In the case of Schad et al. v. Borough of Mount Ephraim, the U.S Supreme Court ruled in favor of a business that was selling adult books and films while also offering live nude dancing performances. The borough had tried to shut down the business by arguing it violated zoning ordinances which did not permit commercial entertainment activities within its boundaries. However, the court found this argument unconvincing as other forms of entertainment such as theaters and nightclubs were allowed under these same regulations. The justices concluded that singling out one form of protected First Amendment expression for prohibition while allowing others constituted an infringement on free speech rights without sufficient justification from the government's side to do so.

In the dissenting opinion for Schad et al. v. Borough of Mount Ephraim, Justice Rehnquist argued that the majority had overstepped its bounds by substituting its judgment for that of local lawmakers in determining what constitutes a legitimate zoning interest. He contended that it was not within the Court's purview to decide whether live entertainment should be allowed in all commercial zones, as this decision belonged to local authorities who were better equipped to understand and address their community’s needs and concerns. Furthermore, he disagreed with the majority's assertion that there was no rational basis for excluding live entertainment from certain areas; instead, he believed such exclusion could serve valid public interests like preventing noise pollution or maintaining neighborhood character. Lastly, Justice Rehnquist criticized his colleagues' broad interpretation of First Amendment protections which led them to equate nude dancing with other forms of protected speech.