In the Ticonic National Bank et al. v. Sprague et al., 1937 case, the U.S Supreme Court ruled that a federal court has jurisdiction to hear and decide on cases involving state law if it is related to an existing federal question under consideration by the court. The dispute began when Mrs. Sprague filed for bankruptcy in Maine and her trustee sued Ticonic National Bank to recover alleged preferential payments made within four months of filing for bankruptcy as per Section 60b of the Federal Bankruptcy Act - a matter governed by federal law. However, whether these payments were considered 'preferential' was determined by Maine's insolvency laws - a state issue. The bank argued that since this involved interpretation of state law, it should be heard in state courts only but both lower courts disagreed with them. The Supreme Court affirmed their decisions stating that while ordinarily matters concerning local or state laws are best left to local tribunals who have expertise in such matters; however, where there is already an ongoing litigation regarding a substantial claim arising from federal statutes (like bankruptcy), then considerations about judicial economy and convenience may allow those issues also being decided along with main proceedings even if they involve questions of State Law.

In the dissenting opinion for Ticonic National Bank et al. v. Sprague et al., Justice Cardozo disagreed with the majority's decision to allow a creditor, who had previously agreed to accept less than full payment of a debt in exchange for shares in a reorganized company, to later claim full repayment when it was discovered that there were surplus assets available after all other creditors were paid. He argued that this violated principles of equity and fairness because it allowed the creditor to benefit twice: first by receiving shares in the new company and second by claiming additional payment from surplus assets. He also pointed out that allowing such claims could discourage future attempts at corporate reorganization since potential investors would be wary of hidden liabilities.