By Chris Bankler

The Business Court of Texas’ recent opinion in Atlas IDF, LP v. NexPoint Real Estate Partners, LLC offers important guidance on the meaning of a “qualified transaction” under Texas Government Code Chapter 25A and the calculation of the amount in controversy for business court jurisdiction.  The decision is especially instructive for parties litigating complex financial transactions involving promissory notes and related agreements.

Competing Arguments: The Parties’ Positions on “Qualified Transaction”

The heart of the dispute centered on whether the underlying transaction met the statutory definition of a “qualified transaction” and whether the amount in controversy exceeded $10 million, as required for business court jurisdiction. The parties generally agreed that the notes had an aggregate combined principal and interest of about $8.9 million on the effective date of the parties purchase and sale agreement.

Atlas, the plaintiff, argued that the court had jurisdiction because the relevant transaction “is not limited to the HCRE Notes’ principal amounts.” Instead, Atlas contended that the “PSA was a transaction entitling Atlas to receive in excess of $10 million from HCRE, as evidenced by the nearly $14 million demand in this case.” Atlas further asserted that “qualified transaction refers to the transaction’s aggregate value when made, including principal and anticipated interest.” Atlas urged the court to “credit its good-faith pleading allegations of their anticipated value.”

By contrast, HCRE, the defendant, maintained that a “qualified transaction” should be determined based on the bargain when made, which, in its view, was less than $10 million on the Notes because they had yet to accrue any interest.  HCRE also argued that the amount in controversy requirement failed because this was not an action exceeding $10 million “excluding interest.”

The Statutory Definition: What Is a “Qualified Transaction”?

The Texas Government Code defines a “qualified transaction” as follows:

“A qualified transaction means: a transaction . . . under which a party: (A) pays or receives, or is obligated to pay or is entitled to receive, consideration with an aggregate value of at least $10 million; or (B) lends, advances, borrows, receives, is obligated to lend or advance, or is entitled to borrow or receive money or credit with an aggregate value of at least $10 million.”

TEX. GOV’T CODE § 25A.001(14).

This language focuses on the aggregate value of the consideration at the time the transaction is made.

The Court’s Analysis: Timing and Valuation of Consideration

As initial matter, the Court agreed with both parties that “a potential qualified transaction’s aggregate value is measured at the time of transaction.” The court cited Goosehead Ins. Agency, LLC v. Williams Ins. and Consulting, Inc., which held that “the plain meaning of ‘consideration’ .  . . plac[es] focus on the time of transaction.  And ‘[c]onsideration focuses on the bargain—not the outcome or actual performance.’ Thus, the Court concluded that the ‘relevant time to value the transaction is at the time it was entered, rather than the time of dispute.’”

The Court then addressed the nature of demand notes, and the impact of expected future interest.

“The HCRE Notes are demand notes.  The time of payment on a demand note is not definite when it is made and thus neither is the total amount of interest that will be due on the note.  . . . But the payee’s expected interest on one is part of its consideration for the note. . . Good faith, uncontroverted allegations of that value are determinative in the jurisdictional analysis.”

In other words, the Court accepted that the anticipated interest on a demand note, as part of the original bargain, should be included in the calculation of the aggregate value for jurisdictional purposes—so long as the allegations are made in good faith and are uncontroverted.

Alternative Argument: Excluding Interest from the Amount in Controversy

HCRE advanced an alternative argument that only the principal amount of the notes should count toward the $10 million threshold, relying on the statutory language that the amount in controversy must exceed $10 million “excluding interest.” The Court rejected this argument, explaining that, in the context of promissory notes, the “amount in controversy” includes both principal and interest due under the terms of the note at the time the suit is filed. The court distinguished between “interest” as an accessory or statutory sum (which is excluded) and interest that forms the primary basis of the plaintiff’s claim (which is included).

Conclusion

The Atlas opinion clarifies that, for Texas business court jurisdiction, the value of a “qualified transaction” is measured at the time of the transaction and includes expected interest as part of the consideration for demand notes.   Moreover, the amount in controversy includes all principal and interest due under the note at the time of filing, not just the principal.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Chris Bankler or a member of the Trial & Appellate Litigation practice.

Meet Chris

Chris Bankler focuses on the resolution of disputes for businesses and financial institutions. He counsels clients through the process of complex business litigation, including general business disputes, fraud claims, breach of fiduciary duty cases, and complex business bankruptcy litigation. He has served as litigation counsel in more than 100 cases in state and federal courts, as well as FINRA and AAA arbitrations.