The U.S. Supreme Court case Gerdes, Trustee in Bankruptcy of Lustgarten v. Lustgarten (1924) revolved around the issue of bankruptcy and fraudulent conveyance. The defendant, Mr. Lustgarten, had transferred his property to his wife prior to declaring bankruptcy with an alleged intent to defraud creditors by keeping assets out of their reach. After he declared bankruptcy, the trustee appointed for his estate sued Mrs. Lustgarten to recover these properties on behalf of the creditors under a New York law that allows such recovery if fraud is proven. However, Mrs.Lustgarten argued that her husband's debts were discharged through federal bankruptcy proceedings and thus she should keep the property as it was no longer part of her husband’s bankrupt estate.The court ruled in favor of Gerdes (the trustee), stating that discharge in bankruptcy does not protect against state laws allowing recovery for fraudulent transfers made before filing for bankruptcy. This decision established a precedent where federal courts would respect state laws regarding fraudulent conveyances even after a debtor has been discharged from their obligations via federal law - essentially reinforcing states' rights within this context while also protecting creditor interests.

In the dissenting opinion for Gerdes, Trustee in Bankruptcy of Lustgarten v. Lustgarten (1924), Justice McReynolds disagreed with the majority's decision to uphold a lower court ruling that allowed Mrs. Lustgarten to retain property transferred to her by Mr. Lustgarten prior to his bankruptcy declaration. He argued that this transfer was fraudulent and intended solely as a means of protecting assets from creditors during bankruptcy proceedings, which is against public policy and should not be condoned by the courts. Furthermore, he contended that allowing such transfers would undermine confidence in commercial transactions and could potentially encourage fraudulent behavior among debtors seeking protection from their creditors through bankruptcy laws.