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In re Gunsteen

United States District Court, N.D. Illinois, Eastern Division

March 20, 2014

DEBBIE GUNSTEEN, Defendant. HARRIS N.A., as successor by merger to HARRIS TRUST AND SAVINGS BANK, Plaintiff,


JOHN Z. LEE, District Judge.

In this adversary proceeding, the bankruptcy court found after a trial that Harris N.A. had failed to establish that a debt owed by Debbie Gunsteen was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). Harris N.A. ("the Bank") now appeals the bankruptcy court's February 8, 2013, entry of final judgment in Gunsteen's favor. For the following reasons, the Court affirms the bankruptcy court's judgment.

Procedural Background

On March 10, 2011, Gunsteen filed a bankruptcy petition in the bankruptcy court for the Northern District of Illinois. Bankruptcy Case No. 11 B 10055. In that proceeding, the Bank filed an adversary complaint against Gunsteen in which the Bank sought a determination that more than $1 million of Gunsteen's debt to the Bank was non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). The Bank asserted that Gunsteen had submitted a false written statement regarding her financial condition to the Bank in a 2009 Financial Statement to obtain renewal of a loan. Adversary Case No. 11 A 01359.

On September 10, 11, and 12, 2012, the bankruptcy court presided over a trial in the adversary proceeding. After the trial concluded, the parties submitted post-trial briefing, including proposed findings of fact and conclusions of law. In its brief, the Bank sought leave to amend its pleading pursuant to Federal Rule of Civil Procedure 15(b)(2) to add a § 523(a)(2)(B) nondischargeability claim based upon an earlier 2008 Financial Statement that Gunsteen had submitted to the Bank in order to obtain the loan. On February 11, 2013, the bankruptcy court issued its Post-Trial Findings of Fact and Conclusions of Law and entered a Final Judgment and Order. The bankruptcy court rejected the Bank's request to amend its pleadings, found in favor of Gunsteen, and held that Gunsteen's debt to the Bank was dischargeable. The Bank then brought this appeal.


The Parties

The Bank is an Illinois national banking association with its principal place of business in Chicago, Illinois. Stip. ¶ 1. Gunsteen is an individual residing in Bartlett, Illinois and is the Debtor in a related bankruptcy case. Id. ¶ 2. For over eighteen years, Gunsteen was the secretary, vice-president, and a co-owner of Magun Electric. Id. ¶ 3.

The Debt

On October 16, 2008, the Bank made a loan to Magun Electric in the maximum principal amount of $1.5 million ("Loan"). The Loan was documented in a Business Loan Agreement and Promissory Note ("Note") executed by Magun Electric, with the maturity date of October 16, 2009. Stip. ¶ 4; JX 1; JX 2. In conjunction with the Note, Magun Electric executed a Commercial Security Agreement giving the Bank a security interest in various collateral, including Magun Electric's accounts receivable. PX 16; Tr. 23:25-24:22; Tr. 278:23-279:6.

Simultaneously with execution of the Note by Magun Electric, on or about October 16, 2008, Gunsteen executed and delivered to the Bank a Commercial Guaranty, in which Gunsteen unconditionally and absolutely guaranteed personally the full and punctual satisfaction of Magun Electric's indebtedness to the Bank (the "Gunsteen Guaranty"). Stip. ¶ 5; JX 3. The Gunsteen Guaranty was a condition of extending credit to Magun Electric. Tr. 126:11-14.

A Co-Guarantor, Patricia Maher ("Co-Guarantor"), also provided a Commercial Guaranty to the Bank regarding Magun Electric's Note. Stip. ¶ 6. The primary source of repayment of the Loan was to be the assets of Magun Electric, including its accounts receivable, and the secondary source of repayment was to be the personal resources of the guarantors. Tr. 124:7-16.

The 2008 Financial Statement[2]

To support Magun Electric's application for a loan and in support of her Guaranty, Gunsteen and her husband, Daniel Gunsteen (collectively "Gunsteens"), provided the Bank with their financial statement dated July 14, 2008 ("2008 Financial Statement"). JX 4; Stip. ¶ 4. Gunsteen's net worth, as reflected in the 2008 Personal Financial Statement, was relevant to the Bank, Tr.123:25-124:6; Tr.185:8-18, and the assets disclosed on the 2008 Financial Statement were a material consideration in the Bank's ...

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