Judge Andrea Bouressa
The Business Court has ruled that a contract promising “payments in perpetuity” in exchange for a high yield ETF fund means what it says, even though the buyer shut down the fund.
Cobalt Falcon, LLC v. AXS Investments, LLC (2026 Tex. Bus. 30; May 19, 2026; 2026 Tex. Bus. 43; July 14, 2026) arose from a contract dispute. AXS contracted with Cobalt, a seller of ETF management assets, to acquire assets relating to the management, administration, and operation of the High Yield ETF Fund. AXS agreed to compensate Cobalt “for all calendar months following the closing, in the monthly amounts determined by the formula set forth in” the attached schedule. The schedule calculated monthly consideration pursuant to a two-part formula, AXS agreed to make monthly payments “in perpetuity (unless otherwise agreed).” The Fund, however, closed after the parties made the deal in 2022. AXS ceased payments on the basis of the closure. Cobalt responded by suing AXS in the Business Court for breach of contract. In this first phase of the case, the court conducted a TRCP 166(g) pretrial conference to identify “legal matters to be ruled on or decided by the court.” The question on the table was the construction of the parties’ contract.
In an opinion by Judge Bouressa, the court determined that when the contract stated that AXS had to make payments in perpetuity, that means in perpetuity, regardless of the closure of the Fund. Applying Delaware law (which looks like Texas law), the court performed a plain language analysis. “The words ‘in perpetuity,’” the court reasoned, “are not inherently ambiguous or susceptible to multiple meanings; in fact, the phrase can be—and has been—clearly defined. ‘In perpetuity’ means ‘forever; without end’” (citing Black’s Law Dictionary (12th Ed. 2024)). AXS argued that this interpretation was “unreasonable” and that it “can supply a (sole) reasonable alternative.” But as the court pointed out, “since the deviation from the plain language requires two or more reasonable interpretations, the Court cannot adopt the interpretation urged by AXS unless it and the interpretation urged by Cobalt Falcon are both reasonable, creating ambiguity.”
Cobalt’s interpretation, the court went on, that the contract meant what it plainly said was reasonable. Consequently, “[t]he parties’ use of the phrase ‘in perpetuity’ must be given effect, which can only be achieved under Cobalt Falcon’s interpretation.” AXS countered that accepting Cobalt’s interpretation would render other provisions of the agreement as meaningless and produce an absurd result. First, the agreement required AXS “to use ‘best efforts’ to maintain and operate the Fund and ‘commercially reasonable efforts’ to market the Fund and attempt to grow the AUM” so that the second part of the compensation agreement, which pledged part of the growth to Cobalt, could have effect. The fact that the Fund closed down, however, did not negate the first part of the compensation formula, which was not tied to Fund performance. That part of the formula calculated Cobalt’s compensation at a fixed rate that “is capable of being—and had been—calculated at a fixed rate by the parties.”
As to the absurdity argument, which hinged on AXS’s position that “no reasonable market participant would agree to make monthly payments forever in exchange for fund management rights that would cease to exist and become worthless upon the fund’s closing,” the court ruled that there was nothing “inherently absurd” here because AXS itself determined if and when the Fund closed. If AXS’s position was correct, it required “the Court to find that Cobalt Falcon agreed to relinquish control over the Fund (and the resulting revenue stream) in exchange for payments that would be made only as long as AXS elected to keep the Fund open and continue payments.” In other words, the court wouldn’t be drawn into adding language to the agreement that didn’t exist and would contradict what the contract plainly stated.
Round two of the case considered Cobalt’s traditional and no evidence MSJ on its breach of contract claim. Judge Bouressa granted the motion, holding that Cobalt established each element of its cause of action, including the existence of damages (the amount remains to be determined). AXS raised ten affirmative defenses to the motion, but nonsuited all but its unconscionability, liquidated damages constituting an unenforceable penalty, failure to mitigate, and limitation of remedies defenses. Again applying Delaware law, the court held that Cobalt established that there was no evidence of an essential element of any of them. First, the record contained no evidence that Cobalt took “unfair advantage of AXS or that there was an absence of meaningful choice.” Second, since Cobalt wasn’t trying to recover liquidated damages in the first place, AXS’s “penalty in disguise” defense fell flat. Third, AXS failed to show specifically how Cobalt should have mitigated its damages. As to the fourth “defense,” performance by payment and duplicative recovery, AXS admitted that it wasn’t an affirmative defense at all. The court granted Cobalt’s MSJ, leaving the damages issue for later.
