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The Texas Business Court has provided further guidance regarding the application of Delaware contract law principles to an ongoing complex commercial dispute. The decision in Cobalt Falcon, LLC v. AXS Investments, LLC, decided July 14, 2026, Judge Andrea K. Bouressa of the First Division granted traditional summary judgment in favor of the plaintiff on the liability question of its breach of contract claim, then struck down all of defendant’s affirmative defenses on no-evidence grounds. This opinion may offer guidance on how the business courts interpret Delaware law and reaffirms the legality of perpetual payment obligations under Texas law.
Background: A Deal for Perpetual Payments
The dispute arose from a transaction agreement under which Cobalt Falcon transferred management and control of an investment fund to AXS Investments. In exchange, AXS agreed to make monthly payments of $74,062.45 to Cobalt Falcon in perpetuity. When AXS allegedly ceased making payments in December 2024, Cobalt Falcon sued for breach of contract.
Breach of Contract Liability Established
Applying Delaware law (which governed the agreement), the court found that Cobalt Falcon met its burden of proving all essential elements of a breach of contract claim: (1) a valid contractual obligation, (2) a breach of that obligation, and (3) resulting damages. In a previous opinion, the court ruled that the transaction agreement imposed a continuing obligation on AXS to make monthly payments in perpetuity. AXS did not dispute that it had stopped paying under that obligation, and the court granted summary judgment on liability, leaving only the resolution of affirmative defenses. AXS argued that the perpetual payment structure was unconscionable, that the damages sought were an unenforceable penalty, and that Cobalt Falcon failed to mitigate its damages.
Unconscionability Defense Rejected
AXS argued that the “eternal obligation” to pay over $74,000 per month forever — regardless of whether the fund remained open — was unconscionable. The court disagreed.
Under Delaware law, unconscionability requires the absence of meaningful choice and contract terms that unreasonably favor one party. See Talkdesk, Inc. v. DM Trans, LLC, No. N23C-08-005, 2024 WL 2799307, at *3 (Del. Super. Ct. May 31, 2024). Courts have evaluated this through a multi-factor test at the time of contracting — not based on how the deal plays out later. See James v. Nat’l Fin., LLC, 132 A.3d 799, 814–15 (Del. Ch. 2016).
The court emphasized that the parties exchanged perpetual rights for perpetual payments, and this structure was “expressly stated, in plain terms.” Importantly, the court noted that AXS itself controlled the fund’s closure: “AXS neglects to factor in that closure of the Fund was entirely within its own hands.” A bad bargain, the court reminded, is not the same as an unconscionable contract.
Liquidated Damages Defense Inapplicable
AXS also claimed that Cobalt Falcon’s damages were unenforceable liquidated damages functioning as a penalty. The court quickly dispatched this argument, too. Liquidated damages are a pre-agreed sum established at contract formation to estimate uncertain future harm. Here, Cobalt Falcon was simply seeking the monthly payments AXS had failed to make — direct damages from the breach, not a pre-set estimate. Because no liquidated damages provision was at issue, the court ruled that the defense had no application and was summarily dispensed.
Failure to Mitigate: No Evidence Presented
Delaware law places the burden on the defendant to show that the plaintiff failed to take reasonable steps to mitigate damages. See Dover Mall, LLC v. Tang, No. K22C-07-013, 2023 WL 6536975, at *6 (Del. Super Ct. Oct. 5, 2023). AXS cited indemnification provisions and depreciation documents but failed to identify any “specific remedial action” Cobalt Falcon could have taken or quantify how much damages might have been reduced. Without concrete evidence, the defense also failed.
Duplicative Recovery: Not a Valid Defense
Finally, AXS raised a defense styled as “overlapping and duplicative recovery.” The court noted — and AXS conceded — that this theory is not a recognized affirmative defense under the law and granted no-evidence summary judgment accordingly.
Practical Takeaways
This case offers several lessons for businesses about commercial agreements:
- Perpetual obligations may be enforceable. Courts may not rewrite a deal simply because it becomes burdensome. If the terms are clear and unambiguous, parties may be held to those terms.
- Control matters in unconscionability analysis. If a party controls the circumstances that make a contract disadvantageous — such as closing a fund that was expected to generate ongoing revenue — courts may not be sympathetic to claims that the deal was unfair.
- Understand the difference between direct and liquidated damages. Seeking payment of amounts owed under a contract is a claim for direct damages, not liquidated damages that could constitute a penalty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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