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United States v. Kimbell Foods, Inc.

United States Supreme Court
440 U.S. 715 (1979)


Facts

O.K. Super Markets (O.K.) took out a loan from Kimbell Foods, Inc. (Kimbell) (plaintiff). The loan was secured by certain O.K. equipment and merchandise. O.K. then took out a second loan, secured by the same property. This second loan was guaranteed by the United States Small Business Administration (SBA) (defendant). O.K. defaulted on both loans and eventually sold its equipment and inventory. Kimbell brought suit, claiming that its interest in O.K.’s sale proceeds was superior to the SBA’s interest. The Small Business Act, which governed SBA loans, did not address lien priority. The SBA argued, based on the rationale behind applying federal law to federal tax liens, that federal law should apply to prioritize its interest because applying state law to the SBA’s loan program would harm its ability to collect on the loans. On appeal before the United States Supreme Court, the Court considered the question of whether state or federal common law governed the question of whether Kimbell or the SBA had lien priority.

Rule of Law

Issue

Holding and Reasoning (Marshall, J.)

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