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Gates v. Banterra Bank

September 29, 2006

MARK A. GATES, DEBTOR-APPELLANT,
v.
BANTERRA BANK, CREDITOR-APPELLEE.



The opinion of the court was delivered by: Herndon, District Judge

MEMORANDUM & ORDER

I. INTRODUCTION

It has been reported, that in speaking to the Clark County Nevada Bar Association in August of 2005, Justice John Paul Stevens remarked that the outcomes of two decisions he wrote for the majority of the Court were "unwise," however, "in each [he] was convinced that the law compelled a result that [he] would have opposed if [he] were a legislator." Greenhouse, Linda, Supreme Court Memo; Justice Weighs Desire v. Duty (Duty Prevails), NY TIMES (Aug. 25, 2005), http://select.nytimes.com/gst/abstract.html?res=F50B15FA355A0C768EDDA108 94DD404482&n=Top%2fReference%2fTimes%20Topics%2fPeople%2fS%2fSteve ns%2c%20John%20Paul (last visited Sept. 29, 2006). Though far from working in the same realm as that of Justice Stevens, this humble judge finds himself in the position of having to make a decision he finds unwise in its result but commanded by the law established by the legislature. Before the Court is debtor-appellant Mark Gates's appeal of the judgment of the United States Bankruptcy Court for the Southern District of Illinois, which found that pursuant to 11 U.S.C. § 523(a)(2)(A), Gates's liability to creditor-appellee Banterra Bank was non-dischargeable. The Court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a). Because the Court finds that Banterra's reliance was not justifiable, it reverses the judgment of the bankruptcy court.

II. FACTUAL BACKGROUND

Gates initiated bankruptcy proceedings as a debtor under Chapter 7 of Title 11 and listed Banterra as a creditor. Banterra thereafter filed an adversary complaint, seeking exception from discharge (see Doc. 1, Banterra Bank v. Gates, Adversary No. 05-4071, Bankruptcy Court, S.D. Ill., Meyers, J., April 11, 2005). A hearing was conducted, from which the bankruptcy court issued the following findings of fact, which the Court now recounts.

Gates purchased a 1996 Freightliner truck from Steven C. Foster for the sum of $20,000. (Doc. 57, Order, ¶ 6, Adversary No. 05-4071, Bankruptcy Court S.D. Ill., Meyers, J., Dec. 8, 2005), Mr. Foster and his wife, Tammy L. Foster, held the certificate of title on said motor vehicle purchased by Gates (Id. at ¶ 7). Around the time of the purchase, Gates also obtained an insurance policy for property damage from Northland Insurance Company ("Northland") on the truck in the amount of $20,000, with a $1,000 deductible for collision damage (Id. at ¶ 8). In December 2003, Gates wrecked the truck, totally destroying the vehicle (Id. at ¶ 9). At that time, Gates still owed $14,000 on the vehicle to Fosters (Id. at ¶ 10).

William Rhodes, an adjuster for Northland, met with Gates andSteve Foster on December 11, 2003, regarding the claim Gates made on his policy with Northland, for damage to the vehicle (Id. at ¶ 11). Rhodes determined, after inspection of the vehicle, that the entire insured value of the vehicle was payable, so he issued a check to Foster, the lienholder, for $14,000, representing the remaining balance on the purchase contract (Id.). He then paid Gates $5,000, which represented the remainder of the insured value of the vehicle ($20,000), less the $1,000 deductible and the $14,000 paid to Foster (Id.). Gates and Foster then endorsed the title of the vehicle and gave it to Rhodes for Northland (Id.).

Upon returning to his office, Rhodes completed reports regarding the settlement of Gates's claim, but failed to properly code a report, which made it appear to the computer system that the Fosters had not been paid the balance due ($14,000) on the vehicle (Id. at ¶¶ 13-14). The computer system then issued another check in the amount of $14,000, reading:

Payable to: Steven and Tammy Foster for the account of Mark Gates

This check was then automatically mailed to the address of the policy holder, Gates (Id. at ¶¶ 15-16). Gates received this check from Northland for $14,000 in the mail, which he then sought to cash at Banterra Bank on December 26, 2003 (Id. at ¶ 17).

Gates dealt specifically with a Banterra bank teller by the name of Angela McCurdy (Id. at ¶ 17). She was familiar with Gates from having transacted business with him previously in her capacity as a bank teller (Id. at ¶ 18). While she told Gates that he could not cash the check, he could deposit it into his account (Id.). Although there were no endorsements on the checks, McCurdy, in the presence of Gates, stamped the back of the check with a stamp, which stated:

CREDITED TO THE ACCOUNT OF THE WITHIN NAMED PAYEE

In Accordance with Payee Instructions Absence of Endorsement Guaranteed

Banterra Bank (Id. at ¶ 19). The check for $14,000 was then deposited into Gates's personal account maintained with Banterra (Id. at ¶ 20). McCurdy further informed Gates that he would not be able to withdraw funds on the check until ten days later (Id. at ¶ 23). The balance prior to deposit of the $14,000 check issued by Northland in Gates's account was $261.07 (Id. at ¶ 24). After the ten day period had expired, on January 5, 2004, Gates withdrew $8,000 from his account at Banterra (Id. at ¶ 25), using $4,500 of this to purchase three certificates of deposit (Id. at ¶ 26). Gates also opened three joint savings accounts held by Gates and each of his three minor children (Id.). Gates spent the remainder of the $8,000 withdrawal on a gambling boat excursion (Id. at ¶ 27). The next day, on January 6, 2004, Gates withdrew another $3,000 from his ...


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