FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd.
The Supreme Court ruled that a provision of the Investment Company Act does not give private parties an implied right to sue and rescind contracts they say violate the law — only the SEC and parties using the two express private rights of action Congress wrote into the statute may enforce it that way.
The decision shuts the door on activist investors who tried to use Section 47(b) as a broad litigation tool against closed-end mutual funds, and reinforces the Court's long-standing reluctance to infer private enforcement rights that Congress did not spell out.
How it got here: A federal district court found Section 47(b) creates an implied private right of action and ruled for Saba; the Second Circuit summarily affirmed; the funds petitioned the Supreme Court, which agreed to hear the case to resolve a circuit split.
The Case in Depth
What happened
Saba Capital, an activist investment firm, buys large stakes in underperforming closed-end mutual funds to force strategy changes. Several closed-end funds incorporated in Maryland adopted resolutions using a state law that strips the voting rights of shareholders who accumulate outsized stakes — a direct check on activist investors. Saba sued, claiming those resolutions violate the Investment Company Act's requirement that every share carry equal voting rights, and invoked Section 47(b) of the Act to seek rescission of the resolutions.
The question before the Court
Does a provision of the federal Investment Company Act let private investors go to court to unwind contracts they claim violate the law, even though Congress never expressly gave them that right to sue?
The Court's answer
No — Section 47(b) of the Investment Company Act does not give private parties the right to sue to rescind contracts they allege violate the Act. The text of Section 47(b) is written as a directive to courts — telling courts they "may not deny rescission" when a party before them is urging it — rather than as a provision granting individuals the right to file a lawsuit. Rescission is a remedy, not a standalone cause of action; some other source of law must give a party the right to be in court before a judge can award that remedy.
The statute's structure reinforces this reading. The SEC is the Act's designated primary enforcer, with broad investigative and litigation authority. Congress also wrote two specific private rights of action into the Investment Company Act elsewhere, showing it knew how to authorize private suits when it chose to. Inferring a sweeping additional right to rescind any contract that violates the Act would be inconsistent with that deliberate legislative design.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Hedge funds and other activist investors can no longer use Section 47(b) of the Investment Company Act to bring federal rescission lawsuits against closed-end funds over governance rules or other alleged violations. Enforcement falls primarily to the SEC, and private parties who want to sue must find a different legal hook. Closed-end funds that have adopted state-law voting restrictions gain a significant shield against this style of activist litigation.
What changes now
The case is sent back to the lower courts for further proceedings consistent with the ruling. Because Section 47(b) does not supply a private right of action, Saba's lawsuit as framed cannot proceed on that basis. The underlying question of whether the funds' voting restrictions violate the Investment Company Act's equal-voting-rights requirement was not decided, and Saba would need to identify another legal basis to continue its challenge. The SEC remains free to pursue its own enforcement action if it finds a violation.
What this does not decide
The ruling does not decide whether the funds' voting restrictions actually violate the ICA's equal-voting-rights requirement. It also does not disturb the two express private rights of action Congress created in the ICA, does not address other potential bases for challenging fund governance rules, and does not foreclose the SEC from bringing its own enforcement action.
Concurrences and dissents
How the Justices voted
Majority (6). Justice Barrett (author), joined by Justice Roberts, Justice Thomas, Justice Alito, Justice Gorsuch, and Justice Kavanaugh.
Dissent (3). Justice Kagan (author), joined by Justice Sotomayor.
Dissent — Justice Kagan
Justice Kagan agrees with Parts I and II of Justice Jackson's dissent — that the text, structure, and statutory history of Section 47(b) support recognizing a private right of action — and joins those parts. She writes separately to stake out a middle ground on legislative history: she would consult it only when statutory text remains genuinely ambiguous after careful analysis. Because she does not find Section 47(b) ambiguous, she abstains from the broader debate about Committee Reports in Part III of Jackson's dissent.
Dissent — Justice Jackson
Justice Jackson argues the majority misreads Section 47(b) and ignores compelling evidence of congressional intent. She contends Congress amended the statute in 1980 with full knowledge of TAMA's holding, deliberately inserting the word 'rescission' — taken from TAMA itself — and the phrase 'at the instance of any party' to preserve a private enforcement right. She also argues that Committee Reports from both chambers explicitly called on courts to imply private rights of action under the amended statute, making Congress's intent unusually clear. She would affirm the lower courts and allow Saba's suit to proceed. Read the full dissent →
How the Court got there
The legal reasoning, step by step
- The Court applied the framework from Alexander v. Sandoval (2001) for deciding whether a federal statute creates an implied private right of action. Under that framework, a statute must use 'rights-creating language' focused on protecting a particular class of persons; language focused on regulating courts or agencies rather than benefiting individuals does not qualify. The Court also asks whether Congress built a comprehensive enforcement scheme elsewhere, which counsels against inferring additional private remedies.
- Section 47(b)'s text is addressed to courts, not individuals. The operative command — 'a court may not deny rescission at the instance of any party' — places a court at the center of the provision, not an individual claimant. The provision presupposes parties are already before a court and tells the court how to exercise its remedial power; it says nothing about whether a private party may file suit in the first place.
- As a matter of background law, contract rescission is a remedy, not an independent cause of action. Parties typically land in court seeking rescission through breach-of-contract suits, fraud defenses, or other claims that supply the underlying right to sue. Section 47(b) overrides the common-law default that makes rescission difficult to obtain after a contract has been performed, but that function — unlocking a remedy — is different from creating a right to sue.
- The ICA's overall structure cuts against implying a private right. The SEC holds primary enforcement authority, may investigate any violation of the Act, and may seek injunctions or civil penalties in federal court. When Congress erects such a comprehensive agency enforcement scheme, courts presume private parties generally cannot step into the agency's shoes to enforce the statute on their own.
- The ICA contains two express private rights of action — one for breach of fiduciary duty, one for short-swing profit recovery — each spelled out in detail with assigned burdens of proof and damage caps. Those provisions show Congress knew exactly how to create private enforcement rights when it wanted to. Courts have traditionally been reluctant to imply additional private remedies in statutes that already contain carefully crafted express ones.
- Saba's reliance on TAMA (Transamerica Mortgage Advisors, Inc. v. Lewis, 1979), which found an implied right of action in the Investment Advisers Act's 'shall be void' language, failed because Congress deleted that precise language from Section 47(b) in a 1980 amendment, replacing it with court-directed language about rescission. The amendment preserved 'shall be void' in the immediately preceding provision and in the Investment Advisers Act itself, signaling a deliberate choice to change Section 47(b)'s meaning — not merely to restate it.
Doctrinal impact
Cases affected by this decision
Distinguishes Transamerica Mortgage Advisors, Inc. v. Lewis (444 U.S. 11)
TAMA's implied-right reasoning rested on 'shall be void' language Congress deleted from Section 47(b) in 1980, making TAMA inapplicable here.
Reaffirms Alexander v. Sandoval (532 U.S. 275)
The Court reaffirms Sandoval's framework requiring rights-creating statutory language before courts may infer a private right of action.