In the 1907 case of Vandalia Railroad Company v. Indiana ex rel. The City of South Bend, the U.S Supreme Court ruled in favor of the state's right to regulate railroad rates within its borders. The dispute began when South Bend, Indiana sought to lower freight charges imposed by Vandalia Railroad Company on intrastate commerce (commerce occurring within a single state). The company argued that such regulation was unconstitutional and interfered with interstate commerce (commerce between different states), which is under federal jurisdiction according to the Commerce Clause of the Constitution. However, Justice David Brewer delivered an opinion stating that while Congress has exclusive control over interstate commerce, it does not have complete authority over all activities affecting such trade; thus allowing for some degree of local regulation on matters like railway rates where they do not directly interfere with interstate transactions.

In the dissenting opinion for Vandalia Railroad Company v. Indiana Ex Rel. The City of South Bend, Justice Harlan argued that the majority's decision was a departure from established principles of constitutional law and an encroachment on state sovereignty. He contended that states have inherent power to regulate businesses within their borders, including railroads, and this power should not be undermined by federal courts unless there is clear conflict with federal law or constitution. In his view, the Indiana statute requiring railroad companies to install safety appliances did not interfere with interstate commerce nor violate any provision of the U.S Constitution; rather it was a legitimate exercise of police powers aimed at protecting public safety. Therefore, he believed that it should have been upheld as valid under both state and federal laws.