Saba Cap. CEF Opportunities 1, Ltd., Saba Cap. Mgmt., L.P. v. NuveenSaba Cap. CEF Opportunities 1, Ltd., Saba Cap. Mgmt., L.P. v. Nuveen
On appeal, Nuveen challenges Saba‘s Article III standing and the district court‘s judgment with respect to the legality of Nuveen‘s amendment. Nuveen argues that Saba lacks standing because Saba has not alleged, or supported with evidence, an actual or imminent injury that is concrete. On the merits, Nuveen argues that its amendment does not violate the Investment Company Act of 1940 because it is a restriction on shareholders, not shares. We disagree on both issues. Accordingly, we AFFIRM the judgment of the district court.
The Investment Company Act of 1940 (“ICA“) requires that every share of common stock issued by a registered investment company must be a voting stock and have equal voting rights with all other shares. The question in this case is whether Nuveen violated the ICA by adopting an amendment to its bylaws that
BACKGROUND
A mutual fund is “a pool of assets . . . belonging to the individual investors holding shares in the fund,” and is operated by an “investment company,” consisting of directors elected by the fund‘s shareholders. Chamber of Com. of the U.S. v. Sec. & Exch. Comm‘n, 412 F.3d 133, 136 (D.C. Cir. 2005) (citation omitted). Investment funds are either “open-ended” or “closed-ended.” Nuveen, the Appellants here, are a collection of closed-end investment funds.
The primary difference between closed-end funds and open-end funds is that, unlike open-end funds, closed-end funds are not required to buy back (i.e., “redeеm“) shares from their shareholders. This affords closed-end funds more leeway in deciding where to invest their funds’ assets. Because closed-end funds need not maintain deep cash reserves or sell their securities to honor shareholders’ redemptions, they can invest in less liquid securities, like municipal bonds or debt instruments. Nuveen contends that closed-end funds are especially attractive to individuals closer to retirement because they provide steady dividends.
There is another important difference between open-end and closed-end funds: they are valued differently. Shares of open-end funds can be sold back to the fund at any time at a price based on the fund‘s current net asset value or NAV (the total value of the fund‘s underlying assets minus its liabilities). A closed-end fund‘s share price, however, can fluctuate based on the amount an investor is willing to pay for that share on the open mаrket. Thus, closed-end funds can trade at prices significantly below or above their NAV per share.
That is where Appellees come in. Saba refers to itself as a group of “activist” investors who invest in funds that trade at discounts relative to their NAVs. Saba‘s business strategy involves buying voting shares in discounted funds, and then monetizing those discounts by, for example, electing new boards of directors, advocating for measures authorizing the buyback of shares at or near NAV, and/or converting funds to open-end structures. Nuveen describes Saba‘s investment practices with little affection, accusing Saba of past deeds of depleting other funds’ assets and altering investment strategies away from long-term investments, all to turn a “quick profit.” Appellants’ Br. at 3, 17.
Nuveen‘s closed-end funds trade below their NAVs. “Seeing an opportunity,” Saba began accumulating positions in the Nuveen funds1 in December 2018, increasing its shares in the funds over the next two years. Appellees’ Br. at 9. By the end of 2020, Saba was the beneficial owner of at least 9.9% of each of the Nuveen fund‘s outstanding shares, owning as much as 12% in one of the funds.
As Saba was increasing its shares in the Nuveen funds, Nuveen adopted Amended and Restated Bylaws in October 2020. The Amended Bylaws included a Control Share Amendment (the “Amendment“) that limited the ability of shareholders with holdings greater than 10% in any particular fund, like Saba, to vote any additional shares purchased.
The thrust of the Amendment is to limit the influence of larger investors like Saba. It works as follows: the Amendment is triggered when a shareholder acquires a number of shares that, when added to all of their other shares, would entitle the shareholder to an identified percentage of the fund‘s voting power.
Saba and Nuveen, with not surprisingly different perspectives, agree that the Amendment‘s function is to limit the influence of large investors. According to Nuveen, its Amendment was “primarily intended to . . . limit[] the risk that the [f]und will become subject to undue influence by opportunistic traders pursuing short-term agendas adverse to the best interests of the [f]und and its long term shareholders.” JA 723. Saba responds that Nuveen is engaging in “scare-mongering” and maintains that Nuveen passed the Amendment “to еntrench
Saba sued Nuveen. In its complaint, Saba alleged that the Amendment violates the ICA, which requires that every share of common stock issued by a regulated fund be “voting stock” and “have equal voting rights” with other shares. See
The district court agreed with Saba that the Amendment violates the ICA, entered a declaratory judgment for Saba, and ordered recission of the Amendment. Rejecting Nuveen‘s share-shareholder distinction, the court
DISCUSSION
This appeal presents a threshold question of Article III standing: whether Saba has established an imminent and concrete injury when it has been deterred from acquiring additional shares of Nuveen funds and doing so would trigger the Amendment disallowing Saba from voting the newly acquired shares. There is also a secondary question of statutory interpretation: does the Amendment violate the ICA‘s requirement that all Nuveen shares be “voting stock” with equal voting rights? We affirm the district court‘s judgment.4 Saba has standing under Article III, and Nuveen‘s Amendment violates the ICA‘s voting provisions.
“The Constitution limits federal courts to deciding ‘Cases’ and ‘Controversies.‘” Fed. Election Comm‘n v. Cruz, 596 U.S. 289, 296 (2022) (quoting
Nuveen contends that Saba‘s injury is neither imminent nor concrete. First, Nuveen says Saba‘s injury—that Saba will not be able to vote newly acquired control shares after purchasing them—is speculative because it turns on a chain of possibilities that might never occur. Despite Saba‘s millions of shares in Nuveen‘s funds, Saba has not yet made a Control Share Acquisition; Nuveen‘s shareholders therefore have not been asked to decide whether Saba may vote its future shares. Though Saba had already surpassed the 10% ownership threshold in some of Nuveen‘s funds before Nuveen passed its Amendment, the Amendment did not affect Saba‘s ability to vote those pre-Amendment shares. According to Nuveen,
Second, Nuveen argues that even if Saba‘s alleged injury is imminent, it “is not concrete” because “[t]here is no common-law or historical analogue for vindicating Saba‘s alleged injury.” Appellants’ Br. at 32.
We disagree: Saba‘s injury is sufficiently imminent and concrete to satisfy Article III‘s jurisdictional requirements.
A. Imminence
Saba‘s injury is imminent and not speculative. When an Article III injury hinges on a party‘s intent to take some future action, the Constitution requires more than mere “some day intentions.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 564 (1992) (internal quotations omitted). A plaintiff‘s “few words of general intent,” without substantial evidence of plans, “do not support a finding of [an] ‘actual or imminent’ injury.” Carney v. Adams, 141 S. Ct. 493, 501–02 (2020); Defs. of Wildlife, 504 U.S. at 564. This analysis is “highly fact-specific.” Carney, 141 S. Ct. at 501–02.
That said, the standing requirement “do[es] not uniformly require plaintiffs to demonstrate that it is literally certain that the harms they identify will come about.” Clapper, 568 U.S. at 414 n.5. Rather, an allegation of future injury is sufficient where the threatened injury is “‘certainly impending,’ or there is a ‘substantial risk’ that the harm will occur.” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158 (2014) (internal quotation marks omitted) (quoting Clapper, 568 U.S. at 414 n.5).
Saba contends that it faces the imminent injury of being unable to vote any additional shares it purchases in the Nuveen funds. We agree. Saba‘s injury is imminent because Saba has established (i) a pattern of increasing its ownership in the Nuveen funds for over a two-year period before the Amendment, at levels sufficient to trigger the Amendment; (ii) an intent to purchase additional shares in the Nuveen funds but for the Amendment, and (iii) that the Amendment would
At the outset, Saba‘s verified complaint affirms that Saba would have acquired additional shares in Nuveen‘s funds but for the Amendment, and that the Amendment prevented Saba from acquiring additional voting shares in Nuveen‘s funds.5
For over two years before the Amendment passed, Saba steadily increased its ownership in Nuveen‘s funds. Saba bought shares by the millions and regularly exceeded the 10% threshold in many of Nuveen‘s funds before the Amendment passed. By the end of 2020 when Nuveen passed the Amendment, Saba was the beneficial owner of at least 9.9% of each of the Nuveen fund‘s outstanding shares. In one Nuveen fund, Saba owned as much as 12% of the outstanding shares; the next share it purchased in that fund would trigger the Amendment.
Saba informed Nuveen that the Amendment frustrated Saba‘s future investment plans. Following passage of the Amendment, Saba sent a letter to Nuveen‘s Board of Trustees demanding its rescission, arguing that it inflicted irreparable harm on Sаba. Saba explicitly noted that any future acquired shares would be stripped of voting rights should the Amendment stand. Nuveen refused.
Nuveen‘s complaints about Saba‘s motives have within them an implicit concession regarding Saba‘s intentions. As Nuveen alleges, Saba‘s business plan is to “gain disproportionate control over funds by acquiring concentrated blocks of shares,” and that ”Saba did that here” by “drastically increasing its holdings in the Nuveen funds over a short period” before Nuveen shut the door. Appellants’ Br. at 53 (emphasis added).6 From Nuveen‘s perspective, it passed the Amendment to limit “the risk that the [f]und will become subject to undue
Saba‘s actions easily outdistance mere “some day intentions.” Defs. of Wildlife, 504 U.S. at 564. To satisfy Article III, Saba need not purchase additional shares in a fund whose investment strategy it seeks to challenge only to have the shares encumbered by a voting restriction that would thwart the very challenge Saba hopes to pursue. Saba‘s purpose and intent here are clear.
The injury-in-fact requirement exists to “help[] . . . ensure that the plaintiff has a ‘personal stake in the outcome of the controversy.‘” Driehaus, 573 U.S. at 158 (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). Saba, an incumbent investor in the Nuveen funds with a track record of purchasing shares over the 10% threshold, has presented evidence of an “inten[t] to engage in substantially similar activity in the future,” and clearly has a personal stake in this litigation. Driehaus, 573 U.S. at 161 (internal quotations and citations omitted) (alterations in original).
Fighting this conclusion, Nuveen cites Faculty, Alumni, & Students Opposed to Racial Preferences v. New York University (”FASORP“), where our Court held that an organization plaintiff lacked standing to challenge a law school publication‘s article-selection and editor-selection processes, as well as the law school‘s faculty-
Saba submits the type of detail we found lacking in FASORP. Saba purchased millions of shares in Nuveen‘s funds from 2018 to 2020 at levels high enough to trigger the Amendment (had it been in place). Saba was on the cusp of triggering the Amendment at the timе of its passage and had far exceeded the threshold in prior purchases. And in light of this context, Saba‘s declaration that “[f]unds managed by Saba, including Saba CEF 1, would have acquired additional shares in the Trusts but for the Vote-Stripping Amendment,” is sufficient to
In a related objection, Nuveen argues that even if Saba purchased enough shares to trigger the Amendment, its injury of being prevented from voting its future shares “depends on a speculative chain of possibilities, including the possible future decisions of independent decisionmakers,” i.e., the shareholders, who will have to vote on whether Saba can vote new control shares. Appellants’ Br. at 36–38. Under Nuveen‘s interpretation of the Bylaws, the Amendment does not interfere with an investor‘s voting rights until after the shareholders vote аgainst authorizing them. Nuveen cites Lacewell v. Off. of Comptroller of Currency, 999 F.3d 130, 144 (2d Cir. 2021), and Clapper, 568 U.S. at 414, to argue that Saba‘s injury is speculative because it “require[s] guesswork as to how independent decisionmakers“—the shareholders—“will exercise their judgment” when they vote on Saba‘s rights. Clapper, 568 U.S. at 413.
The Amendment‘s text dooms this argument. When an investor makes a Control Share Acquisition, the restrictions contained in the Amendment are self-actuating, restricting voting rights immediately and automatically. The Amendment
B. Concreteness
Nuveen construes the ICA‘s voting protections as insufficient to serve as the basis for a shareholder‘s concrete injury. As Nuveen argues, “[t]here is no common-law or historical analogue for vindicating Saba‘s allegеd injury—the deprivation of equal voting rights for every share—because restrictions on voting rights were historically the norm” throughout the late eighteenth century and much of the nineteenth century. Appellants’ Br. at 32. Nuveen‘s argument misunderstands the nature of a “concrete injury.”
A concrete injury is “real, and not abstract.” TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2204 (2021) (quoting Spokeo, Inc. v. Robins, 578 U.S. 330, 340 (2016)). Courts must assess “whether the alleged injury to the plaintiff has a ‘close
This is not to say that Congress in its legislative efforts has no say in the matter; Congress‘s views are “instructive.” Id. (citing Spokeo, 578 U.S. at 341). “Courts must afford due respect to Congress‘s decision to impose a statutory prohibition or obligation on a defendant, and to grant a plaintiff a cause of action to sue over the defendant‘s violation of that statutory prohibition or obligation.” Id. In imposing these statutory prohibitions, Congress “‘elevate[s]’ harms that ‘exist[ed]’ in the real world before Congress recognized them to actionable legal status,” though it “may not simply enact an injury into existence, using its lawmaking power to transform something that is not remotely harmful into something that is.” Id. at 2205 (internal quotation marks and citation omitted). That is to say, a plaintiff must still be actually injured; she must have sustained a concrete injury.
Though the federal statute created a cause of action for both groups of plaintiffs to recover statutory and punitive damages, there was “an important difference [] between (i) a plaintiff‘s statutory cause of action to sue a defendant over the defendant‘s violation of federal law, and (ii) a plaintiff‘s suffering concrete harm because of the defendant‘s violation of federal law.” Id. at 2205. In arguing that they suffered a concrete injury “bear[ing] a ‘close relationship‘” to a harm traditionally recognized at common law, the plaintiffs contended that their injury was analogous to the tort of defamation. Id at 2208. The Court agreed, but only with respect to the first group of plaintiffs. Plaintiffs whose credit reports were disseminated to third-party businesses demonstrated a concrete injury; the tort of
Like both groups of plaintiffs in TransUnion, Saba clearly has a statutory cause of action to sue—an injury in law. This Court has held that the ICA provides a private cause of action authorizing a party to a contract that violates the ICA to seek rescission. See Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d 99, 106 (2d Cir. 2019);
Though Saba has an injury in law, Nuveen cites TransUnion in insisting that the “ICA‘s codification . . . of the [] one share-one vote standard” cannot be the basis for an injury in fact. Appellants’ Br. at 43. TransUnion is far afield from this case. The plaintiffs in TransUnion whose reports were inaccurate but not disseminated incurred no injury because their asserted common-law analogue of defamation required publication; the reporting agency‘s violation of the statute in failing to follow reasonable procedures to ensure accuracy did not cause concrete harm without dissemination.
Here, Nuveen‘s statutory violation will cause Saba concrete harm. Saba‘s “ownership of stock” in the Nuveen funds is a “property interest.” United States v. Wallach, 935 F.2d 445, 462 (2d Cir. 1991), abrogated on other grounds by Ciminelli v. United States, 598 U.S. 306 (2023). Likewise, voting rights attached to those shares
This “рroperty-based” injury has “a close historical or common-law analogue.” TransUnion, 141 S. Ct. at 2204 (quoting Spokeo, 578 U.S. at 341). Saba‘s injury is analogous to a property-based injury like conversion or trespass to chattels. Conversion is the “intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel,” and “trespass to a chattel” is a related tort that “may be committed by intentionally . . . using or intermeddling with a chattel in the possession of another,” when “the chattel is impaired as to its condition, quality, or value.” Restatement (Second) of Torts §§ 217(b), 218(b), 222A(1) (Am. L. Inst. 1965). Both are injuries recognized at common law. See id. §§ 217 cmt. d, 218, 222A cmt. a.
In arguing otherwise, Nuveen plainly misunderstands the nature of Article III‘s historical inquiry, and overlooks the fact that Article III “does not require an exact duplicate in American history and tradition.” TransUnion, 141 S. Ct. at 2204. Nuveen contends that restrictions on shareholding voting rights were the norm under the common law, and that there was no common-law basis to sue for a lack of equal voting rights for every share. In Nuveen‘s view, the fact that Congress—
That view cabins TransUnion‘s historical inquiry too narrowly—and conflatеs injuries in law with injuries in fact. TransUnion did not freeze in time all substantive law. Congress frequently “elevate[s] to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.” TransUnion, 141 S. Ct. at 2205 (quoting Spokeo, 578 U.S. at 341). The question is not, as Nuveen frames it, whether there was always a common-law basis to sue for a lack of equal voting rights for every share—or in other words, an injury in law. The ICA created an injury in law. The correct question is whether there is a “close historical or common-law analogue” for Saba‘s ”asserted injury“—its “injury in fact.” TransUnion, 141 S. Ct. at 2204–05 (emphasis added). As noted above, we hold there is. Saba‘s imminent injury has a close relationship to a harm recognized at common law; it satisfies Article III‘s concreteness requirement.
II. The Legality of Nuveen‘s Amendment Under the ICA
Saba asserts that Nuveen‘s Amendment violates
“As in all statutory construction cases, we begin with the language of the statute.” Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002). There are two provisions at issue; they are not complex:
Except as provided in subsection (a)12 of this section, or as otherwise required by law, every share of stock hereafter issued by a registered management company . . . shall be a voting stock and have equal voting rights with every other outstanding voting stock.
The term “voting stock” is not defined by the ICA. That is where Section 80a-2(a)(42) comes in. That section defines the term “voting security” as “any security presently entitling the owner or holder thereof to vote for the election of
Read together, these two provisions of the ICA control. The first provision requires that all shares of stock must be “voting stock” and have “equal voting rights.”
The language is plain and unambiguous. In addition to requiring that all investment company stock be voting stock, the statute defines it with reference to its function—that it “presently entitles” the owner to vote it.
In granting summary judgment for Saba, the district court correctly construed these provisions together. Nuveen argues that the district court made two errors in reaching its conclusion. First, it faults the lower court for rejecting a “longstanding” distinction between share restrictions and shareholder restrictions. In Nuveen‘s telling, the Amendment is a restriction оn shareholders, not shares—and is therefore permissible under the ICA. Second, Nuveen says that the district court ignored its statutory obligation to interpret the ICA in accordance with the ICA‘s policy and purposes. We reject both arguments.
A. Share-Shareholder Distinction
Nuveen‘s appeal centers around what it calls a share-shareholder distinction. The Control Share Amendment, Nuveen argues, does not run afoul of the ICA because the Amendment restricts certain shareholders, not shares, and
Nuveen relies on a 1977 Delaware Supreme Court decision that recognized a share-shareholder distinction in the context of a certificate of incorporation‘s restrictions on the voting rights of concentrated shareholders. See Providence & Worcester Co. v. Baker, 378 A.2d 121, 122–24 (Del. 1977). Approving the restrictions, the Delaware court noted that they were “limitations upon the voting rights of the stockholder, not variations in the voting powers of the stock per se.” Id. at 123.
Baker was concerned only with whether a certificate of incorporation‘s provisions resembling Nuveen‘s Amendment were permissible under state law. See id. There were two state statutes at issue in Baker. The first arguably required that all shares in the same class have equal voting rights. See id. at 122. The plaintiff relied on that provision in seeking to invalidate the defendant‘s voting restrictions. Concluding that it was ambiguous, the court looked to a separate provision under state law that expressly allowed “voting rights of stockholders
Nuveen identifies just one case interpreting federal law that cited Delaware‘s share-shareholder distinction, Neuberger Berman Real Estate Income Fund, Inc. v. Lola Brown Trust No. 1B, 342 F. Supp. 2d 371 (D. Md. 2004). There, a Maryland district court examined whether a closed-end investment fund‘s poison-pill defensive measure violated the ICA. Under that provision, the company‘s board gave shareholders the right to purchase discounted shares of common stock for each share already owned, but limited control shareholders owning 11% or more of the outstanding common stock in the number of additional shares they could purchase. See id. at 374.
The district court declared the poison-pill measure valid under the ICA. Even assuming that Neuberger Berman‘s embrace of the share-shareholder distinction was correct, however, Nuveen overlooks a key distinction. The poison-pill provision in Neuberger Berman affected investors’ economic interests by differentiating their ability to purchase discounted shares—it did not impair their ability to vote the shares they owned. The district court emphasized this key difference, noting that the provision did not “change the fact that all shares [were] granted equal voting rights,” but rather, the reduced ownership interest was “an issue of dilution of economic interest and corresponding voting power,” which had “nothing to do with the voting rights of the shares themselves.” Id. at 376. Nuveen‘s Amendment, on the other hand, is focused solely on the voting rights of
Lastly, Nuveen argues that its share-shareholder distinction is reflected in other provisions of the ICA, namely Section 80a-12(d)(1). This section prevents investment companies from acquiring more than three percent of another investment company‘s voting stock, but includes an exception so long as the acquiring company votes its stock in accordance with instructions from its clients or in the same proportion as the vote of all other shareholders. See
We disagree. Section 12(d)(1) says nothing about the proper interpretation of the ICA‘s meaning of “voting stock” and “voting security.” That Congress has imposed, in another section of the ICA, voting conditions and exсeptions on presumptively unlawful acquisitions does not permit Nuveen to impose its own
In concluding that the share-shareholder distinction does not carry the day, we do not mean to suggest that Nuveen‘s Amendment does not also affect shareholders. It affects both the shares and the shareholders, the two are not mutually exclusive. After all, Saba is a shareholder and has been prevented from acquiring additional voting shares and influencing the Nuveen funds’ management. To prevail under the ICA, however, Saba need only prove that the Amendment encumbers shares, even if it also affects shareholders. Nuveen‘s Amendment harms its shareholders by encumbering the shares they own; any distinction between the two is immaterial.16
B. The ICA‘s Policies and Purposes
Finally, Nuveen seeks refuge in the ICA‘s “policy and purposes” section, which it says illustrates Congress‘s intent to prevent activist investors like Saba from acquiring concentrated ownership interests in investment funds. Nuveen is correct that in passing the ICA, Congress instructed courts to interpret the statute with its “policy and purposes” section in mind—Section 1(b) mandates that “the provisions of [the ICA] shall be interpreted” “in accordance with” its stated policies.
That only gets Nuveen so far. While we “must interpret the [ICA] in a manner most conducive to the effectuation of its goals,” United States v. Nat‘l Ass‘n of Sec. Dealers, 422 U.S. 694, 720 (1975), we will not deviate from the statute‘s plain meaning. Even if Section 18(i) were so ambiguous as to make Congress‘s policy considerations determinative, they would lean in Saba‘s favor.
Congress passed the ICA “to provide a comprehensive regulatory scheme to correct and prevent certain abusive practices in the management of investment companies for the protection of persons who put uр money to be invested by such
The ICA‘s statements of policy reflect Congress‘s apprehension about certain practices employed by investment companies. Congress expressed concern over, inter alia, (i) investment companies that are “organized, operated,” and “managed” “in the interest of directors, officers, investment advisers, depositors, or other affiliated persons thereof“; and (ii) investment companies that “issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities.”
Nuveen also points to Section 1(b)(4), which reflects Congress‘s concern over investment companies that are “inequitably distributed” and “unduly concentrated through pyramiding or inequitable methods of control.”
CONCLUSION
We have examined Nuveen‘s remaining arguments and conclude that they are without merit. We AFFIRM the judgment of the district court.