In the case of Palmer et al., Trustees v. Massachusetts, the U.S. Supreme Court ruled on a dispute involving railroad reorganization under Section 77 of the Bankruptcy Act. The New Haven Railroad had been in receivership since 1935 and was seeking to reorganize its debts through bankruptcy proceedings. However, this process was complicated by state laws in Massachusetts that required public approval for any changes to rail services within its borders - including those proposed as part of a bankruptcy plan. The trustees appointed to oversee New Haven's reorganization argued that these state requirements were preempted by federal law and thus should not apply; however, Massachusetts disagreed and sought to enforce them anyway. Ultimately, the Supreme Court sided with Massachusetts in an opinion delivered by Justice Felix Frankfurter. It held that while Congress did have broad powers over interstate commerce (including railroads), it had not explicitly overridden states' rights to regulate local aspects of such commerce within their own borders when it passed Section 77. Therefore, unless or until Congress chose specifically to do so, states like Massachusetts could continue enforcing their own rules regarding railroad operations - even if they interfered with federally-supervised bankruptcy plans.

In the dissenting opinion for Palmer et al., Trustees, v. Massachusetts, Justice Black argued that the majority's decision was a departure from established principles of constitutional law and an intrusion into state affairs. He contended that it was not within the purview of federal courts to interfere with states' decisions on public utility rates unless there is clear violation or abuse of power. In this case, he believed Massachusetts had acted reasonably in setting railway fares based on its own economic conditions and needs. Furthermore, he stressed that if every rate fixed by a state could be challenged under due process clause then it would make such clauses as "a haven for judicial despotism." Thus, according to him, only when rates are so low as to be confiscatory should they be deemed unconstitutional; otherwise states should have freedom in managing their local affairs without interference from federal judiciary.