Supreme Court Holds the Line Against Judicially Invented Lawsuits and Legislative History as Law

A case about who can sue to enforce federal law descended into a bitter battle between Justices Barrett and Jackson over legislative history.

A s I explained about the stakes in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd. in yesterday’s preview of the cases left on the Supreme Court’s docket:

Among the laws governing my old area of practice — the federal securities laws — the Investment Company Act of 1940 [ICA], commonly known as the “40 Act” and governing mutual funds and similar pooled investment entities, has drawn comparatively little interest from the Court in the past four decades. Still, the 40 Act was ground zero back in the 1970s for the Court’s hard turn away from recognizing implied rights of action — i.e., civil lawsuits under a federal statute that doesn’t explicitly say that anyone can use that statute to file a civil suit. The Court has held that “no new implied rights of action” line for a long time now, while de facto grandfathering in the rights of action previously recognized under what is recognized as an old regime.

There’s a double wrinkle in FS Credit. On the one hand, Section 47(b) [of the 40 Act] declares certain contracts with investment companies to be “unenforceable by either party” if those contracts violate the terms of the 40 Act, and even details the conditions under which “a court may not deny rescission at the instance of any party” — language that sounds as if Congress intended that courts could hear cases brought by the parties to contracts seeking rescission or a declaration of unenforceability. On the other hand, the fact that Section 47(b)’s list of prohibited contract provisions covers the whole rest of the statute could make it a vehicle for letting in suits over all manner of legal violations by the back door. The case will be a bellwether for the strength of the Court’s commitment to holding the line on no new implied rights of action.

Well, the Court held the line, and did so on the familiar 6–3 ideological line, in an opinion by Justice Amy Coney Barrett over separate dissents by Justices Elena Kagan and Ketanji Brown Jackson. As Barrett opened her opinion, “Congress, not the Judiciary, decides who may enforce the law.” The fact that this drew three dissenters is a reminder of the ideological valence of that rule. Indeed, while the Court’s majority has really only been conservative in terms of consistently applying the Constitution in social-issue cases since Barrett arrived in 2020, one of the very first signs of its turn away from the anything-goes judicial activism of the 1960s and 1970s was its series of decisions in the late 1970s putting a stop to the routine recognition of implied rights of action.

You and Whose Contract?

FS Credit arose from a dispute between mutual funds, with an activist investor (Saba) trying to take control of a group of closed-end funds (i.e., funds with a fixed number of shares). The closed-end funds are incorporated in Maryland and invoked protections provided by Maryland law against this sort of takeover. Saba argued that those state-law rules violated shareholder voting-rights provisions in Section 18(i) of the ICA, 15 U. S. C. § 80a–18(i), but there was one immediate problem: There’s no right to sue under Section 18(i). So, Saba invoked Section 47(b), 15 U. S. C. § 80a–46(b)(2), on the theory that the funds had adopted contract provisions that violated Section 18(i), entitling Saba to rescission of that contract.

As the Court concluded, Section 47(b) doesn’t use the “rights-creating language” required by the well-settled test for private lawsuits; its language invalidating contracts “is a mandate directed to courts, rather than a provision that confers a right on a specified class of persons. . . . The key actor is a court, not an individual.” [Quotations and citations omitted.] After all, “contract law treats rescission as a remedy, not a cause of action,” and under the statute’s design, “the Securities and Exchange Commission bears primary responsibility for ensuring compliance with the ICA,” while the 40 Act does contain two explicit private rights of action. Both of those, unlike Section 47(b), specify who can sue: Shareholders in a fund can sue its investment adviser for breach of fiduciary duty, and issuers of a fund’s shares can sue traders for certain types of prohibited trades (i.e., those likely to result from inside information).

This is not a small distinction in the context of Section 47(b). A number of the 40 Act’s provisions deal with matters that are the subject of contracts between a fund (which is simply an investment vehicle) and its advisers (who actually manage the fund), or between the fund and other actors such as the fund’s board. If rescission can be sought by “any party,” courts then need to ask who is and is not a party to particular contracts — the kind of inquiry into who is and is not a proper plaintiff that is unnecessary when Congress specifies who can sue.

You and Whose Congress?

That should be the end of this, but Jackson’s dissent and the final section of the majority opinion descended into a bitter struggle over the proper use of legislative history to read statutes, with Kagan struggling to hold a middle ground. Legislative history, too, was a regular feature of 1960s–70s jurisprudence until Justice Antonin Scalia mocked it out of the Court’s toolkit. Jackson, as Barrett put it, “hopes to revive that old-time devotion to legislative history.”

Jackson’s opinion, joined by Justice Sonia Sotomayor and in only some parts by Kagan, cranks up that wheezy old Wurlitzer one more time:

I think courts should consult all reliable indicia of Congress’s intent when interpreting its statutes. Had the Court done so here, it would have . . . wrestled with legislative Committee Reports [from the House and Senate in 1980 amendments] that unequivocally expressed Congress’s “wish” that the statute continue to be interpreted to allow private suits. . . .

Legislative history is a traditional tool courts consult when attempting to ascertain Congress’s intent regarding ambiguous statutory text. . . . This is a worthy and necessary effort because it prevents the preferences of judges from supplanting the will of the people. . . . The Judiciary’s collective “old-time devotion” to the legislative-history hymnal . . . held steady for more than a century — until the late 1980s, when the Court suddenly began to sing a different tune. . . . By my count, the Court relied on legislative history to help determine Congress’s intent in more than a dozen implied-private-right of-action cases after 1975.

It’s certainly true that legislative history was widely used until Scalia arrived in 1986. But that doesn’t answer his critique of its abuse, which hands power away from what the elected Congress actually enacts to what interested staffers can sneak into lengthy committee reports, or what can be selectively excerpted from speeches to empty chambers. In her confirmation hearings, Jackson was careful not to disagree with any of the arguments that Scalia won over the years on how to read written law. Now, without naming names, she’s painting him as the villain. She invokes committee reports as totemic:

The committee reports that accompany federal statutes are a first-rate indicator of Congress’s intent. Committee reports are not a randomly generated collection of Member reflections; these official documents provide crucial information about proposed legislation and thus play a significant role in the legislative process itself. Committee reports are generally circulated at least two calendar days before legislation is considered on the floor in order to explain a bill’s context, purposes, policy implications, and details to Members of Congress and their staffs. . . . The reports therefore serve as the final sales pitch for a bill. [Quotations and citations omitted.]

“And their staffs” is doing a lot of work here, which is a big part of the problem. Of course, it’s not a Jackson opinion without insinuating that the Court is up to something nefarious:

What interest does it really serve to blind ourselves to the congressional record when we interpret Congress’s handiwork? Who benefits from that? Why, of all the many tools judges use to help interpret unclear statutory language (context, tradition, custom, precedent, dictionary meanings, administrability, and so on), should they not use this one? . . . There is no flattering or straightforward answer to such questions. . . . The majority’s failure — or refusal — to accept this might stem from what commentators have called a prevailing academic contempt for Congress. . . . Academics may think what they wish of Congress; this Court’s jurisprudence ought not be grounded in such contempt. [Quotations and citations omitted.]

In fact, Scalia’s critique of committee reports was derived not from contempt for Congress but from his realistic understanding of how Congress actually works.

Barrett did not take all this sitting down. “The dissent faults us for disregarding the statutory and legislative history of Section 47(b),” she writes. “As for the latter: guilty as charged.” But as for Jackson’s ode to legislative history, her “efforts do not just fail — they backfire. . . . Instead of winning converts . . . the dissent illustrates why statutory interpretation must focus on the text — or, to borrow from Justice Robert Jackson, why interpretation must be driven by ‘analysis of the statute’ rather than ‘psychoanalysis of Congress.’” [Citation omitted.] Citing Scalia’s textbook, Barrett added, “The judicial task is to read words, not minds.”

ACB illustrates the point:

Notably, the dissent does not use the Committee Reports to clarify the meaning of Section 47(b). For instance, the dissent does not consult the Committee Reports to see how their authors used the words on which this case turns. . . . Nor does it try to identify the circumstances that prompted Congress to retool Section 47(b). Instead, the dissent uses the Reports on a mission impossible: divining how Congress would have wanted courts to resolve the question presented in this case. Its theory depends on the fictional premise that hundreds of legislators (not to mention the President) shared a unified private view of how the statute should apply in a contested circumstance. . . . Worse, it violates the fundamental precept that we are governed by laws, not by the intentions of legislators. [Quotations and citations omitted.]

“Far from demonstrating the value of legislative history,” Barrett explains, Jackson’s “dissent models its misuse”:

The classic criticism of using legislative history is that it is the equivalent of entering a crowded cocktail party and looking over the heads of the guests for one’s friends…True to form, the dissent navigates around unwelcome guests. The most relevant portions of the Reports are those addressing Section 47(b) — which is, after all, the provision we are interpreting. But the dissent ignores these sections altogether, presumably because they undercut its argument. In its discussion of Section 47(b), the House Report nowhere mentions a private right of action. . . . The Senate Report contains the same language. . . .

While ignoring these sections, the dissent takes creative license with others. It confidently assures the reader that there is “legislative history containing an explicit statement from Congress imploring ‘courts to imply private rights of action under’ the amended Section 47(b).” . . . There is no such statement. The paragraph that the dissent cites in the Senate Report . . . speaks of implying causes of action in the “federal securities laws” generally, not the ICA specifically. [Quotations and citations omitted.]

Ouch. In fact, as Barrett notes, there are equally good reasons to think that complaints in committee staff-written reports reflect sentiments that should carry less weight than the law Congress actually wrote:

At most, the dissent’s citations show that members of the House and Senate Committees wanted courts to imply causes of action in some unidentified provisions of the securities laws. But even if committee members would have put Section 47(b) on that list, what should we make of it? . . . One wonders: If the House Committee wanted to authorize private remedies and knew that the Court would be reluctant to imply them, why did it not make them express? . . . Did they worry that authorizing private remedies might undo compromises that enabled the bill to cross the finish line? . . . There is no way to know.

As Barrett concludes, “Congress expresses itself as a body through the text it enacts; the views of the 42-member House Committee on Interstate and Foreign Commerce and of the 15-member Senate Committee on Banking, Housing, and Urban Affairs are not the law.”

Kagan Goes Halfway

Kagan, who once famously declared that “we are all textualists now,” wanted no part of this fight. She joined the portions of Jackson’s opinion arguing that the statute’s history of amendments should be taken into account — which the Court did, although it drew different conclusions from them. But she absented herself from the rest of the argument:

My views about the proper use of legislative history in statutory interpretation fall someplace in between the majority’s and the principal dissent’s. The one-sentence version is: Reliance on legislative history may be appropriate when statutory text in context remains, after careful review, stubbornly ambiguous. I do not find Section 47(b) to exhibit such a lack of clarity. . . . I therefore gladly join [other] parts of JUSTICE JACKSON’s dissent, while abstaining from the opinions’ further debate about the meaning of the House and Senate Reports.

Serving not only in a minority, but in a minority with Jackson and Sotomayor, is clearly not very much fun for Kagan.