In the case of Butner v. United States, the Supreme Court ruled that federal law determines property rights in bankruptcy proceedings. The case involved a dispute over whether mortgagees had an equitable right to rents accrued from mortgaged properties during bankruptcy proceedings under North Carolina law. The lower courts held that state law should determine these rights, and since North Carolina did not recognize such a right for mortgagees, they denied them access to the rents. However, upon appeal by the mortgagee (Butner), the Supreme Court reversed this decision stating that there is no reason why interests created by state laws should be analyzed differently when claims are asserted under federal statutes than when they are asserted under state statutes or common-law rules. Therefore, it concluded that questions regarding property interests in bankruptcy cases must be decided by uniform federal rule rather than varying state laws.

In the dissenting opinion for Butner v. United States, Justice William J. Brennan Jr., joined by Justice Thurgood Marshall, argued that federal law should not govern a debtor's interest in property under bankruptcy proceedings unless there is an explicit provision to do so. He contended that state laws should be applied instead because they have traditionally governed property rights and interests. The majority’s decision to apply federal common law was seen as unnecessary and potentially harmful due to its potential inconsistency with existing state laws on property rights. Furthermore, he expressed concern over the lack of guidelines or principles provided by Congress for courts when creating this new body of federal common law which could lead to arbitrary decisions based on individual judges' views rather than established legal precedent.