In the case of Valdes v. Larrinaga (1913), the U.S Supreme Court ruled on a dispute involving inheritance laws in Puerto Rico. The plaintiff, Valdes, was an illegitimate child who had been acknowledged by his father and sought to inherit from him under Spanish law which was in effect at the time of his birth and acknowledgment. However, after Spain ceded Puerto Rico to United States following the Spanish-American War, American law took precedence over local customs or previous colonial laws regarding inheritance rights for illegitimate children. The defendant argued that since American law did not recognize such claims from illegitimate children unless specifically stated in a will or testament, Valdes should be denied any claim to his father's estate. The court agreed with this argument stating that upon acquisition of territory by United States all existing laws inconsistent with its constitution and legal principles become nullified unless expressly retained by Congress. Therefore it held that even though under Spanish Law Mr.Valdes would have been entitled to inherit property as an acknowledged natural child but according to US Laws he could not do so because there were no provisions made for him in his father's will.

In the dissenting opinion for Valdes v. Larrinaga, Justice Holmes argued that the majority's decision to deny jurisdiction was incorrect. He contended that while it is true that Puerto Rico is not a foreign country in an international sense, it remains distinct from U.S states and territories due to its unique political status under the Foraker Act of 1900. This act established a civil government in Puerto Rico but did not incorporate it as part of the United States; thus, according to Holmes, making it "foreign" within domestic law context. Therefore, he believed federal courts should have jurisdiction over cases arising there just like they do with other foreign countries or entities outside of state boundaries.