In the 1927 case of Black and White Taxicab and Transfer Company v. Brown and Yellow Taxicab and Transfer Company, the U.S. Supreme Court ruled on a conflict between two taxi companies operating in Kentucky. The plaintiff, Black & White Taxi, alleged that its competitor had incorporated in Tennessee to take advantage of more favorable laws there before returning to operate in Kentucky - an act known as "forum shopping". They argued this was a violation of their rights under federal common law. However, the court held that since both corporations were legally formed within their respective states (Kentucky for Black & White Taxi; Tennessee for Brown & Yellow Taxi), they must abide by those state's laws when conducting business operations within them. Therefore, it found no issue with what Brown & Yellow did because it complied with existing state legislation at all times.

In the dissenting opinion for Black and White Taxicab and Transfer Company v. Brown and Yellow Taxicab and Transfer Company, Justice Oliver Wendell Holmes Jr. argued that federal courts should not have jurisdiction over cases involving state law just because the parties involved are from different states. He believed this case was essentially a local controversy about business competition in Kentucky, which should be resolved under Kentucky law rather than being taken to a federal court on grounds of diversity jurisdiction (the fact that one company was incorporated in Tennessee). Holmes also criticized his colleagues for allowing corporations to manipulate their legal status to gain access to favorable forums - what is now known as "forum shopping". He felt it undermined public respect for the judiciary system when companies could simply change their place of incorporation or principal place of business in order to get into federal court where they might receive more favorable treatment.