In the case of Home Telephone & Telegraph Company of Spokane v. Kuykendall, 1923, the Supreme Court ruled on whether a state could regulate and set rates for telephone companies operating within its borders. The Home Telephone & Telegraph Company filed suit against Washington's Director of Public Works after he established new rates that the company believed were too low to allow it to make a reasonable profit. In their decision, the court held that states do have authority under police power to regulate public utilities like telephone companies in order to protect consumers from excessive charges or poor service quality. However, they also stated that these regulations must not be so severe as to prevent utility providers from earning a fair return on their investment; otherwise it would constitute an unlawful taking without just compensation under Fifth Amendment protections.

In the dissenting opinion for Home Telephone & Telegraph Company of Spokane v. Kuykendall, Justice McReynolds argued that the state's power to regulate rates charged by public utilities should not be absolute and unchecked. He contended that such a broad interpretation of regulatory powers could lead to unjust confiscation without due process, violating constitutional protections. The justice believed that courts should have the authority to review rate-setting decisions made by administrative bodies like Washington's Department of Public Works in order to ensure they are reasonable and fair. In this case, he disagreed with the majority's decision upholding a rate reduction imposed on Home Telephone & Telegraph Company as he felt it was arbitrary and did not provide adequate compensation for their property used in providing service.