In the case of Arizona v. New Mexico (1975), the Supreme Court was asked to resolve a dispute between two states over water rights from the Gila River, which flows through both territories. The controversy arose when Arizona claimed that New Mexico was diverting more than its fair share of water and thus violating an interstate compact agreed upon in 1938. However, New Mexico argued that it had not exceeded its allocation as per this agreement and any perceived shortage on Arizona's part was due to their own mismanagement of resources. The Supreme Court ruled in favor of New Mexico by declining to exercise original jurisdiction over the matter. It held that while it has exclusive authority under Article III Section 2 Clause 2 of U.S Constitution for disputes among states, such power is discretionary and not obligatory; therefore, they can refuse cases if they believe them better suited for resolution elsewhere or if there are no substantial reasons for intervention at federal level. This decision underscored how interstate compacts serve as contracts among states with each state expected to uphold their end without interference from federal courts unless absolutely necessary.

In the dissenting opinion for Arizona v. New Mexico, Justice William O. Douglas argued that the Supreme Court should not have dismissed Arizona's complaint against New Mexico over water rights to the Gila River. He contended that there were unresolved issues regarding whether or not a 1935 compact between the states had apportioned all of its waters and if it did, whether it was still in effect given changes in circumstances since then. Furthermore, he believed that these questions could only be answered through litigation rather than negotiation due to their complexity and importance to both states' economies and populations. Therefore, he disagreed with his colleagues who felt this dispute would be better resolved outside of court.