In the case of Hudson & Manhattan Railroad Co. v. United States et al., 1940, the U.S Supreme Court ruled that a railroad company operating in New York and New Jersey was subject to federal regulation under the Interstate Commerce Act. The Hudson & Manhattan Railroad Company argued that it was not an interstate carrier because its operations were confined within terminal districts exempted by Congress from such regulations. However, the court held that despite these exemptions, any rail line providing continuous transportation between states is considered an interstate commerce entity and thus falls under federal jurisdiction for regulatory purposes. This decision affirmed lower courts' rulings which had also found in favor of government regulation over this type of intra-state commercial activity.

In the dissenting opinion for Hudson & Manhattan Railroad Co. v. United States, it was argued that the Interstate Commerce Commission (ICC) did not have jurisdiction over intrastate commerce and therefore could not regulate fares on a railroad line operating solely within one state, even if part of an interstate journey. The dissenting justices believed that while Congress had power to regulate interstate commerce, this did not extend to control over local activities unless they directly affected such commerce in a substantial way. They contended that the majority's decision would result in undue federal interference with state affairs and potentially lead to excessive regulation of purely local business operations by federal agencies under the guise of controlling interstate trade.