In the case of City of Lincoln et al. v. Ricketts, Trustee in Bankruptcy (1935), the U.S Supreme Court was tasked with deciding whether a city could claim priority over other creditors for unpaid water and electricity charges owed by a bankrupt company. The City of Lincoln had supplied utilities to a hotel that later declared bankruptcy and failed to pay its utility bills. As such, the city claimed it should be given preferential treatment over other creditors due to its status as a public entity providing essential services. The court ruled against the City of Lincoln, stating that under federal bankruptcy law, there is no special privilege or priority granted based on municipal status or nature of service provided unless explicitly stated within legislation itself. Therefore, despite being an essential service provider and public entity, the city's claims were not prioritized above those from private entities also seeking repayment from debtor’s estate.

In the dissenting opinion for the case City of Lincoln et al. v. Ricketts, Trustee in Bankruptcy, Justice Stone argued that a municipality's claim to funds held by a bankrupt estate should not be subordinated to other creditors' claims simply because it is a public entity. He contended that such an approach contradicts established bankruptcy law principles which prioritize secured over unsecured creditors and could potentially discourage municipalities from doing business with private entities due to fear of insolvency risk. Furthermore, he disagreed with the majority's interpretation of "preferred" under Section 64b(7) of the Bankruptcy Act as including all debts owed to any governmental unit regardless if they are secured or unsecured; instead arguing this section only applies when government units have been given special preference beyond their status as either secured or unsecured creditor.