WASHINGTON - Should the Supreme Court determine whether federal courts can resolve bounced-check disputes between banks?

That's the question the justices want the solicitor general's advice on before deciding.

Banking lawyers said they hope Solicitor General Drew S. Days 3d, who has not decided if he will file a brief, accepts the high court's March 27 invitation in Bank One Chicago v. Midwest Bank and Trust.

The solicitor general should urge the court to take the case, because check-clearing disputes among banks arise every day, said Ronald Glancz, a partner at Venable, Baetjer, Howard & Civiletti. "I would think something is going to come up," Mr. Glancz said. "It could be a significant ruling."

"It is quite important," agreed Robert Ballen, a partner at Schwartz & Ballen. "The check collection system is obviously important to the country. There are over 70 billion checks written each year now, and it is very important for the American economy that it continues to run smoothly."

But the system can't run smoothly unless banks have a forum to resolve their disputes, Mr. Ballen said.

The case centers on the Expedited Funds Availability Act, which requires banks to make funds from local checks available in two business days and out-of-town ones in five days.

Midwest Bank and Trust rejected a check sent from Bank One Chicago in 1991, claiming it was improperly endorsed. Bank One Chicago confirmed the endorsement, found no problem, and credited the depositor's account. Midwest then rejected the check for insufficient funds, prompting Bank One Chicago to sue for the $40,000 it said it had lost.

Bank One Chicago won on the federal trial court level, only to lose before the federal appeals court in Chicago.

The U.S. Court of Appeals for the Seventh Circuit ruled that the federal courts can't resolve these disputes. Rather, bankers must bring their cases to the Federal Reserve Board or the state courts.

Robert G. Epsteen, a partner at Bowles, Keating, Hering, & Lowe who represents Midwest Bank and Trust, said he doesn't understand what all the fuss is about.

"The real focus is: Did the statute create a cause of action?" Mr. Epsteen said. "Our assertion is that it does not, in disputes between banks." The state courts should decide these cases, he said.

But Jeffrey S. Blumenthal, a partner at Kamm & Shapiro who represents Bank One Chicago, said the Supreme Court needs to correct the record. He said the Seventh Circuit erred, ruling that a phrase exempting one section of the act from federal court review applies to all provisions dealing with more than one bank.

The court should have found that another subsection in the act proves that Congress intended bankers to bring their dispute to federal court, Mr. Blumenthal said.

Also, the Seventh Circuit's two proposed remedies don't work, Mr. Blumenthal said.

First, the Fed said in a court filing that it lacks the power to hear these cases. And, Mr. Blumenthal said some state courts have ruled that they themselves lack jurisdiction as well.

"What we've got is banks without a remedy," Mr. Blumenthal said. "If we lose here, we are out our money."

Also, the Fed is often a party to check-clearing disputes, Mr. Bollen said. "It doesn't seem appropriate having the Federal Reserve to be sitting in judgment of those types of cases," he said. Also, Mr. Bollen said, "the Federal Reserve really isn't set up to provide this particular function, nor does the Federal Reserve want to do it."

Finally, Mr. Bollen said, the state court option doesn't work either.

"The feeling is you need a consistent, nationwide interpretation of the federal statute," Mr. Bollen said. "If you go to each of the state courts, you can get situations where one court takes one approach an another takes another approach. That could cause problems."

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