In the 1908 case of Palmer v. State of Texas and Eckhardt, Receiver of the Waters-Pierce Oil Company, the U.S. Supreme Court ruled in favor of Texas and Eckhardt. The dispute arose when Palmer claimed that a judgment rendered by a state court against Waters-Pierce Oil Company was fraudulent because it had been obtained through collusion between the company's receiver (Eckhardt) and state officials to defraud creditors like himself. He sought an injunction from federal courts to prevent enforcement of this judgement on grounds that his constitutional rights were violated as he was denied due process under Fourteenth Amendment. The Supreme Court held that federal courts lacked jurisdiction over such cases where alleged fraud or collusion did not directly involve violation of any express provision in Constitution or laws passed by Congress for protection of civil rights; rather they involved questions related purely to state law which should be addressed within respective states' judicial systems only.

In the dissenting opinion for Palmer v. State of Texas and Eckhardt, Receiver of the Waters-Pierce Oil Company, Justice Harlan argued that the court majority had overstepped its bounds by interfering with a state's right to regulate business within its borders. He believed that it was not within federal jurisdiction to determine whether or not a company had violated state laws unless there were clear constitutional issues at stake. In this case, he felt that no such issues existed and therefore disagreed with his colleagues' decision to overturn penalties imposed on Waters-Pierce Oil Company by Texas courts for violating anti-trust laws. According to him, if every penalty inflicted by states could be reviewed in federal courts under writs of habeas corpus then those tribunals would become appellate courts for all criminal cases arising in state courts which is contrary to established principles relating to federal-state relations.