Executive Summary
- What’s new: The Supreme Court issued its decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., holding that Section 47(b) of the Investment Company Act does not create a private right of action.
- Why it matters: The decision (i) prevents private plaintiffs from bringing suit under the Investment Company Act to rescind fund contracts on the basis that they violate any provision of the ICA and (ii) preserves the near-exclusive authority of the SEC to enforce the ICA.
- What’s next: Going forward, activist hedge funds and other third parties will be curtailed in their ability to bring suits to rescind fund contracts they contend violate other provisions of the ICA.
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On June 11, 2026, the Supreme Court issued its decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, holding that Section 47(b) of the Investment Company Act (ICA) does not create a private right of action. The Court’s opinion, which tracks Skadden’s briefing and partner Shay Dvoretzky’s oral argument before the Court, is a major win for the registered fund industry because the decision neutralizes a tool used by activist investors to rescind contracts entered into by funds.
Case Background
In June 2025, the Supreme Court granted a petition for certiorari that Skadden filed. Invoking a private right of action that the U.S. Court of Appeals for the Second Circuit had recognized under Section 47(b), Saba claimed that certain bylaws adopted by the funds violated the ICA, and sought to rescind the funds’ governing bylaws. The district court granted summary judgment to Saba, and the Second Circuit affirmed. The Supreme Court called for the views of the U.S. solicitor general about whether to grant certiorari, and the solicitor general and the Securities and Exchange Commission (SEC) urged the Court to grant review. The Court granted certiorari to resolve a split between the Second Circuit, which recognized a private right of action in Section 47(b), and the Third and Ninth Circuits, which did not.
Agreeing with Skadden, the solicitor general and SEC, the Supreme Court reversed the Second Circuit, holding that Section 47(b) does not create a private right of action. Justice Amy Coney Barrett wrote the majority opinion for the Court; Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson dissented.
SCOTUS Decision and Rationale
In the Court’s view, “nothing in the text or structure of the ICA indicates that Congress authorized private parties to enforce virtually every provision of the statute” (opinion at 8). Focusing first on the text, the Court held that Section 47(b) did not contain the type of “rights-creating language” required to create a private right of action under Supreme Court precedent. The Court observed that the phrase “rescission at the instance of any party,” used in Section 47(b) presupposes that the parties are already before a court and thus does not give them the right to sue in the first place. The Court also emphasized that rescission is a remedy — not a cause of action. The common law of contracts provides that recission is unavailable where the contract has been performed. In the Court’s view, Section 47(b) overrides that principle, or “unlocks remedies that would otherwise be unavailable” (opinion at 6).
Turning to the structure, the Court held that two important aspects of the ICA signaled that Congress did not intend to create a private right of action in Section 47(b). First, the Court noted that the ICA gives the SEC significant authority to ensure compliance with the ICA, including by investigating and bringing enforcement actions or civil actions in court. Second, the Court observed that the ICA contains two express private rights of action elsewhere, demonstrating that Congress “knew how” to create a private right of action — but did not.
Industry Implications
Going forward, the opinion will curtail the ability of activist hedge funds (or other third parties) to bring suits to rescind fund contracts that those parties contend violate some other provision of the ICA. Nearly all funds are externally managed, meaning the entirety of their operations are governed by contracts. The Court’s rejection of a private right of action under Section 47(b) means that private parties with their own agendas and no duties to other stockholders cannot seek rescission of those critical contracts, including advisory agreements, distribution agreements, issuance of shares, bylaws and more. That leaves enforcement of the Investment Company Act in the hands of the SEC with limited exceptions, as Congress intended.
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