Supreme Court Holds Investment Company Act Section 47(b) Does Not Create a Private Right of Action

On June 11, 2026, the Supreme Court issued its opinion in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, 608 U.S. ___ (2026) (“Saba Capital”). Justice Amy Coney Barrett delivered the Court’s 6–3 majority opinion, holding that Section 47(b) of the Investment Company Act of 1940, as amended (the “ICA”), does not provide a private right of action for the rescission of contracts that violate the substantive provisions of the ICA. Through this holding, the Court curtailed the ability of investors to enforce the substantive provisions of the ICA through private suits under Section 47(b) of the ICA (“Section 47(b)”) and reinforced that the U.S. Securities and Exchange Commission (the “SEC”) is primarily responsible for enforcing the ICA under the statutory scheme enacted by Congress.

Background

The ICA regulates “investment companies,” which generally includes any company that issues securities and “holds itself out as being engaged primarily . . . in the business of investing, reinvesting, or trading in securities[.]”¹ Regulated investment companies include mutual funds, closed-end funds, and unit investment trusts, and the ICA imposes registration, disclosure, and governance obligations on these entities, as well as creating certain statutory fiduciary duties.²

While the SEC is primarily responsible for enforcing the ICA’s substantive provisions, the ICA also contains two express private rights of action in § 80a-35(b) (authorizing suits against an investment adviser of a registered investment company for breach of fiduciary duty) and § 80a-29(h) (authorizing an issuer to recover short-term profits realized by a regulated individual). In Saba Capital, the Supreme Court was tasked with determining whether Section 47(b) provides a third private right of action for rescission of contracts which violate the ICA.

Section 47(b) provides that to the extent a contract violates a substantive provision of the ICA, a court “may not deny rescission at the instance of any party unless such court finds that under the circumstances the denial of rescission would produce a more equitable result than its grant and would not be inconsistent with the purposes of [the ICA].”³ The Supreme Court’s decision in Saba Capital resolved a circuit split over the meaning of this language, with the Second Circuit holding that Section 47(b) creates an implied private right of action,⁴ and the Ninth and Third Circuits coming to the opposite conclusion.⁵

Petitioners are investment companies that manage closed-end mutual funds — investment vehicles that issue a fixed number of shares that are traded on the open market. Respondents Saba Capital Master Fund, Ltd. and Saba Capital Management, L.P. (collectively, “Saba”) manage open-end mutual funds and pursue an activist strategy that includes acquiring significant stakes in closed-end funds to influence fund behavior. Saba sued the petitioner funds in 2023 in order to challenge the adoption of anti-activist resolutions that diminished the voting power of shareholders holding a disproportionate number of shares in the petitioner funds. Saba brought its action under Section 47(b), alleging that the resolution at issue violated the ICA’s requirement that every share be afforded equal voting rights. The District Court held that Section 47(b) created an implied private right of action for rescission, and the Second Circuit affirmed.⁶ The petitioner funds appealed the Second Circuit’s decision, and the Supreme Court granted certiorari to resolve the circuit split.

The Court’s Decision

The majority concluded that Section 47(b) does not create a private right of action. The majority first pointed to the general rule that, to create a private right of action, a statute must use “rights-creating language,” and found that Section 47(b) contains no such language. Instead, the majority held that Section 47(b)’s language is a “mandate directed to . . . courts” and presupposes that the parties are already before the court. In support of its reading, the majority noted that contract law treats rescission as a remedy, not a separate cause of action.⁷

The majority also pointed to the fact that the SEC is primarily responsible for enforcing the ICA, including by investigating violations and bringing actions for both civil penalties and injunctive relief. According to the majority, Congress’s explicit creation of an enforcement scheme for the ICA undercut the argument for an implied private right elsewhere in the statute. In addition, the fact that Congress created express private rights of action under the ICA for breaches of fiduciary duty by investment advisers or the recovery of short-term profits by covered insiders shows that, when Congress intended to create private remedies under the ICA, it knew how to do so and did so expressly.⁸

In reaching its decision, the majority rejected arguments made by Saba (and advanced in a lengthy dissent authored by Justice Ketanji Brown Jackson) that the Court should imply a private right of action based on its holding in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979) (“TAMA”), that a similar provision of the Investment Advisers Act of 1940, as amended (the “IAA”), provides a private right of action for rescission. In so holding, the majority pointed to the 1980 amendments to the ICA that modified Section 47(b)’s wording — adding the words “a court” and removing the phrase “shall be void,” on which TAMA’s reasoning relied. Given the current textual differences between the statutes, the Court declined to rely on TAMA and also noted that Saba sought to vindicate a broader right (to void any contract that violates the ICA) than the one TAMA endorsed.⁹

Takeaways

Following the Supreme Court’s decision in Saba Capital, investors alleging ICA violations will need to rely on the SEC to bring enforcement actions or turn to alternative causes of action — including state-law claims for breach of fiduciary duty or breach of contract — to challenge fund governance decisions they view as unlawful. The Court emphasized that Section 47(b) remains a remedial provision — it may guide rescission where a case is already properly before a court, but it does not itself create the right to sue. That distinction leaves open the possibility that rescission may be available where another source of law supplies the underlying claim, while foreclosing Section 47(b) as an independent vehicle for private ICA enforcement. The Court’s opinion will likely affect not only challenges to anti-takeover provisions, as in Saba Capital, but also shareholder litigation involving fee arrangements, advisory contract terms, and other alleged ICA violations previously framed as Section 47(b) rescission claims, while leaving intact express private rights of action under the ICA. 

Practitioners should also take note of what the case signals for litigation under the IAA. While the Court distinguished TAMA’s holding that Section 215 of the IAA implies a private right of action to void an investment advisory contract, it emphasized that the scope of that right of action is a narrow one, which may have implications for the boundaries of future cases under Section 215, particularly given the Court’s emphasis in Saba Capital on statutory text and express remedial schemes when evaluating implied private remedies under U.S. securities laws.

The Court’s opinion is available here.

¹15 U.S.C. § 80a-3(a)(1)(A). The definition also includes companies that issue securities and are engaged “in the business of issuing face-amount certificates of the installment type,” or engaged “in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets[.]” 15 U.S.C. § 80a-3(a)(1)(B–C).

²15 U.S.C. § 80a-8; 15 U.S.C. § 80a-35.

³15 U.S.C. § 80a-46(b).

⁴Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d 99 (2d Cir. 2019).

⁵UFCW Local 1500 Pension Fund v. Mayer, 895 F.3d 695 (9th Cir. 2018); Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co. (U.S.A.), 677 F.3d 178 (3d Cir. 2012).

⁶Saba Cap. Master Fund, Ltd. v. BlackRock Mun. Income Fund, Inc., (S.D.N.Y. 2024), aff’d sub nom. Saba Cap. Master Fund, LTD. v. Blackrock ESG Cap. Allocation Tr., No. 23-8104, 2024 WL 3174971 (2d Cir. June 26, 2024), rev’d and remanded sub nom. FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, 608 U.S. ___ (2026).

⁷FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, 608 U.S. ___, slip op. at 4–5 (2026).

⁸Id. at 7–8.

⁹Id. at 8–10.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.