United States v. Kimbell Foods, Inc.
United States Supreme Court
440 U.S. 715 (1979)
O.K. Super Markets took out a loan from Kimbell Foods, Inc. (Kimbell) (plaintiff), secured by its equipment and merchandise, then took a second loan secured by the same property and guaranteed by the Small Business Administration (SBA) (defendant). After O.K. defaulted and sold its assets, Kimbell sued, claiming its lien had priority over the SBA's. The federal Small Business Act didn't address lien priority, and the SBA argued federal common law (by analogy to federal tax-lien priority rules) should govern to protect its ability to collect on guaranteed loans.
Whether federal courts can apply state law to govern controversies affecting federal programs when the programs need not be uniform nationwide and applying state law would not frustrate the program's purpose or disrupt commercial relationships built on that state law.