In the case of National Mutual Insurance Co. v. Tidewater Transfer Co., Inc., the U.S Supreme Court was tasked with determining whether Congress had authority to grant federal jurisdiction over cases between citizens of different territories, specifically Washington D.C and a state. The court ruled in favor of Tidewater Transfer Company by a 5-4 decision, asserting that Congress did have such power under Article III and Article IV's Territory Clause of the Constitution. This ruling expanded federal diversity jurisdiction to include disputes between citizens from different territories or a territory and a state, which previously only applied to disputes between citizens from different states.

In the dissenting opinion for National Mutual Insurance Co. v. Tidewater Transfer Co., Inc., Justice Frankfurter argued that Congress did not have the constitutional authority to extend federal jurisdiction to cases between citizens of different states and residents of U.S territories, such as Washington D.C. He contended that Article III of the Constitution only grants federal courts jurisdiction over controversies between "citizens" and does not include non-state entities like D.C or other territories in its definition of citizenship. Therefore, he believed it was unconstitutional for Congress to pass a law allowing these types of cases into federal court under diversity jurisdiction rules because it expanded the scope beyond what is explicitly stated in Article III. Furthermore, he asserted that if changes were needed they should be made through constitutional amendment rather than legislative action.