SCOTUS Declines to Recognize Implied Private Right of Action

In a 6-3 decision, the Supreme Court declined to recognize an implied private right of action in Section 47(b) of the Investment Company Act of 1940. The decision in the FS Credit Opportunities Corp. v. Saba Capital Master Fund Ltd. case preserves the important role of independent directors in overseeing funds on behalf of all shareholders.

Justice Barrett's opinion notes that Congress generally creates private rights of action expressly.  In cases where an implied private right of action may exist, the Court looks to “the statute’s text and structure to determine whether it implicitly provides one.” (Opinion at 4.)  In this case, the Court analyzed whether the provision in Section 47(b) that states “rescission at the instance of any party” creates an implied private right of action.  The Court finds it does not, noting that the language is directed at courts rather than individuals.   The decision also notes that there are two express private rights of action in the Investment Company Act, adding to the reluctance to find an implied right of action in this instance. 

The decision describes the important role the SEC plays in enforcing the provisions of the Investment Company Act.  According to the opinion, “Congress’s decision to create a comprehensive agency enforcement scheme supports the conclusion that private parties generally cannot enforce the ICA.” (Opinion at 7).

The decision resolved a split between the Second Circuit Court, and three other U.S. Circuit Courts (the Third, Fourth, and Ninth Circuit Courts) on the interpretation of Section 47(b). An implied private right of action would have potentially allowed shareholders to nullify contracts that govern all aspects of a fund’s operations. The decision prevents significant disruption to the fund industry.  As MFDF’s amicus brief described the potential consequences, “[c]haos will reign, and investors will be worse off.”

Click here for the Supreme Court opinion.

Click here for MFDF’s amicus brief in the case.