Cobalt Falcon v. AXS Investments

FILED IN
BUSINESS COURT OF TEXAS
BEVERLY CRUMLEY, CLERK
ENTERED
5/19/2026

2026 Tex. Bus. 30

The Business Court of Texas,
First Division

COBALT FALCON, LLC, §
Plaintiff, §
§
v. § Cause No. 25-BC01A-0023
§
AXS INVESTMENTS, LLC, §
Defendant. §
═══════════════════════════════════════
Memorandum Opinion and Order Construing
the Transaction Agreement Under TRCP 166(g)
═══════════════════════════════════════
¶1 Before the Court is a question of law that is partially dispositive of

the above-captioned cause: whether Schedule 2.4 of the First Amendment to

Transaction Agreement dated effective May 2, 2022, which provides for

“Consideration Terms” including monthly payments to be “paid in perpetuity

(unless otherwise agreed)” by Defendant/Buyer AXS Investments, LLC to

Plaintiff/Seller Cobalt Falcon, LLC requires the continuation of such

payments after the closure of the High Yield ETF Fund involved in the

Page 1
transaction. 1 For the reasons that follow, the Court answers: yes, the

unambiguous plain language does so require.

¶2 Delaware law governs this dispute. Def.’s Ex. 1-A at § 11.3; see

also Def.’s R166(g) Brief at p. 3; Pl.’s Resp. at p. 8. Under Delaware law,

contract interpretation is a legal question. Advent Int’l Corp. v. Servicios

Funerarios GG S.A. de C.V., No. 2023-0647, 2024 WL 3580934, at * 7 (Del.

Ch. June 7, 2024). A contract is to be read as a whole, enforcing clear and

unambiguous language by its plain meaning and giving effect to all terms. See

Manti Holdings, LLC v. Authentix Acquisition Co., Inc., 261 A.3d 1199, 1208

(Del. 2021); Page v. Village Prac. Mgmt. Grp., LLC, No. 2022-0581, 2023 WL

3563049, at *1 (Del. Ch. May 19, 2023).

¶3 Parties’ disagreement over interpretation does not create

ambiguity in a contract. Manti Holdings, 261 A.3d at 1208. Only when

susceptible to two or more reasonable interpretations is a contract ambiguous.

See Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192,

1
The original Transaction Agreement, effective April 6, 2022, likewise contained
“Consideration Terms” to “be paid in perpetuity” in its erroneously-labeled Schedule 2.3.
Cf. Def.’s Ex. 1-A at § 2.3 (“Excluded Liabilities”) and § 2.4 (“Purchase Consideration,”
referencing “monthly amounts determined by the formula set forth in Schedule 2.4
hereto”) with Schedule 2.3 (“Consideration Terms,” setting forth monthly payment
calculations and citing Section 2.3).

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1196 (Del. 1992). Under Delaware law, “[a]n interpretation is unreasonable

if it ‘produces an absurd result’ or a result ‘that no reasonable person would

have accepted when entering the contract.’” Terrell v. Kiromic Biopharma,

Inc., 338 A.3d 1272, 1277 (Del. 2025) (quoting Manti Holdings, 261 A.3d at

1208); see Capella Holdings, LLC v. Anderson, No. 9809, 2017 WL 5900077,

at *5 (Del. Ch. Nov. 29, 2017).

¶4 At issue here is the contractual provision setting forth the

consideration promised by AXS to Cobalt Falcon in exchange for assets

relating to the management, administration, and operation of the High Yield

ETF Fund. The Agreement and its First Amendment state that AXS shall

compensate Cobalt Falcon “for all calendar months following the Closing, in

the monthly amounts determined by the formula set forth in Schedule 2.4.”

Def.’s Ex. 1-B at 1(b) (“Section 2.4. Purchase Consideration”). In turn,

Schedule 2.4 calculates the monthly consideration in two parts: “90 bps

multiplied by the Conversion AUM; plus 15 bps multiplied by any and all AUM

in excess of the Conversion AUM as of the end of the calendar month prior to

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such payment.” 2 Id. at 1(f) (“Schedule 2.4 CONSIDERATION TERMS”)

(emphasis in original). The Agreement and its First Amendment require the

monthly payments to be made “in perpetuity (unless otherwise agreed).” Id.

Cobalt Falcon contends “in perpetuity” means that the payments are to

continue regardless of the Fund’s existence. Pl.’s Resp. at p. 10. AXS argues

this provision only requires the monthly payments to continue while the Fund

is operating. Def.’s R166(g) Brief at p. 5.

¶5 As already stated, the contract’s plain language calls for monthly

payments to be made “in perpetuity (unless otherwise agreed).” 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.” In perpetuity, BLACK’S LAW

DICTIONARY (12th ed. 2024). 3 Under Delaware law, this plain meaning

controls unless there is an ambiguity. AXS contends that an interpretation

2
AUM refers to “total assets under management of the Fund.” See Def.’s Ex. 1-A at art. I
(“Defined Terms”). The parties have represented that, following Fund closure, the
“Conversion AUM” is a known and fixed dollar amount, causing the consideration formula
to permanently equal the sum of $74,062.45.

3
The only express limitation imposed on “in perpetuity” is “unless otherwise agreed.” It
is undisputed that the First Amendment is the last agreement between the parties
concerning the consideration.

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adopting the plain meaning—the interpretation urged by Cobalt Falcon—

would be unreasonable and that AXS can supply a (sole) reasonable

alternative. But since 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. Accordingly, the Court must assess the

reasonableness of the interpretations advanced by Cobalt Falcon and by AXS.

¶6 The Court finds that the interpretation relied on by Cobalt Falcon

is reasonable. The parties’ use of the phrase “in perpetuity” must be given

effect, which can only be achieved under Cobalt Falcon’s interpretation. See

Reybold Constr. Co. v. Lennar Corp., No. N22C-06-206, 2025 WL 2346985,

at *10 (Del. Super. Ct. Aug. 13, 2025). In Reybold Construction, the Superior

Court of Delaware rejected an interpretation of “for actual costs” that would

include a management fee on the basis that, if the parties intended to include

such a fee, “they would have expressly stated it.” Id. Delaware law does not

support the adding of unwritten conditions that the parties could have

included. See Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020,

1035 (Del. Ch. 2006). Further, as Cobalt Falcon noted, the contract required

payments “for all calendar months following the Closing,” which similarly

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indicates no end date. Def.’s Ex. 1-B at 1(b) (“Section 2.4. Purchase

Consideration”). Reading “in perpetuity” according to its plain meaning gives

effect to all of the Agreement’s words and creates certainty as to the duration

of the payments.

¶7 In opposition to this reading, AXS makes two arguments: First,

AXS contends that Cobalt Falcon’s interpretation renders other contractual

provisions meaningless. See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153,

1159 (Del. 2010) (noting a contract interpretation that renders a provision

meaningless or mere surplusage yields an absurd result). Second, AXS

contends that a forever payment obligation would be absurd on the facts

presented. Thus, AXS argues Cobalt Falcon’s interpretation is unreasonable

under Delaware law, and its proposed interpretation is the sole reasonable one.

¶8 But AXS has not convincingly demonstrated that interpreting “in

perpetuity” by its plain meaning renders any provision of the Agreement

meaningless. AXS makes this argument primarily in relation to the maintain-

and-operate clause in Section 6.9(b) of the contract. As AXS sees it, “it would

be pointless for AXS to use best efforts to maintain the Fund” if the obligation

to make payments survived the Fund’s closure. Def.’s R166(g) Brief at p. 16.

There is, however, no connection in the contract between the two-part

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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. Cf. Def.’s Ex. 1-B at 1(c) (Section

6.9) with Sched. 2.4.

¶9 And as Cobalt Falcon points out in response, the obligation of 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 both

benefit the second component of the compensation to Cobalt Falcon: the

multiple “bps” of excess AUM. See Pl.’s Resp. at pp. 13-14. The Court agrees

that this is a reasonable interpretation, as the Fund cannot have excess AUM

to form the basis of the second component of the compensation if the Fund is

not maintained. Because the obligation in Section 6.9(b) is not expressly tied

to the first part of the consideration formula in Schedule 2.4, and because it

can be reasonably read to have meaning and purpose in connection with the

second part of the consideration formula, the Court rejects AXS’s contention

that Cobalt Falcon’s interpretation of “in perpetuity” renders Section 6.9(b)

meaningless and that AXS’s interpretation alone gives that provision meaning.

¶10 Relatedly, the Court rejects AXS’s argument that the

consideration terms have no meaning unless the Fund exists. It is undisputed

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that the “Conversion AUM,” a defined term in the Agreement, is capable of

being—and has been—calculated at a fixed rate by the parties. See Pl.’s Resp.

at p. 19. Regardless of how the sum was determined, and although the

Conversion AUM will now never change due to the Fund’s closure, the parties

can (and have) calculate(d) the Conversion AUM and the resulting

consideration due monthly under Schedule 2.4 of the Agreement. Accordingly,

the Fund’s closure does not render it impossible to calculate the consideration

owed. Thus, the provision has meaning whether the Fund exists or not.

¶11 AXS’s second argument is that enforcing a monthly payment

obligation in perpetuity leads to an absurd result because it reads the contract

to say 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 price paid by Cobalt Falcon in a previous transaction. 4

Def.’s Brief at p. 3 (emphasis in original). Specifically, AXS argues, “No

4
AXS’s view that Cobalt Falcon’s interpretation results in an absurd windfall to Cobalt
Falcon treats the value of the consideration at the time of the contract as the sum total of
an infinite number of future payments. Cobalt Falcon contends it bargained for the then-
present value of those future payments, now calculated to be $7,711,870.47. See Pl.’s Ex.
A-15 (McKenna expert report) at F(8)(c). But the Court cannot consider extrinsic
evidence—such as the amount paid by Cobalt Falcon in a previous transaction or expert
opinions on the present-day value of the bargained-for consideration. See Holzbaur v.
Trolley Square Hosp., LLC, 340 A.3d 603, 610–11 (Del. Ch. 2025), aff'd sub nom. Holzbaur
v. Trolley Square Hosp. Grp., LLC, No. 289, 2025, 2026 WL 261522 (Del. Feb. 2, 2026).

Page 8
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, which (no matter how successful) would

come at some point in time. . ..” Def.’s Brief at p. 22. But importantly, AXS

neglects to factor in that closure of the Fund was entirely within its own hands.

¶12 The idea that a party, holding an asset that may generate revenue

in perpetuity, would trade that asset for a perpetual obligation, is not

inherently absurd. See ITG Brands, LLC v. Reynolds Am., Inc., No. 2017-0129,

2025 WL 670818, at *15 (Del. Ch. Mar. 3, 2025), aff'd by 351 A.3d 519 (Del.

2025) (enforcing a contractual obligation for payments in perpetuity over

objections on grounds different from those presented here). Conversely,

AXS’s position—taken to its logical conclusion—requires 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. Reading

the agreement to give AXS unilateral control, post-contract, over the

consideration to be paid presents an absurd outcome, rendering AXS’s

interpretation unreasonable.

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¶13 Accordingly, the Court is left with a reasonable interpretation

urged by Cobalt Falcon which is wholly consistent with the plain language in

the Agreement, and an unreasonable interpretation urged by AXS which

would require the Court to write limitations into the Agreement that do not

exist and would contradict the words actually used. Further, even if Cobalt

Falcon’s interpretation could be viewed as absurd or unreasonable, ambiguity

cannot result from two competing unreasonable interpretations. See Rhone-

Poulenc Basic Chems., 616 A.2d at 1196 (discussing ambiguity as the product

of two or more reasonable interpretations). Either way, the plain language

must control.

¶14 In sum, while Cobalt Falcon’s interpretation may result in a

financial boon to Cobalt Falcon, that result is not veiled or obscured in the

contract—it is expressly stated, in plain terms. The parties’ ability to

constrain the reach of a given term is evident in the Agreement, including in

Schedule 2.4. The Court cannot rewrite the consideration obligations simply

Page 10
because AXS may have been mistaken as to their duration 5 or otherwise

regrets the bargain it struck. In re Tibco Software Inc. S’holders Litig., No.

10319, 2014 WL 6674444, at *13 (Del. Ch. Nov. 25, 2014) (“Reformation is

not an equitable license for the Court to write a new contract at the invitation

of a party who is unsatisfied with his or her side of the bargain.”).

¶15 For these reasons, the Court holds that there are not two or more

reasonable interpretations of “in perpetuity” in the Agreement. Because the

Agreement is unambiguous, its plain language applies. It thus follows that the

contractual obligation to make payments “in perpetuity (unless otherwise

agreed)” means exactly what it says: the payments are to continue in

perpetuity (forever) unless otherwise agreed to by the contracting parties.

5
Unilateral mistake can be remedied under Delaware law only if enforcement of the
contract would be unconscionable, the mistake concerns consideration, the mistaken party
exercised ordinary care, and the status quo can be maintained for the non-mistaken party.
Matter of ENSTAR Corp., 604 A.2d 404, 411, 413 (Del. 1992). But even in such cases,
rescission is the sole available remedy unless the mistaken party shows that the non-
mistaken party was aware of the mistake and remained silent. Scion Breckenridge Managing
Member, LLC v. ASB Allegiance Real Est. Fund, 68 A.3d 665 (Del. 2013) (overruling
ENSTAR, 604 A.2d 404, to the extent it fails to recognize availability of reformation where
party’s unilateral mistake was known by opposing party). No arguments concerning
mistake were presented in this case.

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SO ORDERED.

_______________________
ANDREA K. BOURESSA
Judge of the Texas Business Court,
First Division

SIGNED ON: May 19, 2026.

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Filing Description: Memorandum Opinion and Order Construing the
Transaction Agreement Under TRCP 166(g)
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Case Contacts

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Kay Ridenour kridenour@lynnllp.com 5/19/2026 4:32:19 PM SENT

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