In the 1940 case of Palmer et al., Trustees, v. Connecticut Railway & Lighting Co., the United States Supreme Court dealt with issues related to bankruptcy and reorganization under Section 77B of the Bankruptcy Act. The appellants were trustees for bondholders who objected to a reorganization plan approved by lower courts that reduced their secured claims against Connecticut Railway & Lighting Co. They argued that they had not been given fair treatment in comparison to other creditors and stockholders, particularly those holding preferred stock. However, the Supreme Court upheld the lower court's decision approving the reorganization plan on grounds that it was fair and equitable as required by law despite reducing some secured claims because it gave due regard to relative priorities among claimants.

In the dissenting opinion for Palmer et al., Trustees, v. Connecticut Railway & Lighting Co., Justice Black disagreed with the majority's decision to uphold a state law that allowed bondholders to force a public utility into receivership without first proving insolvency or mismanagement. He argued that this violated due process rights under the Fourteenth Amendment because it deprived owners of their property without fair procedures in place. Furthermore, he contended that such laws could be used by powerful financial interests to manipulate and control smaller companies against their will and at their expense. This would not only harm individual businesses but also undermine competition and economic stability more broadly. Therefore, he believed that these types of laws should be struck down as unconstitutional unless they included stronger protections for business owners' rights.