City of Lincoln v. Ricketts

Background

The city government of Lincoln, Nebraska, sought priority payment of a $45,000 claim (with interest) from the bankrupt Lincoln Trust Company. The city argued the claim fell under §64b of the federal Bankruptcy Act and also asserted a trust for a smaller sum. The District Court found the city was not covered by §64b and recognized a trust only for $628.63; the Court of Appeals then disallowed priority entirely. The Supreme Court agreed to review only whether §64b covers municipal corporations.

Reasoning

The central question was whether a municipal corporation counts as a “person” entitled to priority under §64b(7). The Court examined the Act’s definitions, including the explicit statement that “person” includes corporations and the broad statutory definition of “corporations.” It rejected reliance on an earlier case decided before Congress amended the statute. The Court concluded municipal corporations fall within the statutory meaning of “corporations” and thus are “persons” who may have priority under §64b(7). The Court reversed the Court of Appeals and returned the case for further proceedings.

Real world impact

The ruling means city governments can claim they are eligible for priority payments under §64b(7) of the Bankruptcy Act, but whether a particular city actually receives priority depends on state law. The Supreme Court remanded the case to let the lower court decide whether Nebraska law gives Lincoln that priority. This decision resolves the federal eligibility question but leaves the final outcome contingent on state-law entitlement.