The Southern Pacific Company v. Darnell-Taenzer Lumber Company case in 1917 revolved around the issue of freight rates for interstate commerce. The Darnell-Taenzer Lumber Company and other shippers sued the Southern Pacific Railroad, alleging that it had charged them excessive and discriminatory rates for transporting lumber from Louisiana to Texas, violating the Interstate Commerce Act. The railroad company argued that its charges were justified due to higher costs associated with shorter hauls compared to longer ones. However, the Supreme Court ruled in favor of the lumber companies, stating that a carrier could not charge more for a short haul than a long one on similar traffic moving under substantially similar circumstances and conditions within the same direction unless specifically authorized by order of Interstate Commerce Commission (ICC). This decision reinforced ICC's regulatory authority over railroads' rate-setting practices.

In the dissenting opinion for Southern Pacific Company et al. v. Darnell-Taenzer Lumber Company et al., Justice Holmes argued that the majority's decision was inconsistent with previous rulings and misinterpreted interstate commerce laws. He contended that a railroad company, acting as a common carrier, should be allowed to charge different rates for services provided in different states if those differences are justified by varying costs of operation or other legitimate factors. In this case, he believed that Southern Pacific had valid reasons for charging more to transport lumber from Texas to Louisiana than it did within Texas alone due to longer distances and higher operational costs involved in interstate transportation. Therefore, he disagreed with the majority's ruling which found these differing charges discriminatory and unlawful under federal law.