In the case of Lion Bonding & Surety Company v. Karatz, the U.S Supreme Court ruled in favor of Lion Bonding & Surety Company. The dispute arose when a city treasurer, who was bonded by Lion Bonding & Surety Co., embezzled funds from his office. When discovered, he fled and left no assets behind to cover his thefts. The City then sued the bonding company for recovery under its bond contract with them but lost in lower courts because it had failed to notify the surety company within 15 days after discovering each loss as required by their agreement's terms. The Supreme Court upheld these rulings on appeal stating that such notice provisions were not against public policy or law and could be enforced strictly according to their terms even though they might result in hardship for innocent parties like cities which have been victimized by dishonest officials.

In the dissenting opinion for Lion Bonding & Surety Company v. Karatz, Justice Holmes argued that the majority's decision was inconsistent with previous rulings and principles of federalism. He contended that a state court should have jurisdiction over a case involving an out-of-state corporation if it has established sufficient contacts within the state. In this particular case, he believed that by appointing an agent to conduct business in California, Lion Bonding & Surety Co., which is based in Nebraska, had effectively consented to be sued there. Furthermore, he disagreed with the majority's interpretation of due process rights under Fourteenth Amendment as requiring personal service within its home state for lawsuits against corporations operating across states lines.