In the case of First National Bank of Cincinnati et al. v. Flershem et al., 1933, the United States Supreme Court addressed a dispute over bankruptcy proceedings and stockholder liability. The bank had loaned money to a corporation that later went bankrupt, and sought repayment from the company's shareholders based on an Ohio law which held them personally liable for corporate debts in certain circumstances. However, some shareholders argued they were not aware of their potential liability when they purchased their shares and thus should not be held responsible for repaying the debt. The Supreme Court ruled in favor of the bank, stating that ignorance or lack of knowledge about potential liabilities does not exempt one from those obligations under state law.

In the dissenting opinion for the case of First National Bank of Cincinnati et al. v. Flershem et al., Justice Cardozo argued that a bank should not be allowed to recover from its debtor's estate in bankruptcy, funds that were initially obtained through fraudulent means. He asserted that allowing such recovery would essentially reward dishonesty and encourage similar behavior in future cases. Furthermore, he contended that it was unjust for an innocent third party (the bankrupt's other creditors) to bear the loss resulting from the bank's initial acceptance of fraudulently-obtained funds. In his view, if anyone had to suffer a loss as a result of this situation, it should be those who were involved in or benefited from the original wrongdoing - namely, the banks themselves.