In the case of City of Douglas v. Federal Reserve Bank of Dallas, 1925, the Supreme Court ruled in favor of the Federal Reserve Bank. The city had issued bonds to finance public improvements and deposited them with a bank that later failed. The receiver for this failed bank sold these bonds to the Federal Reserve Bank at a discount price without notifying or gaining consent from City of Douglas. When it discovered what happened, City sued on grounds that its property was taken unlawfully and demanded return or compensation for full value. The court held that although sale might have been improper under state law, it did not violate Fifth Amendment's due process clause as claimed by plaintiff because federal reserve banks are not federal agencies but rather private corporations primarily owned by member banks; hence they do not constitute 'state' within meaning of Fourteenth Amendment nor can their actions be considered governmental action subject to constitutional limitations placed upon states.

The dissenting opinion in the case of City of Douglas v. Federal Reserve Bank of Dallas argued that the majority's decision was incorrect because it failed to properly interpret and apply relevant statutes. The dissent contended that, under federal law, a national bank could not be sued outside its home state unless it had an established branch or agency within the jurisdiction where the suit was brought. In this case, they believed there was no evidence showing that such a branch existed in Arizona for Federal Reserve Bank of Dallas; therefore, according to them, Arizona courts lacked jurisdiction over this Texas-based entity. They also disagreed with how majority interpreted "located" as used in Revised Statutes section 5198 and felt their interpretation contradicted previous court rulings on similar matters.