Supreme Court May Let Federal Judges Decide Interbank Check-Clearing Cases

Article excerpt

The Supreme Court appeared poised Tuesday to give the federal courts jurisdiction over interbank check-clearing disputes.

The justices seemed to accept an argument by Bank One Chicago and the Justice Department that Congress intended for federal judges to resolve these conflicts.

The case began in 1994 when Bank One sued Chicago-based Midwest Bank and Trust, charging the bank listed the wrong reason for rejecting a check. The mistake led Bank One to cash the check, resulting in a $45,000 loss.

The federal appeals court in Chicago rejected Bank One's suit, saying Congress never intended for federal courts to decide these disputes. Rather, lawmakers, the court ruled, gave the Federal Reserve Board and the state courts responsibility for resolving check-clearing cases.

However, the justices now appear likely to overturn that decision. "The court seemed very sympathetic to the position of the government and Bank One," said Robert Ballen, a partner at Schwartz & Ballen, who watched the Supreme Court arguments. "A number of the questions seemed to relate to which statute to point to find federal jurisdiction, rather than whether there is federal jurisdiction."

In other action Tuesday, the Supreme Court sided with the banking industry in a bankruptcy case. The court held that lenders can prevent a bankrupt borrower who lied about his business plans from avoiding his bank debt.

There is a caveat. The lender must show a "justifiable" reliance on the borrower's deceitful statements. This is the second bankruptcy case to be decided by the high court in the banking industry's favor this year.

In the check-clearing dispute, most of the arguments focused on Congress's intentions. …