Supreme Court Bars Private Suits for Rescission Under the ICA

In a 6-3 decision, the Supreme Court held that Section 47(b) of the Investment Company Act does not give private parties an implied right to sue for rescission of contracts that allegedly violate the Act. 

In FS Credit Opportunities Corp. v. Saba Capital Master Fund, the Supreme Court reversed a Second Circuit decision and remanded the case. The dispute concerned an activist investor who bought large stakes in closed-end funds and challenged resolutions the funds adopted under the Maryland Control Share Acquisition Act, which limited the voting rights of shareholders holding a disproportionate number of shares. The activist argued the resolutions violated the Act's requirement that every share carry equal voting rights, and invoked Section 47(b), which bars a court from denying rescission of a violating contract "at the instance of any party." A district court found the provision created an implied private right of action and granted the activist summary judgment, and the Second Circuit affirmed.

The Supreme Court concluded that Section 47(b) directed courts, rather than conferred rights on a class of persons, and that its wording presupposed parties were already before the court. The Court said Congress generally created private rights of action expressly, and that the Act's comprehensive agency-enforcement scheme, administered by the SEC, indicated private parties could not enforce it.