In W. B. Worthen Co., Trustee, et al. v. Kavanaugh, Trustee (1934), the U.S Supreme Court ruled that a state law cannot interfere with or limit the rights of bondholders as stipulated in their contract without violating the Contract Clause of the Constitution which prohibits states from passing laws "impairing the obligation of contracts". The case arose when Arkansas passed a statute during an economic depression that limited how much money could be collected by creditors from insolvent debtors' estates to pay off debts owed on bonds issued by municipalities within its jurisdiction. This was challenged by W.B Worthen Co., who held such bonds and argued it violated their contractual rights to collect full payment as agreed upon issuance of these bonds. The court sided with W.B Worthen Co., stating that while states have broad powers to regulate economic affairs and protect public interests, they do not extend so far as to allow them violate constitutional prohibitions against impairing obligations under existing contracts.

In the dissenting opinion for W. B. Worthen Co., Trustee, et al. v. Kavanaugh, Trustee (1934), Justice McReynolds disagreed with the majority's interpretation of Arkansas law and its application to this case involving a dispute over bonds issued by an irrigation district in that state. He argued that under Arkansas law, these bonds were not subject to taxation until they had been fully paid off and thus should be exempt from any claims made by creditors during bankruptcy proceedings. The justice believed that allowing such claims would undermine the financial stability of public utilities in Arkansas and potentially discourage future investment in them due to increased risk for bondholders who might lose their investments if a utility went bankrupt before paying off its debts completely.