Background and Procedural Posture

Cobalt Falcon, LLC sold assets relating to the management, administration, and operation of the High Yield ETF Fund to AXS Investments, LLC pursuant to a Transaction Agreement effective April 6, 2022, as amended by a First Amendment effective May 2, 2022. The consideration structure set forth in Schedule 2.4 provided for monthly payments calculated as "90 bps multiplied by the Conversion AUM; plus 15 bps multiplied by any and all AUM in excess of the Conversion AUM," to be paid "in perpetuity (unless otherwise agreed)." After AXS closed the Fund, a dispute arose over whether the monthly payment obligation survived. AXS moved for partial summary judgment under TRCP 166(g) on the contract interpretation question, which the Court treated as dispositive of a key issue in the case.

The Contract Interpretation Dispute

The parties agreed that Delaware law governed the dispute. Under Delaware law, contract interpretation is a legal question, and courts must enforce clear and unambiguous language according to its plain meaning while giving effect to all terms. The central question was whether the phrase "in perpetuity" meant payments must continue forever regardless of the Fund's existence (Cobalt Falcon's position) or only while the Fund remained operational (AXS's position). AXS argued that Cobalt Falcon's interpretation would render other contractual provisions meaningless and produce an absurd result—specifically, that AXS "agreed to pay more than a trillion dollars for these same rights that were, at the time of the parties' transaction, worth approximately 40% less than $3.1M."

The Court's Analysis

Judge Bouressa began with the foundational principle that parties' disagreement over interpretation does not create ambiguity, and that a contract is ambiguous only when susceptible to two or more reasonable interpretations. The Court found the phrase "in perpetuity" to be "not inherently ambiguous or susceptible to multiple meanings," citing its definition in Black's Law Dictionary as "forever; without end." Applying this plain meaning, the Court held:

The words "in perpetuity" 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."

The Court rejected AXS's argument that Cobalt Falcon's interpretation rendered Section 6.9(b)—which required AXS to use "best efforts" to maintain and operate the Fund—meaningless. Judge Bouressa found "no connection in the contract between the two-part consideration to be paid by AXS to Cobalt Falcon for management of the Fund in Schedule 2.4, on the one hand, and AXS's obligations to maintain and market the fund in Section 6.9, on the other." Instead, the Court agreed with Cobalt Falcon that the maintain-and-operate obligation served a purpose in connection with the second component of the consideration formula—the multiple of excess AUM—because "the Fund cannot have excess AUM to form the basis of the second component of the compensation if the Fund is not maintained."

The Court also rejected AXS's "absurdity" argument, noting that the Conversion AUM was "capable of being—and has been—calculated at a fixed rate by the parties," making the consideration calculable regardless of the Fund's continued existence. Critically, the Court emphasized that Delaware law does not support "adding of unwritten conditions that the parties could have included," citing Allied Capital Corp. v. GC-Sun Holdings, L.P. The opinion further noted that the contract required payments "for all calendar months following the Closing," which "similarly indicates no end date."

Significance for Texas Commercial Practice

This memorandum opinion provides important guidance on several fronts for commercial litigators practicing before the Texas Business Court. First, it demonstrates the Court's willingness to enforce plain contractual language even when doing so produces economically significant consequences for one party—here, a perpetual payment obligation that AXS characterized as potentially exceeding a trillion dollars over an infinite time horizon. Second, the opinion illustrates how Delaware contract interpretation principles will be applied in the Texas Business Court, particularly the high bar for establishing ambiguity and the rejection of implied conditions not expressed in the contract text. Third, the decision shows that parties seeking to limit payment obligations to the duration of a particular business relationship or asset's existence must do so explicitly; general operational covenants will not be read to implicitly condition consideration terms. Finally, the opinion's treatment of the TRCP 166(g) motion as partially dispositive suggests the Court's comfort with resolving discrete legal questions through summary adjudication even in complex commercial disputes, potentially providing parties with earlier clarity on key contractual issues.