between the Reference Balance Sheet and the audited final closing balance sheet for Ganis. Tr. 1011:12-19 (Mackay). Mackay tried on three occasions to telephone Gaertner and Staffeldt about the late balance sheet, but they failed to return his calls. Tr. 1012:13-1013:25, 1015:8-16 (Mackay). On March 11, 2003, Mackay followed up his unreturned phone calls with an e-mail to Staffeldt and Gaertner: I am deeply concerned by the fact that you have not delivered the audited closing balance sheet as agreed upon in our purchase agreement. Additionally, I am concerned that you are not returning my phone calls. Please call me immediately- Pl. Ex. 20; June 13 Opinion at *4. On March 11, 2003, Staffeldt replied to Mackay’s e-mail: As per our information from KPMG the audited balance sheet may most likely be available on Friday close of business New York. However, as you certainly know, we only can make pressure on KPMG but not order them to get things done. Please be assured that we keep breathing down KPMG’s neck. PL Ex. 21. On March 16, 2003, Deutsche Bank provided E*TRADE with the Ganis audited closing balance sheet. KPMG used the time before it finally delivered the Ganis audit to revise its audit conclusions about Ganis. Tr. 656:13-22 (Gaertner); PL Exs. 22; June 13 Opinion at *4. Audette informed Len Purkis (“Purkis”), the then-chief financial officer of E*TRADE Group, that, “[a]s part of the Ganis SPA, we have 30 days to dispute any items on the closing balance sheet .... The dispute must be supported by our outside accountants.” Def. Ex. 61. E*Trade Bank hired the Dispute Resolution Group of Ernst & Young, LLP (“E & Y”) to assist it in identifying and analyzing issues E*Trade Bank might want to dispute on the Ganis audited closing balance sheet before it became final, binding and conclusive. Def. Ex. 62; Tr. 1200, 1224-25,1229-30 (Audette). The E & Y engagement letter (the “Engagement Letter”) stated that the firm would “review the facts in this matter and consult with [E*Trade Bank] in areas where you require our assistance” and would employ procedures such as “reviewing books and records, reviewing workpapers prepared by KPMG Peat Marwick in conjunction with its audit of Ganis Credit Corporation, gathering and analyzing available documents relevant to certain accounting issues in the balance sheet of Ganis Credit Corporation, interviewing personnel and performing financial and other analyses.” Def. Ex. 62, at EY-EMMOMA 000009; Tr. 1225-26 (Audette), 1351 (O’Mara). The Engagement Letter also provided: If necessary, we will be in a position to provide a written report of our procedures and findings. We agree to supply expert testimony at deposition, trial or other hearings if requested. If counsel desires our report, opinion or testimony on a matter, we will need to perform those procedures that we consider necessary to express a professional conclusion. Def. Ex. 62. The Engagement Letter stated that E & Y would not perform attestation services such as “the compilation, review, or audit of financial records or financial statements.” Id., at EY-EM-MOMA 0000010. An attestation “review” is an auditor’s analysis of a client’s interim financial statements and verified statement that no GAAP violations came to the auditor’s attention. Tr. 1347-50,1365 (O’Mara). On April 15, 2003, E & Y sent Simpson a seven-page single-spaced letter (plus multiple pages of attachments) identifying eight alleged errors on the Ganis closing balance sheet and proposing detailed alternative valuations. Def. Ex. 65A. The letter stated that it was based on analysis of Ganis business and accounting rec