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

The Supreme Court’s decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. is being described as a victory for closed-end funds and a setback for activist investors.

The Court held that Section 47(b) of the Investment Company Act of 1940 (“ICA”) may address rescission, but it does not give private litigants a ticket into court. Congress must authorize the lawsuit, and here the Court held that Congress did not.

This precedent is expected to be relevant beyond the closed-end fund context implications here. For example, many federal regulatory statutes contain remedial language without expressly authorizing private enforcement. After FS Credit, plaintiffs will probably face a harder path when attempting to convert those remedial provisions into private causes of action. Essentially the decision should strengthen a broader defense argument across securities regulation and other regulated industries— that argument effectively being “Hey, remember Saba? A remedy is not the same thing as a right to sue.”

On June 11, 2026, the Court held, in a 6-3 opinion authored by Justice Barrett, that Section 47(b) of the ICA does not impliedly empower private parties to sue for rescission of contracts that allegedly violate the Act. The Court reversed the Second Circuit, which had recognized such a right, and remanded the case for further proceedings.

👉🏽See Supreme Court⁠

Although the dispute arose in the context of shareholder activism involving closed-end funds, the opinion is best understood as part of the Court’s continuing effort to confine private enforcement of federal statutes to the circumstances Congress actually authorized. The Court opened with the controlling premise: “Congress, not the Judiciary, decides who may enforce the law.”

Background

The case arose from challenges brought by Saba Capital Master Fund, Ltd. and Saba Capital Management, L.P. against several closed-end funds. Closed-end funds issue a fixed number of shares that trade in the market, rather than continuously issuing and redeeming shares like open-end funds. Saba’s strategy, as described by the Court, involved identifying closed-end funds and acquiring positions large enough to influence fund behavior.

The funds were incorporated in Maryland and had adopted resolutions opting into provisions of the Maryland Control Share Acquisition Act. Those provisions limit the voting rights of shareholders who acquire ownership above specified thresholds unless other shareholders approve the voting rights. Saba alleged that the resolutions violated Section 18(i) of the ICA, which requires every share of stock issued by a registered management company to be voting stock with equal voting rights.

Section 18(i), however, does not expressly create a private right of action. To overcome that obstacle, Saba relied on Section 47(b), which addresses contracts made or performed in violation of the ICA and provides that, under specified circumstances, a court may not deny rescission “at the instance of any party.” The district court held that Section 47(b) creates an implied private right of action, and the Second Circuit summarily affirmed.

The Supreme Court reversed.

Importantly, the Court did not decide whether the challenged control-share provisions violated Section 18(i). The only question was whether Section 47(b) authorizes private plaintiffs to bring suit in the first place.

The Court’s Analysis

The Court framed the issue as one of statutory authorization. Under modern implied-rights doctrine, the relevant question is not whether private enforcement might advance the statute’s purposes. The question is whether Congress created both a private right and a private remedy.

The majority concluded that Section 47(b) does neither.

The Court emphasized that Section 47(b) is titled “Validity of contracts” and is written as a directive to courts concerning the enforceability or rescission of certain contracts. It does not identify a protected class, confer rights-creating language on private parties, or state that any person may sue to enforce the provision. Instead, it presupposes that parties are already properly before a court and instructs the court how to exercise remedial authority once they are there. (Supreme Court⁠)

That distinction was central to the decision. Section 47(b) may describe a remedy, but it does not create the cause of action needed to obtain that remedy. A litigant must still identify an independent source of authority to sue. Saba could not do so.

The Court also relied on the broader structure of the ICA. The Act designates the SEC as its primary enforcer and expressly authorizes private enforcement in certain specific provisions.

The Court’s Treatment of Transamerica Mortgage Advisors

The Court also rejected Saba’s reliance on Transamerica Mortgage Advisors, Inc. v. Lewis, a decision that plaintiffs have often cited when seeking rescissionary relief under federal securities statutes.

Saba argued that Transamerica supported an implied right to seek rescission under Section 47(b). The Court disagreed. It explained that Transamerica relied on statutory language providing that certain contracts “shall be void.” Congress later amended Section 47(b) and removed that language, while retaining similar wording elsewhere. The Court treated that change as significant.

The Court also emphasized that Transamerica recognized only a limited remedy to void an investment adviser contract under the Investment Advisers Act. Saba, by contrast, sought to use Section 47(b) as a much broader enforcement mechanism to challenge any contract allegedly violating the ICA. The majority declined to extend Transamerica that far.

That discussion may prove important in future securities litigation. Plaintiffs frequently invoke Transamerica as support for implied rescission claims. FS Credit gives defendants a strong basis to argue that Transamerica should be read narrowly and should not be converted into a general rule that remedial language implies a private lawsuit.

Key Takeaways

First, the decision substantially limits private litigation under Section 47(b) of the ICA. Private plaintiffs may no longer rely on that provision as an independent cause of action to challenge alleged ICA violations.

Second, the decision does not eliminate all private rights under the ICA. The Court expressly recognized that Congress created private enforcement rights in other provisions of the Act. The holding is narrower: Section 47(b) does not itself create such a right.

Third, the Court did not decide whether the control-share provisions at issue comply with Section 18(i). The SEC may still take its own view of the issue, and other legal theories may remain available depending on the facts and governing law.

Fourth, the opinion reinforces a broader defense principle that will likely matter across regulated industries. Statutory language authorizing rescission, unenforceability, injunctive relief, or other remedies does not necessarily authorize private litigation. Courts will continue to ask the antecedent question: who did Congress authorize to sue?

Conclusion

FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. is an important decision for closed-end funds, activists, investment advisers, and fund boards. But its significance is broader than the investment management industry.

The Court’s central holding is simple and consequential. A statute can tell courts what relief may be available without giving private plaintiffs the right to invoke that relief. Section 47(b) may govern rescission once a party is properly before a court, but it does not itself open the courthouse door.

That distinction will matter in future securities cases and in litigation under other federal regulatory statutes. The decision confirms that implied rights of action remain on increasingly narrow footing and that, in the Court’s current jurisprudence, private enforcement begins with Congress.