On June 30, 2025, the Supreme Court granted certiorari in FS Credit Opportunities Corp., et al. v. Saba Capital Master Fund, Ltd., et al., 24-345 to resolve a circuit split over whether Section 47(b) of the Investment Company Act (ICA) grants parties a private right of action.
The ICA regulates certain investment entities, such as mutual funds and exchange-traded funds.1 Section 47(b)(1) of the ICA states that any contract made or performed in violation of the ICA is voidable. Should a contract, by formation or performance, violate Section 47(b)(1), "a court may not deny rescission at the instance of any party." 15 U.S.C. Section 80a-47(b)(2) (Section 47(b)(2)). Here, several closed-end mutual funds, which were formed under Maryland law, had opted into provisions of the Maryland Control Share Acquisition Act. These provisions allow companies to restrict or eliminate the voting rights of shareholders possessing 10% or more of a company's total voting power. Approximately half of the states have adopted types of control share laws. In 2023, two Saba Capital entities (Respondents) sued in the Southern District of New York for rescission of the control share provisions under Section 47(b). The district court granted their motion for summary judgment, finding that the control share provisions violated the ICA. The Second Circuit affirmed. Whether the language of Section 47(b) creates a private right of action is the question now before the Supreme Court.
In their petition, the funds (Petitioners) requested that the Court grant certiorari and reject the Second Circuit's holding. They argued that Congress explicitly created a narrow private right of action in Section 80a-35(b), a separate section of the ICA. Section 47(b), according to the funds, only creates a defense in a breach of contract action. Because Congress explicitly created a private right of action elsewhere in the ICA and expressly empowered the Securities and Exchange Commission (SEC) to enforce the ICA, petitioners asserted that Section 47(b) could not implicitly create a private right of action.
Petitioners also argued that there was a clear circuit split, making this issue ripe for the Court's review. First, in 2019 the Second Circuit held that Section 47(b) provided for a private right of action and, in its opinion, asserted that the Third Circuit and several lower courts had reached the opposite conclusion. Oxford University Bank v. Lansuppe Feeder LLC, 933 F.3d 99, 108-09 (2d Cir. 2019). Second, petitioners noted that the Ninth Circuit, along with the Third Circuit and the Fourth Circuit in an unpublished opinion, has rejected the Second Circuit's holding that Section 47(b)(2) creates a private right of action.2 However, because New York is a locus of financial activity, plaintiffs will likely choose to sue in New York and take advantage of the Second Circuit's opinion. Allowing this split to continue, petitioners claimed, would open the floodgates to complaints in the New York district courts.
Petitioners also argued that the ICA's statutory structure supported their argument that Section 47(b) did not create a private right of action. In Sections 6 and 42, Congress expressly authorized the SEC to enforce the ICA. 15 U.S.C. Sections 80a-6(c), 80a-41(d). In Sections 30 and 36, Congress created particular private rights of action under other circumstances. 15 U.S.C. Sections 80a-29(h), 80a-35(b). Petitioners asserted that Congress understood how to create a private right of action in the ICA and did not do so in Section 47(b).
On the other hand, respondents opposed certiorari and argued that the Court should adopt the Second Circuit's reasoning in the Oxford case that the "text of Section 47(b) unambiguously evinces Congressional intent to authorize a private action." Oxford, 933 F.3d at 105. In its textual analysis, the Second Circuit reasoned that the language of Section 47(b) plainly indicates that parties may seek relief from the courts, and that the text of Section 47(b)(2) has no other plausible explanation except to provide for a private right of action. The Second Circuit also concluded that the language in the ICA mirrors the language in Section 215 of the Investment Advisors Act, which allows for a private right of action.
Respondents also rejected the conclusion that there was a clear circuit split. They noted that the Second Circuit only recognized the right of rescission under Section 47(b), not otherwise unavailable damages actions. See NexPoint Diversified Real Estate Trust v. Acis Cap. Mgmt., LP, 80 F.4th 413, 419-20 (2d Cir. 2023). They argued that the Third and Ninth circuits likely would agree with this interpretation, that the circuit split is nuanced and that the Court should allow time for lower courts to address this issue. Respondents also highlighted how the issue before the Court has not been addressed by other circuits, arguing that the Ninth Circuit had addressed a separate, narrow issue relating to Section 47(b) and that the Fourth Circuit's unpublished opinion did not reach this issue.
The US Chamber of Commerce and the Investment Company Institute filed amicus briefs, and both argued that the Court should grant certiorari and reverse the Second Circuit. The Court also invited the solicitor general to file an amicus brief. The government joined amici and petitioners, arguing that the Second Circuit had erred in its reading of Section 47(b). This is a change from 2001, when the SEC filed an amicus brief with the Second Circuit taking the position that Section 47(b) did provide for a private right of action.3 However, in 2020 the SEC withdrew prior administrative guidance stating that control share provisions would violate the ICA. In its amicus brief here, the government stated that, in light of recent Supreme Court guidance on implied private causes of action, it has reconsidered its view of Section 47(b).
The Court granted certiorari on June 30. All parties requested an extension to the case schedule. Should the Court grant that request, petitioners' opening brief will be due August 27, and respondents' brief will be due October 9, with argument likely set for the December term.
Footnotes
1. The ICA does not regulate private investment funds such as private credit funds, private equity funds, hedge funds, real estate funds and venture capital funds, by virtue of the exemptions from the definition of "investment company" contained in Sections 3(c)(1), 3(c)(5) and 3(c)(7) of the ICA. See 15 U.S.C. §§ 80a-3(c)(1), 80a-3(c)(5), 80a-3(c)(7).
2. See UFCW Local 1500 Pension Fund v. Mayer, 895 F.3d 695 (9th Cir. 2018); Santomenno v. John Hancock Life Ins. Co., 677 F.3d 178 (3d Cir. 2012); Steinberg v. Janus Cap. Mgmt., LLC, 457 F. App'x 261 (4th Cir. 2011).
3. SEC Amicus Br. at 2, Olmsted v. Pruco Life Ins. Co., 283 F.3d 429 (2d Cir. 2002) (No. 00-9511).
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