On June 30, 2025, the Supreme Court granted certiorari in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd.,1 agreeing to resolve a circuit split over whether private parties have an implied right of action to enforce the Investment Company Act of 1940 (ICA), which governs mutual funds, closed-end funds, and other registered investment companies. For decades it has been well-understood that courts cannot create new private rights of action to enforce the ICA. In 2019, however, the Second Circuit departed from that consensus when it ruled that Section 47(b) of the ICA provides a private right of action to assert claims for alleged substantive violations of other sections of the ICA.2 That ruling conflicted with decisions by the Third and Ninth circuits that rejected a private right of action under Section 47(b).3 And although Section 47(b) is, by its terms, limited to “contracts” that involve ICA violations, the plaintiffs’ bar has made creative use of Section 47(b) in a variety of contexts (including challenges to corporate board resolutions and bylaws) that, although they involve contractual relationships, are not the most typical examples of contract disputes. To that point, FS Credit Opportunities itself involves a dispute in which an activist investor successfully brought an action under Section 47(b) to rescind board resolutions relating to a state anti-takeover statute.
Background
The Securities and Exchange Commission has authority to enforce the ICA, but private parties generally have no right to do so unless Congress has created such a right.4 For example, in enacting Section 36(b) of the ICA, Congress expressly authorized a “security holder” to bring “[a]n action” against a fund’s investment adviser for “breach of fiduciary duty” regarding advisory fees.5 No other section of the ICA expressly authorizes private actions, and until the Second Circuit’s 2019 decision, courts had rejected attempts by private parties to bring actions to enforce the ICA other than under Section 36(b).
The Supreme Court will now weigh in on the viability of a private right of action under Section 47(b), which provides, in relevant part:
(1) A contract that is made, or whose performance involves, a violation of [the ICA] … is unenforceable by either party … (2) To the extent that a contract described in paragraph (1) has been performed, a court may not deny rescission at the instance of any party unless such court finds that under the circumstances the denial of rescission would produce a more equitable result than its grant and would not be inconsistent with the purposes of [the ICA].6
Until the Second Circuit’s 2019 Oxford University Bank decision, courts interpreted this language not to create a new right of action but rather to provide a potential remedy (rescission) if a party already had a right of action.7 The Second Circuit nonetheless concluded that Section 47(b) “creates an implied private right of action for a party to a contract that violates the ICA to seek rescission of that violative contract.”8 For procedural reasons, no party had standing to seek certiorari with respect to that aspect of the Second Circuit’s 2019 decision, and no other circuit subsequently joined the Second Circuit’s side of the split.
Although Section 47(b), by its terms, applies only to the rescission of contracts, plaintiffs have attempted to bring actions under Section 47(b) in various contexts outside of contract disputes, such as purchases of securities and challenges to corporate anti-takeover provisions.
FS Credit Opportunities provides a particularly striking example of how far Section 47(b) has been stretched. The case involves a challenge to anti-takeover measures adopted by several closed-end funds registered under the ICA and organized under Maryland law. Each fund’s board of directors had adopted a resolution opting into the Maryland Control Share Acquisition Act, which limits the voting rights of shares obtained by a controlling shareholder over a certain threshold.9 An activist investor sought to have those board resolutions rescinded so that the activist could take a controlling interest in the funds. The activist contended that the board resolutions violated Section 18(i) of the ICA, which generally requires that each share of a fund registered under the ICA “have equal voting rights.”10 Since Section 18(i) does not itself provide for a private right of action, the activist filed its action in the U.S. District Court for the Southern District of New York and asserted a cause of action under Section 47(b). Although Section 47(b) permits rescission only of contracts, the activist’s theory was that the board resolutions affected the contractual relationship between each fund and its shareholders.11
In FS Credit Opportunities, the district court followed the Second Circuit’s Oxford University Bank decision to rule that Section 47(b) provided the activist with a private right of action for rescission and ruled, furthermore, that the board resolutions at issue violated Section 18(i) of the ICA.12 The Second Circuit affirmed the decision in an unpublished summary order.13 The funds petitioned the Supreme Court for certiorari on the sole issue of whether Section 47(b) provides a private right of action, pointing out that the Second Circuit precedent conflicts with decisions from the Third and Ninth Circuits.14 In response to the Supreme Court’s request for the Solicitor General ’s views as to whether certiorari should be granted, the United States filed a brief recommending that the Supreme Court grant certiorari to resolve the circuit split. The United States also argued in that brief that the Second Circuit’s Oxford University Bank decision was wrongly decided.15 The Supreme Court granted certiorari on June 30, 2025.
Implications of the Certiorari Grant
By granting certiorari, the Supreme Court has signaled its willingness to resolve the circuit split about whether Section 47(b) provides a private right of action to enforce the ICA. The Supreme Court’s certiorari grant implicitly acknowledges the importance of the issue, especially in light of the fact that many funds are subject to suit in the Second Circuit given New York’s and the New York Stock Exchange’s roles in our financial system. It also reflects the Supreme Court’s broader interest in addressing arguments about private rights of action; just last month, for example, the Supreme Court declined to recognize individually enforceable rights under the Medicaid Act in Medina v. Planned Parenthood South Atlantic. A decision in FS Credit Opportunities is expected by June 2026.
The outcome will likely have a significant impact on the current wave of lawsuits brought by activist investors challenging anti-takeover provisions adopted by closed-end funds. The activist involved in the case before the Supreme Court has been particularly prolific in using Section 47(b) as part of its strategy to challenge anti-takeover provisions adopted by closed-end funds to protect shareholders from potential harms caused by activists’ short-term arbitrage activities. That activist has brought such challenges in a variety of forums, including those at the state level. For example, the same activist asserted similar claims in Massachusetts state court, contending that the anti-takeover provisions violated Section 18(i) of the ICA and also breached fiduciary and contractual duties.16
If the Supreme Court reverses the Second Circuit and concludes that Section 47(b) does not provide an implied private right of action, it will deprive closed-end fund activists of a tool to evade the prohibition against bringing private actions to enforce the ICA. On the other hand, if the Supreme Court affirms the Second Circuit and concludes that Section 47(b) does provide a private right of action, it may embolden members of the plaintiffs’ bar outside of the shareholder activist context to look to Section 47(b) as a vehicle to attempt to assert claims for alleged violations of other sections of the ICA.
[1] Supreme Court No. 24-345.
[2] Oxford University Bank v. Lansuppe Feeder, LLC, 933 F.3d 99 (2d Cir. 2019).
[3] Santomenno v. John Hancock Life Insurance Co., 677 F.3d 178 (3d Cir. 2012); UFCW Local 1500 Pension Fund v. Mayer, 895 F.3d 695 (9th Cir. 2018).
[4] See generally Alexander v. Sandoval, 532 U.S. 275 (2001); Cort v. Ash, 422 U.S. 66 (1975).
[5] 15 U.S.C. § 80a-35(b).
[6] 15 U.S.C. § 80a-46(b).
[7] See, e.g., Santomenno, 677 F.3d at 187 (citing Stegall v. Ladner, 394 F.Supp.2d 358, 378 (D.Mass.2005); Mutchka v. Harris, 373 F.Supp.2d 1021, 1027 (C.D.Cal.2005).
[8] See Oxford University Bank, 933 F.3d at 109.
[9] Maryland Code, Corporations and Associations § 3-702. The Maryland statute applies to funds registered under the ICA if “its board of directors adopts a resolution to be subject to” the statute. Id. § 3-702(c)(4).
[10] 15 U.S.C. § 80a-18(i).
[11] The activist has relied on similar theories in other actions. For example, many closed-end funds organized under Massachusetts law have adopted bylaws implementing similar anti-takeover provisions to protect the funds and their shareholders. That same activist has successfully brought Section 47(b) claims in the Second Circuit to challenge some of those by‑laws and seek their rescission, premised on the contractual relationship between a fund and its shareholders. See, e.g., Saba Capital CEF Opportunities Ltd. v. Nuveen Floating Rate Income Fund III, 88 F.4th 103 (2d Cir. 2023).
[12] Saba Capital Master Fund, Ltd. v. BlackRock Municipal Income Fund, Inc., 2024 WL 43344 (S.D.N.Y. Jan. 4, 2024).
[13] Saba Capital Master Fund, LTD. v. BlackRock ESG Capital Allocation Trust, 2024 WL 3174971 (2d Cir. June 26, 2024).
[14] Goodwin represented the defendants in Santomenno, the Third Circuit decision holding that Section 47(b) does not create a private right of action.
[15] Brief for the United States as Amicus Curiae, FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., Supreme Court No. 24-345.
[16] The activist was successful in having one anti-takeover provision rescinded under its Section 47(b) claim, but following partial summary judgment and trial on the remaining issues, the court upheld the validity of a second anti-takeover provision and rejected a claim against the funds’ trustees for breach of fiduciary duty. Eaton Vance Senior Income Trust v. Saba Capital Master Fund, Ltd., 2024 WL 4579652 (Super. Ct. Mass. Oct. 21, 2024). Goodwin represented the independent trustees of the funds.
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