{"id":185,"date":"2026-06-12T13:42:24","date_gmt":"2026-06-12T13:42:24","guid":{"rendered":"https:\/\/americanservicereview.com\/?p=185"},"modified":"2026-06-12T13:42:24","modified_gmt":"2026-06-12T13:42:24","slug":"justices-reject-private-suits-to-enforce-investor-protections-against-investment-companies","status":"publish","type":"post","link":"https:\/\/americanservicereview.com\/?p=185","title":{"rendered":"Justices reject private suits to enforce investor protections against investment companies"},"content":{"rendered":"
\n

In yesterday\u2019s decision in FS Credit Opportunities Corp. v Saba Capital Master Fund<\/em>, a sharply divided court rejected the efforts of investors to sue an investment company to rescind a contract that appears to violate the Investment Company Act of 1940, concluding that only the SEC may bring suit to enforce the statute. Although the argument suggested considerable sympathy for the investors\u2019 suit, in the end the justices, as they so often have in recent years, refused to \u201cimply\u201d a private right of action not explicitly written into federal law.<\/p>\n

Read more Court considers nitrogen gas execution<\/a><\/p>\n

Justice Amy Coney Barrett\u2019s opinion for a majority of six justices pitches the case as a straight-up dispute about interpretive methodology, beginning with the precept that \u201cCongress, not the Judiciary, decides who may enforce the law.\u201d Because the relevant statute \u2013 the Investment Company Act \u2013 \u201cdesignates the [SEC] as its primary enforcer and expressly permits shareholders and issuers \u2026 to enforce two of its provisions,\u201d one should not expect the majority to \u201cdecide [that] another provision of the Act impliedly empowers private parties to sue for any rescission of any contract that allegedly violates the Act.\u201d<\/p>\n

Barrett starts with examples of how Congress \u201cusually\u201d proceeds when it \u201ccreates a private of action,\u201d \u2013 \u201cexpressly.\u201d She points to statutes providing that \u201ca person whose religious freedom has been burdened \u2026 may assert that violation as a claim \u2026 in a judicial proceeding\u201d and that a \u201c\u2018person aggrieved\u2019 [by discrimination] may \u2018institut[e]\u2019 a \u2018civil action for \u2026 relief.\u2019\u201d She emphasizes that \u201c[a]t one point in time, the Court stood ready to let\u201d \u201c[p]rivate litigants \u2026 sue to enforce statutes that lack comparable language.\u201d \u201cBut,\u201d she notes, \u201cwe have since rejected the practice of fashioning rights of action as we see fit,\u201d in part because \u201c[h]ome-grown causes of action are difficult to reconcile with the Constitution\u2019s separation of legislative and judicial power.\u201d<\/p>\n

When an opinion starts out in that vein, it is pretty much a foregone conclusion that the court is not going to find a private action and FS Credit <\/em>has no surprises in store. Barrett next quotes the provision in question, which states that if a contract inconsistent with the statute \u201chas been performed, a court may not deny rescission at the instance of any party.\u201d The \u201cquestion\u201d for the justices, then, is \u201cwhether the phrase \u2018rescission at the instance of any party\u2019 implies that private parties may sue.\u201d Barrett tersely comments: \u201cIt does not.\u201d<\/p>\n

Barrett makes two main analytical points. First, she sees the statute as \u201c\u2018a mandate directed to courts,\u2019 rather than a provision that \u2018confers a right on a specified class of persons.\u2019\u201d Notably, \u201c[t]he key actor is \u2018a court,\u2019 not an individual. \u2026 And a court is told that it \u2018may not deny\u2019 the remedy of rescission to parties who request it.\u201d Thus, she reasons, the \u201cwording presupposes that parties are already before the court and directs the court\u2019s use of its remedial authority. It says not a word about individual rights.\u201d<\/p>\n

Second, she relies on a distinction between remedies and causes of action: \u201cIt bears emphasis that contract law treats rescission as a remedy, not a cause of action.\u201d Generalizing from several examples, she states that \u201cother sources of law typically supply the right of action in suits requesting rescission.\u201d Building on that point, Barrett underscore\u2019s the statute\u2019s \u201cfocus on a court\u2019s remedial power.\u201d She explains how \u201cdifficult\u201d it is under traditional rules \u201cto obtain rescission if a contract has been performed,\u201d noting that \u201cthe common law \u2026 leaves parties [to a performed contract] \u2018where their own acts have placed them.\u2019\u201d For her, the statute does nothing more than \u201cdeviate[] from that common-law rule by instructing that courts \u2018may not deny rescission\u2019 on the basis that a contract has been performed.\u201d Thus, though the statute \u201cunlocks remedies that would otherwise by unavailable[,] [i]t does not create a cause of action.\u201d<\/p>\n

Read more Court denies Alabama\u2019s request to allow execution using nitrogen gas<\/a><\/p>\n

Barrett next turns to the \u201ccounterarguments\u201d of the investor, which rely for the most part on the 1979 decision in Transamerica Mortgage Advisors v. Lewis<\/em> \u2013 which recognized a similar cause of action in a companion statute with phrasing that was identical to the phrasing of the investment company statute at the time. Barrett finds that decision irrelevant because of major amendments to the statute at issue in this case that Congress adopted just after the court\u2019s decision in TAMA<\/em>. For Barrett, \u201cchanged language typically indicates changed meaning[,]\u201d and the \u201csignificant\u201d changes that were made here \u2013 \u201ca renovation, not a new coat of paint\u201d \u2013 deprive TAMA <\/em>of any continuing force as to the meaning of the law as it stands.<\/p>\n

The opinion draws a lengthy dissent from Justice Ketanji Brown Jackson (joined by Justice Sonia Sotomayor and in part by Justice Elena Kagan), contending that the justices have misread the text and structure of the statute, and even more pointedly that the relevant legislative history makes it clear that Congress contemplated a private right of action. (Somewhat interestingly, Kagan does not join the legislative history part of Jackson\u2019s opinion, stating that such history is only necessary to invoke when \u201cstatutory text in context remains, after careful review, stubbornly ambiguous\u201d \u2013 though, in her view, that is not the case here.)<\/p>\n

Barrett responds, as you would expect, both by rejecting the importance of legislative history \u2013 \u201cwe are governed by laws, not by the intentions of legislators\u201d \u2013 and also with a lengthy passage contending that the dissent misreads the relevant history.<\/p>\n

It is a bit surprising at this late date to see such a sustained debate among the justices on the relevance of legislative history, as majority opinions for many years now have decried its impropriety so forcefully as to suppress any mention of legislative history in an opinion seeking to speak for the court. But in the big picture, this case reaches the result most would expect, rejecting the invitation to find a private right of action in the statute. The main practical significance is that it provides relief to investment companies who otherwise would be exposed to much more litigation than they would expect to come from the SEC.<\/p>\n

Read more Court unanimously sides with defendant in criminal venue dispute over where a crime occurs<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

In yesterday\u2019s decision in FS Credit Opportunities Corp. v Saba Capital Master Fund, a sharply divided court rejected the efforts of investors to sue an investment company to rescind a contract that appears to violate the Investment Company Act of 1940, concluding that only the SEC may bring suit to enforce the statute. Although the […]<\/p>\n","protected":false},"author":1,"featured_media":91,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":["post-185","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion-analysis"],"yoast_head":"\nJustices reject private suits to enforce investor protections against investment companies - American Service Review<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/americanservicereview.com\/?p=185\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Justices reject private suits to enforce investor protections against investment companies - American Service Review\" \/>\n<meta property=\"og:description\" content=\"In yesterday\u2019s decision in FS Credit Opportunities Corp. v Saba Capital Master Fund, a sharply divided court rejected the efforts of investors to sue an investment company to rescind a contract that appears to violate the Investment Company Act of 1940, concluding that only the SEC may bring suit to enforce the statute. 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