In the 1923 case Davis, Director General of Railroads v. Donovan, the U.S. Supreme Court ruled on a dispute involving damages to a deck scow named Mary Ethel during its charter by the United States Railroad Administration (USRA). The USRA had been created during World War I to ensure efficient transportation and was overseen by Walker D. Hines as Director General of Railroads at that time. The owner of Mary Ethel claimed that negligence on part of those operating another vessel caused damage to his property while it was under government control and sought compensation for repairs and loss of use during repair period. The court held that Section 206(a) in Transportation Act did not exempt federal agents from liability for torts committed in operation or possession taken over under President's proclamation; hence, they were liable for negligence causing injury to private property even if such operations were governmental functions performed under war powers granted by Congress. However, it also clarified that this liability extended only up until termination date specified in President's proclamation i.e., March 1st, 1920 after which any claims would be invalid.

In the dissenting opinion for Davis v. Donovan, Justice McReynolds disagreed with the majority's decision to hold a federal agent liable for damages caused by an employee of a private company under his control. He argued that this interpretation was inconsistent with both the intent and language of Section 206 of The Transportation Act of 1920, which he believed only provided for liability in cases where direct negligence could be proven against the Director General himself or one of his own employees. Furthermore, he contended that such broad interpretation would unfairly expose government officials to potential lawsuits based on actions they had no direct control over. Therefore, according to Justice McReynolds' dissenting view, since there was no evidence suggesting any personal negligence on part of Davis (the Director General), he should not have been held responsible for damages incurred due to alleged negligence by employees from a privately-owned company operating under him.