Supreme Court Shuts the Door on Section 47(b) as a Private Cause of Action: What It Means for Closed-End Fund Activism

On June 11, the Supreme Court handed closed-end fund sponsors a significant procedural win, holding that Section 47(b) of the ICA does not impliedly empower private parties to bring rescission suits. The decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. reverses the Second Circuit’s precedent—relied on by Saba and other activists—that Section 47(b) created an implied private right of action to challenge fund governance measures. The ruling resolves a circuit split that had left fund boards and activists operating under inconsistent legal frameworks depending on venue.

The Court did not reach the underlying merits: whether the funds’ Maryland control-share opt-in resolutions actually violate Section 18(i). It decided only that Saba could not use Section 47(b) as its basis for a private right of action suit for rescission in federal court.

Background

The dispute centers on a familiar fact pattern: Saba Capital, one of the most active investors in the closed-end fund space, had accumulated large positions in several Maryland-incorporated funds and sought to challenge their governance structures. The funds had adopted resolutions opting into the Maryland Control Share Acquisition Act, which limits voting rights for shareholders that cross certain ownership thresholds unless the remaining shareholders vote to restore them—a mechanism designed to prevent rapid shifts in fund control.¹ Saba alleged that the resolutions violated Section 18(i) of the ICA—the provision requiring that every share of registered management company stock carry equal voting rights. For its cause of action, Saba invoked Section 47(b), which provides that where a contract made in violation of the ICA “has been performed, a court may not deny rescission at the instance of any party” unless denial would produce a more equitable result consistent with the ICA’s purposes.

The Majority Opinion

Justice Barrett’s majority opinion is methodical and narrow. Applying the Court’s modern implied-right-of-action framework, Justice Barrett asked whether Section 47(b) uses “rights-creating” language aimed at a protected class. It does not. The provision is addressed to courts—instructing them when they “may not deny rescission” rather than conferring a right on private plaintiffs to initiate suit.

The structural backdrop to the decision is the Court’s 1979 holding in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979) (TAMA). In TAMA, the Court held that Section 215 of the Investment Advisers Act (IAA), which provides that contracts violating the IAA “shall be void,” impliedly created a private right of action for rescission. The reasoning was textual: By declaring contracts void, Congress “necessarily contemplate[d] that the issue of voidness . . . may be litigated somewhere,” and a person with the power to void a contract “ordinarily may resort to a court to have the contract rescinded.” All nine Justices agreed on that point. As originally enacted in 1940, Section 47(b) of the ICA contained the identical “shall be void” language, meaning TAMA’s reasoning applied with equal force to the ICA.

The central dispute in Saba turned on what happened one year after TAMA, when Congress amended Section 47(b) and entirely reworked its language. It deleted “shall be void” and replaced it with two new provisions: (1) Contracts violating the ICA are “unenforceable by either party,” and (2) where such a contract “has been performed, a court may not deny rescission at the instance of any party” unless the equities favor otherwise. Congress left “shall be void” intact in the immediately preceding provision—Section 47(a)—and in the IAA itself.

The majority read the 1980 amendments as a substantive “renovation” that severed Section 47(b) from TAMA. Because Congress deleted the very “shall be void” language on which TAMA’s reasoning turned, while keeping it elsewhere, the majority concluded that the textual foundation for an implied private right no longer existed. The new language focuses on regulating courts’ remedial authority, not on conferring rights on private parties. The majority also noted a scope mismatch: TAMA blessed only a “limited private remedy . . . to void an investment advisers contract,” whereas Saba sought to wield Section 47(b) to rescind any contract inconsistent with the ICA. The Court called TAMA “thin support for such a sweeping right.”

The ICA’s broader structure reinforced the conclusion. The ICA designates the SEC as its primary enforcer and expressly authorizes private suits in two other provisions: Section 36(b) (fiduciary-duty claims by security holders) and a short-swing profit provision incorporated from the Exchange Act. Those express rights, the majority reasoned, show that “when Congress wished to provide a private . . . remedy,” it “knew how to do so and did so expressly,” and chose not to in Section 47(b).

The Dissents

Justice Jackson (joined by Justice Sotomayor; Justice Kagan joining Parts I and II) mounted a forceful dissent, arguing that Congress was not overruling TAMA but expanding it, specifically codifying and clarifying the private rescission right rather than eliminating it. The dissent’s key moves: First, Congress replaced “shall be void” with “rescission,” the very word TAMA had used to describe the implied remedy, which Jackson read as Congress choosing to “say the (previously) quiet part out loud.” Second, Congress added the phrase “at the instance of any party,” which the dissent argued is rights-creating language that goes beyond what existed in the original statute or in TAMA itself. Third, the House and Senate Committee Reports accompanying the amendments explicitly stated that Congress expected “courts to imply private rights of action under this legislation” to the same extent they had been implied under the original ICA and specifically cited TAMA as the baseline. Jackson’s bottom line: If Congress wanted to undo TAMA, it would have said so rather than inserting language that tracks TAMA’s remedy.

Justice Kagan dissented separately, agreeing with Jackson’s text, structure, and statutory history analysis (Parts I and II) but declining to join the broader legislative-history debate. Her takeaway is that the text is not ambiguous enough to require resort to Committee Reports, because it already supports a private right of action on its own terms.

What This Means in Practice

For fund sponsors and boards

The decision hands fund boards a potent motion-to-dismiss defense wherever an activist relies on Section 47(b) as the sole basis for a federal claim. Funds with pending or threatened litigation should evaluate immediately whether the claim rests on that provision. For funds with control-share resolutions, advance-notice bylaws, or similar defensive measures still in place, Saba materially reduces—but does not eliminate—the litigation risk associated with those structures.

But this is not an all-clear signal. The Court expressly reserved judgment on whether the resolutions comply with Section 18(i), and said nothing about state fiduciary duties, exchange listing standards, disclosure obligations, or other federal securities-law requirements. Boards adopting or maintaining defensive measures should continue building a robust record—documenting the rationale, the process, independent advice received, and consideration of shareholder interests—to withstand challenges on these alternative grounds.

For activist investors

Section 47(b) is no longer a stand-alone ticket to federal court. Activists will need to repackage ICA-based challenges under alternative theories—express statutory causes of action (e.g., Section 36(b) fiduciary duty claims), state corporate law, derivative suits, other federal securities laws, proxy-related theories, or direct petitions to the SEC. The majority’s acknowledgment that rescission remains available as a remedy where another claim supplies the cause of action will be the focal point for creative plaintiffs’ counsel going forward.

Unresolved Issues to Watch

Although the decision resolves the Section 47(b) private-right-of-action split, several important issues remain.

Section 47(b) as a remedy, not a claim. The Court did not disturb Section 47(b)’s remedial force. Plaintiffs who establish jurisdiction through another viable claim—state-law breach of contract, fiduciary-duty violations, or other ICA provisions—may still invoke Section 47(b) to argue that a court “may not deny rescission.” Litigating the boundaries of this pairing will be the immediate post-Saba battleground.

Section 18(i) merits. The equal-voting-rights question is now fully teed up but without a clear procedural home. The next contested case will turn on whether plaintiffs can identify a cause of action—express or implied—that reaches the Section 18(i) issue without relying on Section 47(b) as the vehicle.

SEC enforcement and engagement. The majority’s emphasis on the SEC as the ICA’s primary enforcer may invite increased activist engagement with the Commission through formal complaints, no-action requests, or advocacy for rulemaking—particularly around control-share provisions and closed-end fund governance.

Broader implied-right-of-action challenges. The Court’s emphasis on court-directed remedial language versus rights-creating language may supply defendants with arguments against implied private-right claims under other ICA provisions or securities statutes that similarly lack express rights-creating text.

Conclusion

Saba is a significant but bounded victory for closed-end fund governance. The decision removes the most convenient federal litigation tool activists deployed against control-share provisions and similar defensive measures, but it does not immunize those measures from challenge. The underlying Section 18(i) question persists, alternative federal- and state-law theories remain available, and the SEC’s role as primary enforcer may take on new practical importance.

Fund boards should use this moment to stress-test existing defensive measures against the full spectrum of surviving legal theories. Activists’ counsel should begin reframing challenges under vehicles that do not depend on Section 47(b) alone. Both sides should monitor the follow-on litigation testing Section 47(b)’s remedial role when paired with an independent cause of action.

*This client alert was co-authored by Stephen Shepardson, staff attorney.

¹ Md. Corp. & Assns. Code Ann. §3-702(a)(1) (2026).