Schenebeck v. McCrary

Background

A local taxpayer sued after the Lonoke County Bank, which held the county’s public money, became insolvent. The taxpayer sought to recover public funds from the county treasurer and from the bank’s depository bondsmen. Arkansas passed two 1935 laws that released county treasurers and depository bondsmen from liability when funds were lost because a bank failed and not because of the treasurer’s theft or wrongdoing. The trial court and the Arkansas Supreme Court disagreed on parts of the relief, and the matter reached this Court.

Reasoning

The key question was whether those 1935 laws unlawfully impaired contractual obligations under the Constitution. The state high court held that individual taxpayers did not have a vested, personal claim to the general public funds at issue, so the laws did not impair any contractual right of the taxpayer. This Court reviewed that conclusion and found no reason to overturn the state court’s factual and legal finding that the taxpayer lacked a vested interest in the deposited funds.

Real world impact

The decision leaves in place the Arkansas laws that can relieve county treasurers and depository bondsmen from responsibility when public funds are lost because a bank fails rather than because of official misconduct. Taxpayers who do not show a specific, vested claim to particular public funds cannot use the federal contract clause to undo those state laws. The judgment of the state court is affirmed, and the taxpayer’s claim is rejected.