to May 1991, National Western answers by questioning how such
knowledge could cause it to know of the Sponsor's financial
On a summary judgment challenge, National Western cannot merely
respond with mere polemics or conclusory statements to sworn
affidavits offered by Merrill Lynch. See Lujan v. National
Wildlife Fed'n, 497 U.S. 871, 888-89, 110 S.Ct. 3177, 111
L.Ed.2d 695 (1990) (stating that the purpose of summary judgment
is not to "replace conclusory allegations of the complaint or
answer with conclusory allegations of an affidavit."); SEC v.
Research Automation Corp., 585 F.2d 31, 33 (2d Cir.
1978) (stating that a party opposing a summary judgment motion
"may not rest upon mere conclusory allegations or denials" but
"must set forth `concrete particulars'" (citations omitted)).
The Court finds 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. To ignore such an alarm, or declare
it insufficient would obliterate the concept of "inquiry notice,"
which imposes even on neophyte, non-sophisticated investors, some
duty to inquire about threatening or suspicious events which may
have obvious effects on the value of their investments. Given
that the Cooperative had defaulted on the loan, that following a
default the servicing bank was obligated for payments for only
three months and would no longer do so after April 1991, and that
the Sponsor's maintenance share represented almost 70% of the
obligation, National Western can reasonably be charged as of
April 1991 with having notice and a duty to inquire even
superficially into the cause of the default which placed its
investment at risk.
On the basis of Merrill Lynch's evidentiary submission, and
National Western's failure to offer sufficient proof to refute
the Merrill Lynch's showing that there is no genuine issue of
material fact to be tried as regards the breach of fiduciary duty
claim, the Court grants Merrill Lynch's motion for summary
judgment on National Western's breach of fiduciary duty claim.
CONCLUSION AND ORDER
For the reasons discussed above, it is hereby
ORDERED that Merrill Lynch's Rule 12(b)(6) motion to dismiss
the complaint for failure to state a claim which entitles
National Western to relief under the Texas Securities Act and
common law fraud and negligent misrepresentation theories is (1)
denied insofar as it pertains to Merrill Lynch's omission to
provide the financials of the Sponsor and (2) granted as to the
allegations relating to (a) the valuations of the Property and
(b) negligent misrepresentation; and it is further
ORDERED that Merrill Lynch's Rule 56 motion for summary
judgment with regard to National Western's claim of breach of
fiduciary duty is granted; and it is finally
ORDERED that the parties are directed to proceed forthwith
with the completion of pretrial discovery in contemplation of
advancing to trial on the merits of the remaining issues within
no longer than 60 days.