In the case of Mellon, Director General v. Michigan Trust Company, Receiver (1925), the Supreme Court ruled on a dispute involving railroad bonds and receivership. The Michigan Trust Company was appointed as receiver for a bankrupt railroad company that had issued bonds guaranteed by another railway corporation which later became part of the federal rail system during World War I. When interest payments were not made on these bonds, bondholders sued both corporations and won in lower courts. However, Andrew Mellon, then serving as Director General of Railroads under President Harding's administration appealed to the Supreme Court arguing that he should not be held liable because he was acting in his official capacity when managing federally controlled railways. The Supreme Court sided with Mellon stating that while it is true that government officials can be held personally responsible if they misuse their power or act beyond their authority; this did not apply here since there was no evidence suggesting any misconduct or overreach by Mellon in his role as Director General of Railroads. Therefore, neither Mellon nor the U.S Government could be held accountable for debts incurred by private companies before they came under federal control.

In the dissenting opinion for Mellon v. Michigan Trust Company, Justice McReynolds disagreed with the majority's decision to allow federal control over state property taxes in relation to railroad companies. He argued that this ruling undermined states' rights and autonomy by allowing federal authorities to interfere with their ability to levy and collect taxes as they see fit. Furthermore, he contended that it was not within the purview of Congress or any other branch of government at a national level to dictate how individual states should manage their internal affairs unless there is clear constitutional authority permitting such intervention. This includes matters related directly or indirectly towards taxation policies which are traditionally seen as an essential aspect of state sovereignty.