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FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd.
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
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.
View all episodes
By So OrderedOpinion: 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
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.