In the case of Pacific Telephone & Telegraph Co. v. Gallagher et al., 1938, the U.S Supreme Court ruled in favor of Pacific Telephone & Telegraph Company (PT&T). The company had challenged a California law that imposed an ad valorem tax on all intangible property within its jurisdiction, including PT&T's telephone lines and equipment. The court held that this taxation was unconstitutional as it violated the Fourteenth Amendment’s due process clause by taxing property outside state boundaries since some parts of PT&T's network extended beyond California. Furthermore, it also conflicted with federal laws governing interstate commerce because telecommunication services were considered to be part thereof. Therefore, states could not impose taxes on such properties or activities without congressional approval.

In the dissenting opinion for Pacific Telephone & Telegraph Co. v. Gallagher et al., Justice Butler argued that the California statute, which allowed a state commission to fix rates for telephone services, was unconstitutional because it violated due process rights under the Fourteenth Amendment. He believed that this law gave too much power to the commission and did not provide sufficient checks or balances against potential abuses of authority. Furthermore, he contended that there were no clear standards in place for determining what constituted "reasonable" rates and thus left companies vulnerable to arbitrary decisions by regulators without any recourse or means of challenging them legally. The justice also expressed concern about how these regulations could negatively impact interstate commerce by creating inconsistencies between states' policies on telecommunications services.