In the case of San Jose Land and Water Company v. San Jose Ranch Company in 1902, the Supreme Court was tasked with determining whether a lower court had jurisdiction over a dispute involving water rights between two California companies. The plaintiff, San Jose Land and Water Co., claimed that it held prior rights to certain waters which were being unlawfully diverted by the defendant, San Jose Ranch Co. The defendant argued that this was not within federal jurisdiction as both parties were from California. However, because one of the original shareholders of the plaintiff company was from another state (Nevada), diversity jurisdiction applied at inception of lawsuit even though he later moved to California before trial began. Therefore, despite all current parties residing in same state when suit commenced - an exception existed due to initial diverse citizenship status at time complaint filed; thus allowing for federal intervention under Article III Section 2 Clause 1's Diversity Jurisdiction provision in U.S Constitution.

The dissenting opinion in the case of San Jose Land and Water Company v. San Jose Ranch Company argued that the majority's decision was incorrect because it failed to properly consider California state law regarding water rights. The dissent believed that under California law, a riparian owner (one who owns land adjacent to a body of water) has an inherent right to use the natural flow of any stream running through their property for beneficial purposes without having to pay compensation. This includes using excess or surplus waters not needed by downstream users, even if those waters are stored during times of plenty and used during periods of scarcity. The dissent also contended that this principle should apply regardless whether such storage is made on or off the riparian tract itself as long as it’s within its watershed area. They felt that denying these rights would be tantamount to appropriating private property for public use without just compensation which contradicts both state constitution and federal laws protecting private property rights.