In the case of Lake Country Estates, Inc. v. Tahoe Regional Planning Agency (1978), residents and property owners in the Lake Tahoe region sued the Tahoe Regional Planning Agency (TRPA) over its land-use regulations which they claimed were unconstitutional. The plaintiffs argued that TRPA's restrictions on development infringed upon their rights to due process and equal protection under law, as well as constituted a taking without just compensation. However, the Supreme Court ruled in favor of TRPA stating that it was within its power to impose such restrictions for environmental conservation purposes. The court found no violation of constitutional rights because all affected parties had been given adequate notice and opportunity to participate in public hearings about these regulations before they were implemented.

In the dissenting opinion for Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, Justice Rehnquist disagreed with the majority's ruling that a bistate compact agency could be sued without congressional consent under 42 U.S.C §1983. He argued that such agencies should not be treated as "persons" within the meaning of this statute and thus shouldn't be subject to lawsuits in federal court unless Congress explicitly allows it. According to him, allowing these suits would disrupt interstate cooperation by making states hesitant to enter into compacts if they knew they might face litigation in federal courts over their actions taken through those agreements. Furthermore, he believed that interpreting Section 1983 broadly enough to include bistate entities was inconsistent with its historical context and purpose which was primarily intended to enforce Fourteenth Amendment rights against state governments rather than interstate bodies.