In an unexpected turn of events, the U.S. Supreme Court appears open to allowing private parties to sue investment companies under the Investment Company Act of 1940, as demonstrated in yesterday’s arguments for FS Credit Opportunities Corp. v Saba Capital Master Fund. For decades, the Court has displayed skepticism towards implied rights of action, yet the current bench seems inclined to believe the statute supports such claims, at least to invalidate contracts inconsistent with the statute.
The session proved challenging for Shay Dvoretzky, representing the investment company, with Justice Sonia Sotomayor underscoring the importance of statutory history. She cited reports advocating for private rights of action to support the Security and Exchange Commission’s (SEC) enforcement efforts, owing to its limited resources. Justice Elena Kagan echoed this sentiment, referencing the 1979 decision in Transamerica Mortgage Advisors v. Lewis that acknowledged a similar cause of action in analogous legislation.
Chief Justice John Roberts and Justice Brett Kavanaugh also appeared to entertain the investors’ claim. Roberts seemed to consider it a case about whether reinterpretation of a previously interpreted statute was necessary, while Kavanaugh highlighted SEC statements indicating the statute called for the investors’ sought relief.
However, not all justices were in agreement. Justice Neil Gorsuch voiced concern over judicial overreach, asserting that recognizing non-explicit causes of action undermines the legislative process where elected representatives should draft governance laws.
The argument suggests a potential for the Court to lean in favor of investor relief, but it remains uncertain whether a majority will rule accordingly, as some justices reserved definitive opinions. This development is unlikely to resolve quickly, with decisions expected possibly months away. For a detailed review of the oral argument proceedings, visit here.
The full analysis of the session can be found on SCOTUSblog.