In the case of Osborn et al. v. Ozlin et al., 1939, the Supreme Court ruled on a dispute involving Virginia's system for licensing motor vehicle operators and its impact on federal employees. The state had attempted to require all residents, including those employed by the federal government, to obtain a driver’s license and pay associated fees. Federal employees argued that this requirement was an unconstitutional infringement upon their rights as federal workers under intergovernmental immunity doctrine which protects them from state taxation or regulation while performing official duties. The Supreme Court sided with the plaintiffs (federal employees), ruling that states cannot impose such requirements on individuals who are carrying out tasks for the U.S government because it interferes with governmental functions and violates Supremacy Clause of Constitution which establishes Federal law as supreme over State laws in certain areas where they conflict.

In the dissenting opinion for Osborn et al. v. Ozlin et al., Justice McReynolds argued that the majority's decision was a departure from established principles of federalism and states' rights, particularly in relation to insurance regulation which had traditionally been within state purview. He contended that Virginia law did not interfere with interstate commerce or infringe upon any constitutional right, but merely regulated an intrastate business activity - insurance sales by agents residing within its borders. The justice further asserted that there was no conflict between state law and any act of Congress; hence, he saw no reason for federal courts to intervene in this matter. In his view, allowing such intervention would open floodgates for unwarranted interference into matters properly belonging to individual states.