Saba Capital CEF Opportunities 1, Ltd. v. Nuveen Floating Rate Income Fund

Saba Capital CEF Opportunities 1, Ltd. v. Nuveen Floating Rate Income Fund

Opinion

OPINION AND ORDER

J. PAUL OETKEN, District Judge:

Plaintiffs Saba Capital Management and Saba Capital CEF Opportunities 1, Limited (collectively, "Saba") bring this action against Defendants, a collection of closed-end Massachusetts business trusts and their trustees (collectively, the "Trusts"), alleging that Defendants' adoption of a "control share" provision violated Section 18(i) of the Investment Company Act of 1940 ("ICA"). The Trusts move to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Saba opposes the motion and separately moves for summary judgment. For the reasons that follow, the Trusts' motion is denied and Saba's motion is granted.

I. Background¹

Saba Capital Management is a limited partnership organized under the laws of Delaware with its principal place of business in New York. (Dkt. No. 1 ¶ 5; Dkt. No. 46 ¶ 1.) Saba Capital Management [*2]  is the investment manager of Saba Capital CEF Opportunities 1, Limited ("Saba CEF 1"), and other investment funds. (Dkt. No. 1 ¶ 5; Dkt. No. 46 ¶ 8.) The Trusts are closed-end Massachusetts business trusts. (Dkt. No. 1 ¶¶ 7-21; Dkt. No. 46 ¶ 3.) Saba CEF 1 and the other investment funds managed by Saba Capital Management are collectively the beneficial owners of at least 9.9% of the total shares of each of the Trusts. (Dkt. No. 1 ¶ 5; Dkt. No. 46 ¶¶ 8-12.)

On October 5, 2020, each of the Trusts adopted amended bylaws (the "Bylaws"). (Dkt. No. 1 ¶ 26; Dkt. No. 46 ¶ 7.) Among the provisions added to the Bylaws was Article IX, titled "Control Share Acquisition" (the "control share amendment"). (Dkt. No. 1 ¶ 26; Dkt. No. 46 ¶ 7.) The control share amendment defines a "control share acquisition" as a shareholder's acquisition of shares after the date of the Bylaws' enactment which, taken together with shares already owned by that shareholder before the Bylaws' enactment, would lead to that shareholder's owning 10% or more of the total shares of a trust. (See Dkt. No. 40-9 at 32.) Under the control share amendment, this "control shareholder" cannot vote her stock acquired after the Bylaws' [*3]  enactment unless authorized by an "affirmative vote of the holders of a majority of all of the Shares entitled to vote . . . excluding [any shares owned by a control shareholder]." (Dkt. No. 40-9 at 36.) The Bylaws do not subject the voting rights of stock owned by non-control shareholders to this restriction.

In response to the control share amendment, Saba filed this action on January 14, 2021, seeking recission of the control share amendment as violative of the ICA and a declaratory judgment that the control share amendment is illegal.² (See Dkt. No. 1.) See also Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d 99, 109 (2d Cir. 2019) (holding that the ICA "creates an implied private right of action for a party to a contract that violates the ICA to seek rescission of that violative contract"). The Trusts moved to dismiss the action on March 30, 2021. (See Dkt. No. 38.) Saba then moved for summary judgment on April 30, 2021. (See Dkt. No. 43.)

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