The Supreme Court on Thursday ruled that federal law does not allow private parties to sue to unwind contracts under the Investment Company Act, with Justice Amy Coney Barrett sharply criticizing the court’s liberal wing for relying on what she described as a flawed interpretation of the statute.
The 6-3 decision limits investors’ and activists’ ability to bring certain types of lawsuits under federal securities law, reinforcing the role of Congress—not the courts—in deciding how laws are enforced. The ruling affects investment funds, shareholders and activist investors who had sought to challenge fund governance rules through private litigation and could curb similar cases going forward.
At the center of the case, FS Credit Opportunities Corp. v. Saba Capital Master Fund, was whether Section 47(b) of the Investment Company Act allows private plaintiffs to seek “rescission” of contracts alleged to violate the law—a question that had divided lower courts before the justices stepped in.
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In its opinion, the court held that the statute does not create an implied private right of action, reversing lower court rulings that had sided with activist investor Saba Capital. The majority emphasized that Congress typically spells out when private parties can sue under federal law and had not done so here.
The dispute arose after Saba Capital, an activist hedge fund, challenged measures adopted by closed-end funds that limited the voting power of large shareholders. Saba argued those provisions violated the Investment Company Act’s requirement of equal voting rights and sought to have them rescinded in court.
Lower courts agreed with Saba, concluding that Section 47(b) implicitly allowed such lawsuits. But the Supreme Court rejected that reading, clarifying that enforcement authority rests primarily with the Securities and Exchange Commission, and that only specific private rights are explicitly authorized elsewhere in the statute.
The ruling is likely to have consequences for shareholder activism and corporate governance battles involving investment funds, particularly those structured as closed-end funds. By foreclosing this pathway for private lawsuits, the decision could shift future disputes back toward regulators rather than federal courts, narrowing one avenue investors have used to challenge fund practices.
Saba Capital Responds to Supreme Court Ruling
Boaz Weinstein, Saba Capital’s founder and chief investment officer, said in a statement shared with Newsweek that the ruling does not validate the conduct of closed-end fund managers, emphasizing that the court “did not rule” they followed the law but instead found only that shareholders cannot sue under “one particular provision” of the Investment Company Act. He said the decision means future challenges will simply come “in other forms,” adding that Saba plans to pursue “every avenue available” to defend shareholder rights, including other federal provisions and state law claims.
Weinstein also said the decision shifts responsibility to regulators, arguing that it “puts the burden squarely on the SEC.” He pointed to prior court rulings and the agency’s own 2010 Boulder Letter, saying both had found similar fund practices unlawful. Calling the voting protections in question longstanding, he said they are “not optional” and warned that evidence of shareholder harm is “overwhelming,” adding that the SEC has “no excuse not to act.”
What Did Amy Coney Barrett Write for the Majority?
Barrett, writing for the majority, took direct aim at the dissenting justices’ reasoning, arguing it was built on an unsound premise about how the statute operates and how private enforcement should function. While the dissent warned that the decision could weaken investor protections, the majority countered that expanding private lawsuits without clear congressional authorization would overstep the judiciary’s role.
She wrote, in part:
“Notably, the dissent does not use the Committee Reports to clarify the meaning of Section 47(b). For instance, the dissent does not consult the Committee Reports to see how their authors used the words on which this case turns: ‘rescission at the instance of any party.’ Nor does it try to identify the circumstances that prompted Congress to retool Section 47(b). Instead, the dissent uses the Reports on a mission impossible: divining how Congress would have wanted courts to resolve the question presented in this case. Its theory depends on the fictional premise that hundreds of legislators (not to mention the President) shared a unified private view of how the statute should apply in a contested circumstance.”
What Did Elena Kagan and Ketanji Brown Jackson Write for the Dissents?
Justice Elena Kagan, writing for the principal dissent, argued that the majority adopted an overly narrow reading of the Investment Company Act that ignores both statutory text and historical practice. She said Section 47(b)’s direction that courts “may not deny rescission … at the instance of any party” is best understood as allowing investors harmed by illegal contracts to seek relief in court. In her view, the provision functions as a meaningful enforcement mechanism, not merely a procedural instruction to judges, and reflects Congress’s intent to allow at least some degree of private enforcement alongside the SEC.
Kagan also pointed to precedent and statutory context, arguing that similar language in related securities laws has been interpreted to allow private suits. She suggested the majority broke from that tradition, effectively reading Section 47(b) in isolation and disregarding how courts have previously treated comparable provisions. In doing so, she warned, the ruling undermines longstanding assumptions about investor remedies and weakens a key tool used to challenge unlawful conduct in the fund industry.
In a separate dissent, Justice Ketanji Brown Jackson—joined in part by Justices Sonia Sotomayor and Kagan—focused more heavily on the real-world consequences of the decision. She argued that stripping away this avenue for private litigation risks leaving violations of the law unchecked, particularly given the SEC’s limited resources. Jackson framed the ruling as shifting too much responsibility onto regulators while removing an important safeguard for shareholders, warning it could make it harder for investors to hold fund managers accountable.
Jackson wrote, in part, “The majority’s favorite parts of the Reports thus only serve to confirm that Congress was, in fact, thinking about rescission when it amended Section 47(b). And what did Congress know about rescission as relevant to Section 47(b) in 1980? That this Court had found in its language an implied private right of action to seek rescission.”
