In the case of Federal Deposit Insurance Corporation v. Philadelphia Gear Corp., 1985, the U.S Supreme Court was tasked with determining whether a federal agency can be held liable for punitive damages under state law. The dispute arose when Philadelphia Gear Corp sued FDIC (Federal Deposit Insurance Corporation) for breach of contract and won both compensatory and punitive damages in lower courts. However, on appeal to the Supreme Court, it was ruled that as a federal agency acting within its statutory authority, FDIC is immune from state-imposed punitive damage awards. This decision was based on an interpretation of sovereign immunity principles which protect government entities from certain types of legal liability unless they consent to being sued. The court concluded that allowing states to impose such penalties would undermine federal regulatory efforts by discouraging vigorous enforcement actions by agencies like FDIC.

In the dissenting opinion for Federal Deposit Insurance Corporation v. Philadelphia Gear Corp., Justice White disagreed with the majority's interpretation of federal law, arguing that it was not Congress' intent to grant FDIC an absolute privilege against state-law tort claims when acting as a receiver or in its corporate capacity. He believed that this broad immunity would shield FDIC from liability even in cases where it acted negligently or maliciously, which he saw as contrary to principles of fairness and accountability. Furthermore, he argued that such a sweeping interpretation could potentially discourage private parties from dealing with FDIC out of fear they would have no recourse if wronged by the agency’s actions.