When there is a right, there is a remedy. But does that mean that every right provides a private remedy? When is it appropriate, if ever, for a federal court to essentially read in a private right of action to a statute that does not explicitly create one but contains some language compatible with one?

The Supreme Court recently revisited this longstanding issue of implied rights of action in federal statutes early last month when it heard oral arguments in FS Credit Opportunities Corp. v. Saba Capital Master Fund, No. 24-345. The question presented is whether Section 47(b) of the Investment Company Act (ICA) of 1940 provides investors with a private right to sue to invalidate fund rules.

Two key principles arise in this context: separation of powers and textualism. The Court has been hesitant to “read into” statutes a private right of action. The concern is that allowing federal courts this ability grants them power properly belonging to Congress. Looking at textualism, Justice Scalia was an opponent of finding private rights of action. His opinion for the Court in Alexander v. Sandoval (2001) is a leading example.

The Court in Sandoval held that without clear statutory intent, “a cause of action does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute.” Justice Scalia expressed the rule concisely this way: “We therefore begin (and find that we can end) our search for Congress’s intent with the text and structure of Title VI [of the Civil Rights Act of 1964].”

FS Credit Corp. counsel Shay Dvoretzky presented a seemingly straightforward argument: Section 47(b) of the ICA fails Sandoval’s clear statement rule.

As Justice Kavanaugh noted, this case is “extremely close.” While Kavanaugh agreed that the clear statement rule was not met, he remarked that “it would be very odd to think Congress has recognized for both statutes . . . a private cause of action and then to think Congress got rid of that by explicitly referring to the rescission right that . . . the Court had just recognized in Transamerica.” The 1979 decision in Transamerica Mtg. Advisors, Inc. v. Lewis (also referred to as TAMA) recognized implied rights of action in Section 215 of the Investment Advisors Act (IAA). That law and the ICA share similar language and structure, which is perhaps why Justice Kavanaugh was struggling with Mr. Dvoretzky’s distinction between the two.

Justices Jackson and Sotomayor pushed back on Mr. Dvoretzky on legislative history. They noted congressional records in the form of House and Senate reports, whose existence inferred that Congress did intend for a private right of action in 47(b). Mr. Dvoretzky responded that those records were general and in fact were “talking about six different statutes that were all amended at the same time” and therefore “not specific to 47(b).”

Max Schulman, appearing as amicus for the United States, held firm on the point that the Court should apply the clear statement rule. Mr. Schulman maintained that applying this rule was not a policy matter, but a required application of precedent pursuant to the Court’s holding in Sandoval. Further, Mr. Schulman emphasized that the Securities and Exchange Commission (SEC) is the “primary regulator” in the realm of the ICA. This was highly relevant, in Mr. Schulman’s view, because private parties attempting to adjust contracts through the courts—that the SEC is aware of—is a result that Congress did not intend its construction of 47(b). Again, this highlighted the separation of powers concern.

Saba’s counsel, Paul Clement, argued in his opening statement that this was “an express cause of action case.” Mr. Clement noted that this case was about subject-matter jurisdiction, and the question to be answered was whether 47(b) is enforceable only in state court or whether it can be brought directly into federal court.

Mr. Clement was firm on the idea and purpose of the ICA, which he characterized as to “protect shareholders against fund managers, who have all kinds of bad incentives, like in this case.” Therefore, the purpose of the ICA, in Mr. Clement’s estimation, paralleled the idea of an implied private right of action.

Mr. Clement was almost immediately put on the defensive for his citing of House and Senate reports, with Chief Justice Roberts questioning him whether these reports were “passed.” Clement conceded, of course, that Congress did not enact them. Later, however, Clement referenced Justice Scalia—a known opponent of considering legislative history—and his willingness to consider statutory history in the form of a “kind of evolution of a statute.”

On the whole, the entire bench seemed to be relatively receptive to Mr. Clement’s position, partially due to the use of the word “rescission” plainly stated in the text of 47(b). This goes back to Mr. Clement’s opening statement, which argued that the Court need not imply an action here, as the statute plainly discussed recission. Justice Kavanaugh summarized this idea in an exchange with Mr. Clement when he said “[r]escission is in the text.”

Further, Mr. Clement was effective in addressing what appeared to be unfavorable precedent. He argued that the statute’s discussion of “the courts” was not a strike against Saba’s position in anyway. In fact, Mr. Clement argued that it was in fact “pretty normal” because the courts are the ones applying said cause of action.

On rebuttal, Mr. Dvoretzky returned to the clear statement rule application and said this would have been the “most roundabout way that one could write a cause of action.” Further, he reiterated that Congress intended for the SEC to be the primary regulator of the ICA, not the courts.

Overall, the Court seemed rather receptive, across general ideological lines, to recognizing a cause of action. Because this is a close case, the justices may have to consider surrounding statutes and congressional history to provide context.

Ultimately, this case is about the struggle between strict textualism and separation of powers balanced against private rights of action to enforce the purpose of legislation. This decision will impact the SEC in its regulatory capacity as well as investors in determining whether they are able to have their day in court.