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 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. Midwest Bank lawyer Robert G. Epsteen told the justices that lawmakers would have explicitly given the federal courts jurisdiction if they wanted these cases decided there. "It is really a state law question," he said. "If Congress wanted to make it a federal law question, it certainly could have." But Bank One lawyer Robert A. Long Jr. noted that federal judges have jurisdiction over check-clearing disputes between consumers and banks. "There is simply no indication that Congress intended interbank disputes to be decided in a different forum," Mr. Long said. Jeffrey P. Minear, an assistant Solicitor General, said the government agreed with Bank One's interpretation. "There is simply no basis for providing a federal claim for consumer complaints, no matter how small, while denying a federal claim for interbank claims, no matter how large," he said. Mr. Long also said the justices should listen to the central bank, which has said it lacks the authority to decide these cases. He also argued that various states would decide these cases differently, making it hard for banks to comply with the law. "It seems quite unlikely that Congress ... intended that type of fragmentation," Mr. Long said. Mr. Epsteen tried to distinguish between consumer and interbank check- clearing provisions. He said they are found in different sections of the Expedited Funds Availability Act, which means lawmakers didn't intend to treat them the same way. The justices, however, didn't appear to buy it. "I'm not certain what the relevancy of this argument is," Justice Stephen Breyer told Mr. Epsteen. A decision is expected within the next few months.
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