In the 1938 case of Southern Pacific Co. v. United States, the Supreme Court ruled on a matter involving railroad freight rates. The Interstate Commerce Commission (ICC) had ordered an increase in transcontinental rail rates, which was challenged by Southern Pacific Company and other railroads as being too low to cover costs and provide reasonable profit margins. The ICC argued that it had considered all relevant factors when setting the rate, including cost data provided by the railways themselves. The Supreme Court sided with the ICC, ruling that its decision-making process was sound and within its authority under federal law regulating interstate commerce. It also noted that courts should not substitute their judgment for that of administrative agencies like ICC unless there is clear evidence of arbitrary or capricious action or abuse of discretion. This case affirmed principles regarding judicial deference to agency expertise in complex matters such as rate-setting for public utilities.

In the dissenting opinion for Southern Pacific Co. v. United States, it was argued that the Interstate Commerce Commission (ICC) had overstepped its authority by attempting to regulate intrastate rail rates in California. The dissenting justices believed that this case represented a significant expansion of federal power at the expense of state sovereignty and individual rights. They contended that while Congress has broad powers to regulate interstate commerce, it does not have unlimited authority to interfere with purely local matters or intrastate commerce unless there is a clear and direct impact on interstate trade or transportation. In their view, the ICC failed to demonstrate such an impact in this case; hence they disagreed with majority's decision upholding ICC's order as constitutional.