FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd.
The Court holds that Section 47(b) of the Investment Company Act does not give private parties an implied right to sue for rescission of contracts that allegedly violate the Act. The provision is a mandate telling courts how to exercise their remedial power once parties are before them — not a grant of a right to sue — and Congress entrusted enforcement of the Act primarily to the Securities and Exchange Commission.
Opinion: https://www.supremecourt.gov/opinions/25pdf/24-345_i42k.pdf
Case background
The Investment Company Act (ICA) comprehensively regulates investment companies. It designates the Securities and Exchange Commission as its primary enforcer and expressly permits shareholders and issuers of securities to enforce two of its provisions. The petitioners — referred to as the Funds — are investment companies that manage closed-end mutual funds, so called because each contains a fixed number of shares issued at one time whose price is set by trading on the open market. The respondents, Saba Capital Master Fund, Ltd., and Saba Capital Management, L. P. (collectively, Saba), engage in activist investing: identifying low-performing closed-end funds and buying a large enough stake to alter the funds’ investment strategies. The Funds are incorporated in Maryland, which enacted the Maryland Control Share Acquisition Act (MCSAA), and they adopted resolutions opting into MCSAA provisions that limit voting rights for shareholders holding a disproportionate number of shares — like activist investors — unless other shareholders approve. In June 2023, Saba sued the Funds, alleging that their resolutions violate the ICA’s requirement that every share of stock be voting stock with equal voting rights. Saba’s suit invoked Section 47(b) of the ICA, which provides that “a court may not deny rescission” of contracts that violate the ICA “at the instance of any party” unless doing so would be consistent with equity and the ICA’s goals. The District Court held that Section 47(b) creates an implied private right of action to sue for contract rescission and granted Saba summary judgment, and the Second Circuit summarily affirmed.
Questions Presented
- The question presented is whether Section 47(b) of the ICA, 15 U.S.C. § 80a-46(b), creates an implied private right of action.
Holding
Section 47(b) of the Investment Company Act does not impliedly empower private parties to sue for rescission of contracts that allegedly violate the Act. Congress, not the Judiciary, decides who may enforce federal law, and when it creates a private right of action it usually does so expressly. Section 47(b) is a mandate directed to courts rather than a provision that confers a right on a specified class of persons: the key actor is a court, which is told not to deny the remedy of rescission to parties who request it for performed contracts unless the equities and the Act’s goals favor a different result. The statute’s structure points the same way — the Securities and Exchange Commission bears primary responsibility for enforcing the ICA, and Congress’s creation of a comprehensive agency enforcement scheme, together with two expressly provided private rights of action elsewhere in the Act, confirms that private parties generally cannot enforce it. Saba’s reliance on Transamerica Mortgage Advisors, Inc. v. Lewis (TAMA) is unavailing, because Congress amended Section 47(b) in 1980, deleting the “shall be void” language on which TAMA’s reasoning turned and shifting the focus to a court’s remedial authority.
The Court
Justice Barrett delivered the opinion of the Court, in which Chief Justice Roberts and Justices Thomas, Alito, Gorsuch, and Kavanaugh joined. Justice Kagan filed a dissenting opinion. Justice Jackson filed a dissenting opinion, in which Justice Sotomayor joined, and in which Justice Kagan joined as to Parts I and II.
What this episode contains
This episode is an AI-narrated reading of the majority opinion in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., written by Justice Barrett.
AI disclosure: The voice in this episode is AI-generated, using a machine learning model styled to loosely resemble the authoring justice. Tone, inflection, pacing, and emphasis are artifacts of the model and should not be attributed to Justice Barrett. The text being read is the Court’s published majority opinion, lightly adapted to improve readability for the spoken format.