Harris N.A. ex rel. Harris Trust & Savings Bank v. Gunsteen (In re Gunsteen), 487 B.R. 887

Bank Harris, N.A. loaned Magun Electric a maximum $1.5 million in 2008, secured by assets including accounts receivable; Gunsteen personally guaranteed. (F.F. 4-6)
Gunsteen, as secretary/VP/co-owner of Magun Electric, signed the 2008 Financial Statement and later admitted signing her husband’s name on the second page; bank unaware of falsity at that time. (F.F. 3, 15-16, 27-29)
Vacation Property (848 Norwich Ct., Wisconsin) was listed as Gunsteen’s asset on the 2008 statement with a $425,000 value and purportedly unencumbered; oral agreement to transfer to children occurred prior to July 2008. (F.F. 17-29)
By September 2009, Bank considered Gunsteen a guarantor with a favorable personal financial worksheet; 2009 renewal extended the loan to January 2010. (F.F. 31-36, 60-61, 64-66)
In 2009 Gunsteen allegedly signed her husband’s name on the 2009 PFS; handwriting expert disputed authorship and noted differing ink, but could not definitively prove who wrote the disputed line. (F.F. 37-38, 46-53, PX 19)
Bank sought a nondischargeability judgment under 11 U.S.C. § 523(a)(2)(B) based on fraud in the 2009 PFS and possibly the 2008 PFS; court held the Bank did not prove by a preponderance that Gunsteen deceived the Bank. (Conclusions of Law)

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Gunsteen wrote the disputed 2009 PFS line 2	Bank argues Gunsteen authored Line 2 falsely claiming ownership.	Gunsteen denies writing Line 2; handwriting expert cannot conclusively identify her as writer.	Not proven by preponderance
Whether the Bank reasonably relied on the disputed 2009 PFS line 2	Bank relied on Page 2 for asset valuation despite contradictions on Page 1.	Reliance was not reasonable given conflicts and absence of corroboration in Page 1.	Not reasonable reliance
Whether the 2008 Financial Statement fraud theory was proven	Fraud alleged due to oral promise to sell Vacation Property and signed signature on 2008 form.	Value and ownership on 2008 statement truthful; lack of lien did not render statement false.	Not proven; 2008 statement not fraudulent
Whether the complaint adequately raised 2008 fraud under Rule 15(b) implied consent	Evidence supports a separate 2008 fraud theory despite no amendment.	No proper amendment; issues not properly plead or tried; implied consent lacking.	Denied; no implied consent to try 2008 fraud

Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance standard for § 523(a) aims at dischargeability)
In re Bonnett, 895 F.2d 1155 (7th Cir. 1989) (reasonable reliance and dischargeability standards)
In re Garman, 643 F.2d 1252 (7th Cir. 1980) (creditor’s lending practices and reliance cautions)
In re Morris, 223 F.3d 548 (7th Cir. 2000) (limits on reliance in § 523(a)(2)(B) cases)
In re Bogstad, 779 F.2d 370 (7th Cir. 1985) (reliance and investigations by creditors)
Mayer v. Spanel Int’l, Ltd., 51 F.3d 670 (7th Cir. 1995) (reasonableness of reliance and red flags)
In re Rivinius Inc., 977 F.2d 1171 (7th Cir. 1992) (implied consent and trial of unpleaded issues)
Ippolito v. WNS, Inc., 864 F.2d 440 (7th Cir. 1988) (implied consent and trial-on-an-unpleaded-claim limits)
Prescott, 805 F.2d 719 (7th Cir. 1986) (implied consent and Rule 15(b) guidance)
Tor-ry v. Northrop Grumman Corp., 399 F.3d 876 (7th Cir. 2005) (consent standards for unpleaded issues in trial)
Baratta, 272 B.R. 501 (Bankr.M.D. Fla. 2001) (illustrative on reasonable reliance and creditor investigations)