Peyton v. Grant

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

CASE NO. 24-CV-21649-BLOOM/Elfenbein

DAVID PEYTON,

Individually and as a Shareholder

of Nexxt Gen Corporation,

Plaintiff,

v.

DAVID E. MARTINEZ,

Individually and as a Shareholder

of Nexxt Gen Corporation,

Intervenor Plaintiff,

v.

ERIC K. GRANT, et al.,

Defendants,

v.

DAVID PEYTON, et al.,

Intervenor Defendants,

v.

NEXXT GEN CORPORATION, et al.,

Counter Claimant,

v.

DAVID PEYTON,

Individually and as a Shareholder

of Nexxt Gen Corporation,

Counter Defendant.

_______________________________________/

REPORT AND RECOMMENDATION ON

MOTION FOR CONTEMPT AND MOTION FOR SANCTIONS

THIS CAUSE is before the Court on two motions: (1) Intervenor-Plaintiff David Martinez

and Plaintiff/Intervenor-Defendant David Peyton’s Joint Expedited Motion for Contempt Against

Defendant/Intervenor-Defendant Eric Grant (the “Motion for Contempt”), ECF No. [52]; and (2)

Intervenor-Plaintiff David Martinez’s Motion for Rule 11 Sanctions Against

Defendant/Intervenor-Defendant Eric Grant and his Counsel (the “Motion for Sanctions”), ECF

No. [53]. The Honorable Beth Bloom referred both motions to me for a Report and

Recommendation.1 See ECF No. [54]; ECF No. [70]. For the reasons explained below, I

RECOMMEND that the Motion for Contempt, ECF No. [52], be GRANTED IN PART and

DENIED IN PART and that the Motion for Sanctions, ECF No. [53], be DENIED WITHOUT

PREJUDICE.

I. BACKGROUND2

This action arises out of a business relationship between Eric Grant (“Grant”), David

Martinez (“Martinez”), and David Peyton (“Peyton”). See ECF No [28] at 3; ECF No [32] at 6;

ECF No [42] at 2; ECF No [43] at 3; ECF No. [57] at 2. As summarized in Grant’s Response to

the Motion for Contempt, the action “is based on a shareholder dispute between” Grant, Martinez,

and Peyton, who are the “three alleged shareholders of Nexxt Gen Corporation.” See ECF No.

[57] at 2. The substance of the shareholder dispute is not relevant to either the Motion for

1 Judge Bloom also referred to me for a Report and Recommendation two other motions: (1)

Defendants/Counter-Plaintiffs’ Motion to Strike Affirmative Defenses of David Peyton or for a More

Definite Statement, ECF No. [56]; and (2) Defendant/Counter-Plaintiff Eric Grant’s Verified Expedited

Motion to Appoint Receiver, ECF No. [104]. See ECF No. [70]; ECF No. [108]. Those motions will be

addressed in a separate report and recommendation.

2 The Court takes the details it provides in this Section from the Parties’ pleadings where the detail is

undisputed and from the evidence presented at the evidentiary hearing that occurred on September 6 and 9,

2024 where the detail was disputed and required a factual finding. See ECF No. [94]; ECF No. [98]; ECF

No [99]; ECF No. [101]; Hr’g Tr. Sept. 6, 2024; Hr’g Tr. vol. 1, Sept. 9, 2024 (testimony of Eric Grant);

Hr’g Tr. vol. 2, Sept. 9, 2024 (closing arguments); see also Citronelle-Mobile Gathering, Inc. v. Watkins,

943 F.2d 1297, 1304 (11th Cir. 1991) (requiring a hearing on motion for contempt); Didie v. Howes, 988

F.2d 1097, 1105 n.8 (11th Cir. 1993) (implying that a hearing is necessary on a motion for sanctions when

there are “contradictory statements in the various motions and responses”).

Contempt or the Motion for Sanctions.

What is relevant is the procedural history of the case, which is as follows. Peyton initiated

the action on April 29, 2024 by filing a Verified Complaint and Petition for Preliminary Injunction

against Grant. See ECF No. [1]; ECF No. [4]. On June 6, 2024, Peyton “individually and on

behalf of Nexxt Gen Corporation, in his capacity as a shareholder,” filed an Amended Verified

Complaint and Petition for Preliminary Injunction against both Grant and Nexxt Gen Corporation

(“Nexxt Gen”). See ECF No. [28] at 1. That same day, Martinez entered the action by filing an

Intervenor Complaint, “individually, and derivatively on behalf of” Nexxt Gen, against Nexxt

Gen’s “shareholders and current members” Peyton and Grant. See ECF No. [32] at 2.

During a June 6 hearing before Judge Bloom, Grant, Martinez, and Peyton “agree[d] to

refer the case for a settlement conference,” see ECF No. [31], and Judge Bloom referred the case

to me for that purpose, see ECF No. [33]. I conducted the settlement conference on June 14 and

17, 2024. See ECF No. [35]; ECF No. [36]. Although the “Parties did not settle the case,” they

did “stipulate[] as to how Nexxt Gen Corporation will continue to operate while litigation is

ongoing.” See ECF No. [36]. “The terms of the stipulation were read into the record,” and the

“Parties were ordered to reduce the stipulation to written form by June 24, 2024” for my review.

See ECF No. [36]. The Parties complied with that Order, see ECF No. [40]; ECF No. [41], and I

approved the written stipulation (the “Joint Stipulation”) on July 2, 2024, see ECF No. [47]. At

that time, I noted the Joint Stipulation “governs how Nexxt Gen Corporation will continue to

operate while litigation is ongoing and is consistent with the Parties’ agreement during the June

17, 2024 Settlement Conference.” See ECF No. [47].

Meanwhile, the litigation continued. On June 26, 2024, Grant and Nexxt Gen answered

both Peyton’s Amended Complaint and Martinez’s Intervenor Complaint. See ECF No. [42]; ECF

No. [43]. Grant and Nexxt Gen also brought six counterclaims against Peyton. See ECF No. [42]

at 25–32. Peyton answered those counterclaims on July 18, 2024. See ECF No. [48].

About two weeks later, on August 2, 2024, Martinez (individually, and derivatively on

behalf of Nexxt Gen) and Peyton (individually) filed the joint Motion for Contempt. See ECF No.

[52]. In the Motion for Contempt, they seek “a holding” that Grant “is in contempt” of the Joint

Stipulation. See ECF No. [52] at 2. They contend that “Grant has failed to fully comply with the

Joint Stipulation,” which has prevented them from being “involved in the decisions regarding the

daily operations of Nexxt” Gen, having “signatory authority” in Nexxt Gen’s “financial accounts,”

being “able to access QuickBooks to ascertain the transactions taking place daily,” and ensuring

that someone is “functioning as the ‘primary administrator’ of Nexxt” Gen. See ECF No. [52] at

2. Because of those issues, Martinez and Peyton do not “have a full picture” of Nexxt Gen’s

“financial standing to be able to properly litigate this case and to save the company from financial

failure.” See ECF No. [52] at 3. In relief, they request findings that Grant “violated the Joint

Stipulation” and is “in contempt of court,” an injunction preventing Grant “from taking any action

in contravention of the Joint Stipulation,” and money damages. See ECF No. [52] at 7.

A few days later, on August 6, 2024, Martinez individually and derivatively on behalf of

Nexxt Gen filed the Motion for Sanctions against Grant, Grant’s lawyer, and the law firm

representing Grant. See ECF No. [53]. In the Motion for Sanctions, Martinez requests that “the

Court impose Rule 11 sanctions because Defendant’s Answer to Martinez’s Intervenor Complaint”

and “his Answer to Plaintiff’s Amended Complaint” assert “defenses that are not well grounded

in law or fact” and “without having conducted a reasonable inquiry into the underlying facts.” See

ECF No. [53] at 2. Martinez also encourages the Court to impose sanctions under its “inherent

powers” because Peyton and his counsel acted “in bad faith.” See ECF No. [53] at 19.

On September 6 and 9, 2024, the Court held an evidentiary hearing on the Motion for

Contempt (the “Hearing”). See ECF No. [64]; ECF No. [94]; ECF No. [98]. At the Hearing, the

Court heard testimony from Grant, Martinez, and Peyton, along with arguments from each Party’s

counsel. See Hr’g Tr. Sept. 6, 2024; Hr’g Tr. vol. 1–2, Sept. 9, 2024. The Court also admitted

into evidence more than 20 exhibits spanning more than 200 pages. See ECF No. [99]; ECF No.

[101]. The Motion for Contempt is now ripe for review.

II. LEGAL STANDARDS

A. Civil Contempt

“Contempt of court is the disregard of judicial authority.” Popular Bank of Fla. v. Banco

Popular de Puerto Rico, 180 F.R.D. 461, 465 (S.D. Fla. 1998); see also Ga. Power Co. v. NLRB,

484 F.3d 1288, 1291 (11th Cir. 2007) (defining “civil contempt” as the “willful disregard of the

authority” of the court). When a party fails to comply with an order of the court, the court “may

use the remedy of a citation of contempt to enforce” that order. See Combs v. Ryan’s Coal Co.,

785 F.2d 970, 980 (11th Cir. 1986). The court’s power to use a citation of civil contempt to compel

compliance with its directives comes both from the court’s inherent authority, see Int’l Union,

United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831 (1994) (noting that courts “have

embraced an inherent contempt authority as a power necessary to the exercise of all others”

(citations and quotation marks omitted)); Popular Bank, 180 F.R.D. at 465 (“The court’s power to

enforce compliance with its lawful orders is inherent.”), and from the Federal Rules of Civil

Procedure, see Fed. R. Civ. P. 70(e) (noting a court may hold a “disobedient party in contempt”).

For purposes of civil contempt, it does not matter whether the flouted order was issued

after an adversary proceeding, see Commodity Futures Trading Comm’n v. Wellington Precious

Metals, Inc., 950 F.2d 1525, 1526 (11th Cir. 1992) (discussing a civil contempt finding made after

a party failed to obey an order made “following a bench trial”), or “pursuant to a consent decree,”

see Combs, 785 F.2d at 980. Either way, “[c]ivil contempt proceedings may be employed to coerce

a contemnor into compliance with the court’s order and to compensate a complainant for losses

sustained.”3 Popular Bank, 180 F.R.D. at 465.

“A party seeking civil contempt bears the initial burden of proving by clear and convincing

evidence that the alleged contemnor has violated an outstanding court order.” Wellington Precious

Metals, 950 F.2d at 1529. “The clear and convincing evidence must establish that: (1) the allegedly

violated order was valid and lawful; (2) the order was clear and unambiguous; and (3) the alleged

violator had the ability to comply with the order.” Ga. Power Co., 484 F.3d at 1291 (emphasis in

original). “In determining whether a party is in contempt of a court order, the order is subject to

reasonable interpretation, though it may not be expanded beyond the meaning of its terms absent

notice and an opportunity to be heard.” Id. (citation omitted). Courts must “construe any

ambiguities or uncertainties in such a court order in a light favorable to the person charged with

contempt.” Id.

“Once a prima facie showing of a violation has been made, the burden of production shifts

to the alleged contemnor, who may defend his failure on the grounds that he was unable to

comply.” Wellington Precious Metals, 950 F.2d at 1529. That is because, “[w]here compliance

is impossible, neither the moving party nor the court has any reason to proceed with the civil

contempt action.” United States v. Rylander, 460 U.S. 752, 757 (1983); see also Combs, 785 F.2d

3 The animating purpose behind a contempt sanction, and “the character of the relief itself,” determine

whether it is civil or criminal. See Bagwell, 512 U.S. at 828–29 (quotation marks omitted). A “contempt

sanction is considered civil if it is remedial, and for the benefit of the complainant.” Id. at 827 (quotation

marks omitted); see also id. (defining “civil contempt sanctions” as “those penalties designed to compel

future compliance with a court order,” which “are considered to be coercive and avoidable through

obedience”); Serra Chevrolet, Inc. v. Gen. Motors Corp., 446 F.3d 1137, 1147 (11th Cir. 2006). In contrast,

a contempt sanction is criminal if it “is punitive, to vindicate the authority of the court.” See Bagwell, 512

U.S. at 828 (quotation marks omitted).

at 983 (“[I]t is improper to impose contempt sanctions of any sort if the alleged contemnor is not

able to satisfy the court’s directives.”). But to “succeed on the inability defense, the alleged

contemnor must go beyond a mere assertion of inability and establish that he has made in good

faith all reasonable efforts to meet the terms of the court order he is seeking to avoid.” Wellington

Precious Metals, 950 F.2d at 1529 (citation and quotation marks omitted). This is a “high

standard” that courts “construe . . . strictly.” See Combs, 785 F.2d at 984. “Even if the efforts” a

party “did make were substantial, diligent or in good faith, the fact that he did not make all

reasonable efforts” would prevent him from “rebut[ting] the prima facie showing of contempt.”

See id. (cleaned up).

If “the alleged contemnor” makes “a sufficient showing,” however, the “burden shifts back

to the initiating party” to prove “ability to comply.” Wellington Precious Metals, 950 F.2d at 1529;

see also Combs, 785 F.2d at 984 (noting that the party seeking to show contempt “retains the

ultimate burden of proof”). The court’s “focus in a civil contempt proceeding is not on the

subjective beliefs or intent of the alleged contemners in complying with the order, but whether in

fact their conduct complied with the order at issue.” Ga. Power Co., 484 F.3d at 1291 (quotation

marks omitted). While due process requires “a hearing in which the alleged contemnor may

explain why the court should not make a contempt finding,” see Watkins, 943 F.2d at 1304, that

hearing can be an ordinary civil proceeding. See Serra Chevrolet, 446 F.3d at 1147 (“Civil

contempt may be imposed in an ordinary civil proceeding upon notice and an opportunity to be

heard”).

If, after hearing from the alleged contemnor, the court decides to impose civil contempt

sanctions, they may be “compensatory” or “coercive.” See Watkins, 943 F.2d at 1304. When a

court chooses “to impose sanctions designed to ensure compliance, the sanctions cannot be any

greater than necessary to ensure such compliance.” Id. “When fashioning a sanction to secure

compliance, a district court should consider the character and magnitude of the harm threatened

by continued contumacy and the probable effectiveness of any suggested sanction in bringing

about the result desired.” Id. (quotation marks omitted).

B. Sanctions Under Federal Rule of Civil Procedure 11

Federal Rule of Civil Procedure 11 “deters attorneys and litigants from clogging federal

courts with frivolous filings.” Huggins v. Lueder, Larkin & Hunter, LLC, 39 F.4th 1342, 1344

(11th Cir. 2022). In relevant part, Rule 11 provides:

By presenting to the court a pleading, written motion, or other paper — whether by

signing, filing, submitting, or later advocating it — an attorney or unrepresented

party certifies that to the best of the person’s knowledge, information, and belief,

formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass,

cause unnecessary delay, or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by

existing law or by a nonfrivolous argument for extending, modifying, or

reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so

identified, will likely have evidentiary support after a reasonable

opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if

specifically so identified, are reasonably based on belief or a lack of

information.

Fed. R. Civ. P. 11(b). “If, after notice and a reasonable opportunity to respond, the court

determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any

attorney, law firm, or party that violated the rule or is responsible for the violation.” Fed. R. Civ.

P. 11(c)(1).

“Rule 11 is intended to deter claims with no factual or legal basis at all; creative claims,

coupled even with ambiguous or inconsequential facts, may merit dismissal, but not punishment.”

Davis v. Carl, 906 F.2d 533, 538 (11th Cir. 1990) (emphasis in original); see also Donaldson v.

Clark, 819 F.2d 1551, 1556 (11th Cir. 1987) (noting that Rule 11 “is intended to reduce frivolous

claims, defenses or motions and to deter costly meritless maneuvers, thus avoiding unnecessary

delay and expense in litigation” (quotation marks omitted)). “Rule 11 sanctions are designed to

discourage dilatory or abusive tactics and help to streamline the litigation process by lessening

frivolous claims or defenses.” Donaldson, 819 F.2d at 1556 (quotation marks omitted). Indeed,

“the imposition of sanctions pursuant to Rule 11 is meant to deter attorneys from violating the

rule.” Id.

“Rule 11 sanctions are proper ‘(1) when a party files a pleading that has no reasonable

factual basis; (2) when the party files a pleading that is based on legal theory that has no reasonable

chance of success and that cannot be advanced as a reasonable argument to change existing law;

or (3) when the party files a pleading in bad faith for an improper purpose.’” Almeida v. Bennet

Auto Supply, Inc., 335 F.R.D. 463, 465 (S.D. Fla. 2020) (quoting Worldwide Primates, Inc. v.

McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996)). “In this circuit, a court confronted with a motion

for Rule 11 sanctions first determines whether the party’s claims are objectively frivolous — in

view of the facts or law — and then, if they are, whether the person who signed the pleadings

should have been aware that they were frivolous; that is, whether he would have been aware had

he made a reasonable inquiry.” McGreal, 87 F.3d at 1254. “If the attorney failed to make a

reasonable inquiry, then the court must impose sanctions despite the attorney’s good faith belief

that the claims were sound.” Id.

When evaluating a motion for Rule 11 sanctions, courts use “an objective standard.” See

Donaldson, 819 F.2d at 1556. They look for “reasonableness under the circumstances,” which is

a standard “more stringent than the original good-faith formula” that used to apply to Rule 11. See

id. (quotation marks omitted). Courts must “avoid using the wisdom of hindsight” and instead

“test the signer’s conduct by inquiring what was reasonable to believe at the time the pleading,

motion, or other paper was submitted.” See id. (quotation marks omitted). “What constitutes a

reasonable inquiry may depend on such factors as how much time for investigation was available

to the signer and whether he had to rely on a client for information as to the facts underlying the

pleading, motion, or other paper; whether the pleading, motion, or other paper was based on a

plausible view of the law; or whether he depended on forwarding counsel or another member of

the bar.” Id. (alteration adopted, citation omitted).

“Although sanctions are warranted when the claimant exhibits a deliberate indifference to

obvious facts, they are not warranted when the claimant’s evidence is merely weak but appears

sufficient, after a reasonable inquiry, to support a claim under existing law.” Baker v. Alderman,

158 F.3d 516, 524 (11th Cir. 1998). And while the timing of sanctions rests in the district judge’s

discretion, Rule 11 sanctions “normally will be determined at the end of litigation.” Id. at 523; see

also Fed. R. Civ. P. 11 advisory committee’s note to 1983 amendment (“[I]t is anticipated that in

the case of pleadings the sanctions issue under Rule 11 normally will be determined at the end of

the litigation.”). That is in part because, though “Rule 11 does not mandate a hearing,” this Circuit

“envision[s] that a trial or other pretrial hearing would give the district court a basis to rule on a

sanctions motion,” particularly when the parties’ factual recitations “are starkly contradictory” and

the discovery conducted to that point is “sporadic” and “marginal.” See Didie, 988 F.2d at 1105.

Indeed, “Rule 11 should not be used to raise issues as to the legal sufficiency of a claim or

defense that more appropriately can be disposed of by a motion to dismiss, a motion for judgment

on the pleadings, a motion for summary judgment, or a trial on the merits.” Bigford v. BESM, Inc.,

No. 12-61215-CIV, 2012 WL 12886184, at *2 (S.D. Fla. Oct. 12, 2012). When discovery has not

yet been completed, “any request for a determination that” a party “lacks sufficient evidence to

prove” his “case is premature.” Id.; see also Almeida, 335 F.R.D. at 466–67; Doe v. Roe, No. 17-

23333-CIV, 2019 WL 1316041, at *2 (S.D. Fla. Mar. 12, 2019); Thomas v. Evans, 880 F.2d 1235,

1243 n.11 (11th Cir. 1989); Wheeler v. Lake Rousseau Resort, LLC, No. 5:20-CV-172-OC-30PRL,

2021 WL 3501097, at *1 (M.D. Fla. Feb. 8, 2021); Rodriguez v. Goff, No. 3:20CV5946-MCR-

HTC, 2022 WL 1222671, at *1 (N.D. Fla. Feb. 2, 2022). Parties should not ask “the Court to

adjudicate the disputed core claims of” a case “in the context of a sanctions motion. This is not the

preferred method of proceeding.” Bigford, 2012 WL 12886184, at *2; see also Doe, 2019 WL

1316041, at *2 (denying a Rule 11 motion as premature because it required the court “to resolve

questions of fact, weigh evidence, and make credibility determinations,” which was “not

appropriate” so early in the proceedings).

III. DISCUSSION

A. Motion for Contempt

In the Motion for Contempt, Martinez and Peyton contend that Grant “has failed to fully

comply with the Joint Stipulation.” ECF No. [52] at 2. Specifically, they argue that the Joint

Stipulation required Grant to perform at least four actions that he still has not: (1) make all

decisions that impact Nexxt Gen’s daily operations by a two-thirds vote of Grant, Martinez, and

Peyton; (2) add Martinez and Peyton as signatories on Nexxt Gen’s financial accounts; (3) give

Martinez and Peyton “viewing” access to Nexxt Gen’s credit cards and QuickBooks; and (4) make

Samantha Martinez the “primary administrator” of Nexxt Gen.4 See ECF No. [52] at 2.

In his Response to the Motion for Contempt (the “Response”), Grant contends that he has

4 Martinez and Peyton argue Grant had until July 29, 2024 to complete items (2), (3), and (4). See ECF No.

[52] at 2.

“made all reasonable efforts to comply” with the “terms and the spirit” of the Joint Stipulation and

that “any deviations were not his doing nor within his control.” See ECF No. [57] at 2. He argues

Martinez and Peyton “have created certain ambiguities in the Joint Stipulation to attempt to include

provisions that were not part of” the document and that he “cannot be expected” to complete. See

ECF No. [57] at 3. He also argues Martinez and Peyton “are acting in violation of the spirit of the

Joint Stipulation and are committing corporate waste and misconstruing the terms of the Joint

Stipulation.” See ECF No. [57] at 3.

In their Reply in support of the Motion for Contempt (the “Reply”), Martinez and Peyton

contend that Grant continues to violate the Joint Stipulation, including by: again removing their

access to Nexxt Gen’s bank accounts; unilaterally moving large sums of money out of Nexxt Gen

accounts and paying large vendor bills; unilaterally withholding or delaying payments from

Martinez, Peyton, and subcontractors; unilaterally paying himself a salary; and unilaterally

terminating Nexxt Gen employees. See ECF No. [63] at 3. They argue that the Joint Stipulation,

which Grant participated in crafting and approving, is not ambiguous and that they are not

committing waste. See ECF No. [63] at 3–6.

Evaluating a motion for contempt is a three-step, burden-shifting process. See Ga. Power

Co., 484 F.3d at 1291. At the first step, the party seeking the contempt finding must show clear

and convincing evidence that the alleged contemnor violated a valid, lawful, clear, and

unambiguous order. Id.; see also Wellington Precious Metals, 950 F.2d at 1529. If the moving

party meets that threshold, the burden shifts to the alleged contemnor at the second step to show

that he was unable to comply with the order despite making all reasonable efforts. See Wellington

Precious Metals, 950 F.2d at 1529. If the alleged contemnor meets that high standard, the burden

shifts back to the moving party at the third step to prove the alleged contemnor had the ability to

comply with the order. Id.; see also Combs, 785 F.2d at 984; Ga. Power Co., 484 F.3d at 1291.

Starting with the first step, the Court must initially determine whether Grant violated any

provision of the Joint Stipulation. To do so, the Court will take each provision in turn.5

1. Joint Stipulation Provision (a) – Two-thirds Vote on Certain Business Decisions

Subsection (a) of the Joint Stipulation modified section 8(c) of the shareholder agreement,

ECF No. [28] at 48, to require Grant, Martinez, and Peyton to use a two-thirds vote for any

“decisions which impact the daily operations of the company defined in subsections (ii), (vi), (ix),

(x), (xi), (xii) and (xiv).” See ECF No. [99-11] at 1. As an initial matter, while Martinez and

Peyton argued at the Hearing that subsection (a) of the Joint Stipulation effectively modified the

shareholder agreement to require a two-thirds vote on any decision related to running Nexxt Gen,

see Hr’g Tr. vol. 2, 7, Sept. 9, 2024, that is not what subsection (a) did. By its plain and

unambiguous language, subsection (a) modified the shareholder agreement to require a two-thirds

vote only for those provisions it specifically enumerated: (ii), (vi), (ix), (x), (xi), (xii), and (xiv).

So the Court’s task is to evaluate whether Grant violated the two-thirds vote requirement for any

of those seven provisions.

Based on their briefs and the evidence presented at the Hearing, the Parties do not appear

to be disputing subsections (ix), (x), (xi), or (xii). See Hr’g Tr. vol. 2, 46–48, Sept. 9, 2024. The

Court therefore focuses on subsections (ii), (vi), and (xiv).

a. Shareholder Agreement subsection 8(c)(ii)

Subsection 8(c)(ii) of the shareholder agreement pertains to “[p]ayment of compensation

to officers, including reimbursement of expenses.” See ECF No. [28] at 48. Martinez and Peyton

assert in their briefs that Grant violated this provision by paying himself a salary and by delaying

5 Because no party argues that there has been a violation of subsection (b) of the Joint Stipulation, the Court

does not address that subsection.

and hindering reimbursement of their expenses. See ECF No. [63] at 3. At the Hearing, they

added a third asserted violation: that Grant has failed to pay them the salaries they approved by a

two-thirds vote after the Joint Stipulation went into effect. See Hr’g Tr., 17–22, Sept. 6, 2024;

Hr’g Tr. vol. 2, 29, Sept. 9, 2024.

In his hearing testimony, Grant acknowledged that, since the Joint Stipulation went into

effect, he has continued to receive a salary of about $10,000 each month from Nexxt Gen’s bank

accounts, but Martinez and Peyton have not received salaries. See Hr’g Tr. vol. 1, 38–43, Sept. 9,

2024. Grant agreed that the only money Martinez and Peyton have received from Nexxt Gen since

the Joint Stipulation went into effect are expense payments, one of which Peyton disbursed to

himself after Grant denied it due to incomplete supporting documentation. See Hr’g Tr., 49, 62–

63, 71, Sept. 6, 2024; Hr’g Tr. vol. 1, 43, Sept. 9, 2024; Hr’g Tr. vol. 2, 28–29, Sept. 9, 2024. And

Grant testified that his own salary had been “unapproved” by Martinez and Peyton in a post-Joint

Stipulation vote. See Hr’g Tr. vol. 1, 42–43, Sept. 9, 2024.

Grant also testified that Martinez had been ousted from Nexxt Gen in October 2021 and

lost access to some of Nexxt Gen’s systems then. See Hr’g Tr. vol. 1, 14, 28, 130–31, Sept. 9,

2024. He testified that Peyton resigned in March 2024, see Hr’g Tr. vol. 1, 131–32, Sept. 9, 2024,

though he admitted he did not offer any documentary evidence to show Peyton resigned and did

not cut off Peyton’s access to Nexxt Gen systems after the purported resignation, see Hr’g Tr. vol.

1, 137–39, Sept. 9, 2024. Grant testified that Peyton gave himself the title of chief technology

officer, along with “a lot” of others, and that Grant was not consulted about the decision. See Hr’g

Tr. vol. 1, 135, Sept. 9, 2024. He added that he did not object to Peyton holding that title or to

Martinez holding the title of chief operations officer, but he testified that having those titles did

not “mean that they are an officer of the company.” See Hr’g Tr. vol. 1, 143, Sept. 9, 2024. During

closing, Grant argued there was no evidence that Peyton and Martinez had “been voted in as

officers” of Nexxt Gen, even by themselves under the new two-thirds requirement of the Joint

Stipulation. See Hr’g Tr. vol. 2, 40, Sept. 9, 2024.

In his own hearing testimony, Peyton confirmed that he and Grant had ousted Martinez

from Nexxt Gen in October 2021. See Hr’g Tr., 36, 48, Sept. 6, 2024. But Peyton did not testify

that he resigned from Nexxt Gen at any time. See generally Hr’g Tr., 5–91, Sept. 6, 2024. During

closing, Peyton argued that he “has been working for Nexxt Gen this entire time,” that there was

“no resignation,” and that “because he never resigned, he was always the chief technology officer;

there didn’t need to be a shareholder vote to put him back to chief technology officer because he

still had that title going back years.” See Hr’g Tr. vol. 2, 56–57, Sept. 9, 2024.

Martinez also confirmed during his testimony that he was cut out of Nexxt Gen in October

2021. See Hr’g Tr., 132, Sept. 6, 2024. He testified that, since the Joint Stipulation went into

effect, there had not been a formal vote making him and Peyton Nexxt Gen officers but that they

already “had those titles from before.” See Hr’g Tr., 134–35, Sept. 6, 2024. Since the Joint

Stipulation, they exchanged “a couple of emails” about Martinez being the chief operations officer,

and they represented in introductions to Nexxt Gen “customers” and “resources” that Martinez had

that role. See Hr’g Tr., 134–35, Sept. 6, 2024. During closing, Martinez argued that those

instances of him and Peyton “holding” Martinez “out as the chief operating officer” were

“tantamount to a two-thirds vote” or to them “effectively electing each other to their positions.”

See Hr’g Tr. vol. 2, 57, Sept. 9, 2024.

Based on that testimony, the Court finds that Grant violated subsection 8(c)(ii) of the

shareholder agreement as modified by the Joint Stipulation. The as-modified provision required

any decisions about the payment of compensation to officers to be made by a two-thirds vote. See

ECF No. [28] at 48; ECF No. [99-11] at 1. Peyton testified at the Hearing that he and Martinez

voted, post-Joint Stipulation, to pay themselves salaries. See Hr’g Tr., 17–22, Sept. 6, 2024. Their

two votes constitute the two-thirds vote subsection 8(c)(ii) now requires, so Nexxt Gen was

obligated under the Joint Stipulation to pay a salary at least to Peyton.

That is because, although Grant testified that Peyton resigned in March 2024, no other

documentary or testimonial evidence supports that assertion. In fact, Peyton argued in closing that

he had not resigned. Faced with those differing positions, the Court must make a credibility

determination about which one to accept. Because Grant did not submit any other evidence to

corroborate his assertion that Peyton resigned, and because Grant did not remove Peyton’s access

to Nexxt Gen’s systems after his alleged resignation — which is unlike what happened when

Martinez was removed from the company in 2021 and had his access revoked — the Court credits

Peyton’s position that he did not resign from Nexxt Gen.

As a result, Peyton was still Nexxt Gen’s chief technology officer when he and Martinez

voted to pay themselves salaries. Grant admitted that he has not paid them. See Hr’g Tr. vol. 1,

38–43, Sept. 9, 2024. That failure to pay a salary to Peyton is a violation of subsection (a) of the

Joint Stipulation, as it modified subsection 8(c)(ii) of the shareholder agreement6.

The same is true of Grant’s continued payment of his own salary. Grant testified that his

salary was originally authorized and paid before the Joint Stipulation took effect, and that it has

not changed since the Joint Stipulation took effect. See Hr’g Tr. vol. 1, 123, Sept. 9, 2024. But

the fact that Grant’s salary was pre-existing does not protect it from a two-thirds vote changing it

after the Joint Stipulation took effect. And according to Grant’s own testimony, Martinez and

6 The Court finds that the failure to pay Martinez a salary is not a violation of this provision. Because

Martinez was removed from Nexxt Gen in 2021, a shareholder vote was needed to restore him to the chief

operations officer position. No such vote occurred, and the Court does not find Peyton and Martinez’s

representation to customers that Martinez held that role is an adequate substitute for the required vote.

Peyton voted post-Joint Stipulation to “unapprove[]” Grant’s salary, see Hr’g Tr. vol. 1, 42–43,

Sept. 9, 2024, which aligns with the assertion in their Reply that “Grant unilaterally paid himself

a salary which was not approved by” them, see ECF No. [63] at 3. Pursuant to subsection 8(c)(ii)

as modified by the Joint Stipulation, Grant no longer had authorization to pay himself a salary after

Martinez and Peyton voted to disapprove it. Thus, Grant’s continued payment of his own salary

is a violation of subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(ii) of the

shareholder agreement.

Because Martinez and Peyton produced clear and convincing evidence that Grant violated

the Joint Stipulation as to subsection (a) (modifying subsection 8(c)(ii)), Grant is in contempt

unless he can show that he was unable to comply with that provision despite making all reasonable

efforts. See Ga. Power Co., 484 F.3d at 1291; Wellington Precious Metals, 950 F.2d at 1529. He

has not done so. Grant offered no testimony to explain why Nexxt Gen did not pay Peyton the

salary he and Martinez authorized by two-thirds vote, and the only testimony he offered to justify

his continued payment of his own salary after it was unapproved was that it predated the Joint

Stipulation. That is not enough to meet the high standard required for a successful inability

defense. See Combs, 785 F.2d at 984. Accordingly, the Court finds that Grant is in contempt for

violating subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(ii) of the shareholder

agreement.7

b. Shareholder Agreement subsection 8(c)(vi)

Subsection 8(c)(vi) of the shareholder agreement provides that all Nexxt Gen’s funds “be

deposited in its name in such checking account or accounts as shall be designated by the Board”

and requires that all “transactions above $5000.00 therefrom” be “made upon checks required to

7 The Court does not find the delayed payment of Martinez and Peyton’s expenses to be a violation of the

Joint Stipulation.

be signed by both David Peyton and Eric Grant excluding all financial transactions executed by

the finance department for Corporation operations.” See ECF No. [28] at 48. Martinez and Peyton

assert in their briefs that Grant violated this provision by unilaterally making “payments to vendors

and subcontractors in excess of $5,000.” See ECF No. [63] at 3. At the Hearing, they argued

Grant also violated that provision by paying himself a salary of more than $10,000 each month.

See Hr’g Tr. vol. 1, 40–43, Sept. 9, 2024.

As noted above, Grant admitted in his own hearing testimony that, since the Joint

Stipulation went into effect, he has continued to receive a salary of about $10,000 each month

from Nexxt Gen’s bank accounts. See Hr’g Tr. vol. 1, 38–43, Sept. 9, 2024. But Grant also

testified that he and Samantha Dominguez, an employee of one of Grant’s other companies, were

the “finance department” of Nexxt Gen. See Hr’g Tr. vol. 1, 116, Sept. 9, 2024. According to

Grant, part of the finance department’s job was to handle payroll, and he approved his own salary

as head of the finance department. See Hr’g Tr. vol. 1, 117, 123–24, Sept. 9, 2024.

During closing, Martinez and Peyton argued that “there is no finance department.” See

Hr’g Tr. vol. 2, 57–61, Sept. 9, 2024. Upon questioning from the Court, however, they conceded

that the phrasing of this provision is likely ambiguous, given the uncertainty about what the finance

department is and who serves in it. See Hr’g Tr. vol. 2, 57–61, Sept. 9, 2024. Although the Court

is not convinced the evidence supports a conclusion that Nexxt Gen actually has a designated

finance department, the Court finds that the provision is ambiguous. And the law in this Circuit is

clear that courts must “construe any ambiguities or uncertainties” in “a light favorable to the person

charged with contempt.” Ga. Power Co., 484 F.3d at 1291; see also Wellington Precious Metals,

950 F.2d at 1529.

Because subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(vi) of the

shareholder agreement, is ambiguous, Martinez and Peyton have not carried their burden to show

by clear and convincing evidence that Grant violated a valid, lawful, clear, and unambiguous order.

See Ga. Power Co., 484 F.3d at 1291. As a result, the Court need not address the other two steps

of the contempt analysis. Instead, the Court finds that Grant did not violate subsection (a) of the

Joint Stipulation, as it modified subsection 8(c)(vi) of the shareholder agreement, and is not in

contempt of that provision.8

c. Shareholder Agreement subsection 8(c)(xiv)

Subsection 8(c)(xiv) of the shareholder agreement pertains to “[t]he entry into any service

contract or other agreement for debted goods or services in the amount of $2000.00 or more.” See

ECF No. [28] at 48. Martinez and Peyton did not make any assertions directed at this provision in

their briefs, but at the Hearing, they argued that Grant violated it by hiring an accountant and

paying her more than $19,600 as of August 2024. See Hr’g Tr. vol. 1, 97–98, Sept. 9, 2024; Hr’g

Tr. vol. 2, 61, Sept. 9, 2024.

In his own hearing testimony, Grant testified that the accountant’s contract was

“preexisting” because he hired her in March or April 2024, which was before the Joint Stipulation

went into effect. See Hr’g Tr. vol. 1, 94–95, 99–101, Sept. 9, 2024. Grant testified that, when he

hired the accountant, he was the only owner and shareholder of Nexxt Gen because neither

Martinez nor Peyton worked for the company. See Hr’g Tr. vol. 1, 101–02, Sept. 9, 2024. And

while Peyton’s counsel argued to the Court in closing that Martinez and Peyton had testified that

the accountant “had not yet been hired” when the Joint Stipulation became effective, see Hr’g Tr.

8 Peyton and Martinez also argued, at least initially, that payments to an accountant Grant hired to do Nexxt Gen’s

taxes and bookkeeping violate this provision. But they later receded from that position when the Court pointed out

that the accountant was hired in March or April 2024, when Martinez was not associated with Nexxt Gen and Grant

contended Peyton had resigned. See Hr’g Tr. vol. 2, 61–62, Sept. 9, 2024. Even if they had not receded from that

position, the Court would not find that payments to the accountant violate this provision, for the reason explained

below. See infra Section III.A.1.c.

vol. 2, 61–62, Sept. 9, 2024, the hearing transcripts do not contain any such testimony, see

generally Hr’g Tr., Sept. 6, 2024; Hr’g Tr. vol. 1, Sept. 9, 2024; Hr’g Tr. vol. 2, Sept. 9, 2024.

Instead, Martinez and Peyton’s declarations indicate that they contacted the accountant on June

18, 2024 to inquire about her services and get the engagement letters Nexxt Gen signed with her

firm, and that on June 20, 2024, she “confirm[ed]” Grant had hired her to do taxes for Nexxt Gen.

See ECF No. [63-2] at 6, 54–61.

Based on that evidence, the Court finds that Grant did not violate subsection (a) of the Joint

Stipulation, as it modified subsection 8(c)(xiv) of the shareholder agreement. As the plain

language of subsection 8(c)(vi) of the shareholder agreement shows, it applies to the “entry into

any service contract or other agreement for . . . services in the amount of $2000.00 or more.” See

ECF No. [28] at 48 (emphasis added). Both Grant’s testimony that he hired the accountant in

March or April 2024 and Peyton’s declaration averment that he confirmed in June 2024 the

accountant had already been hired show that Nexxt Gen entered into the service contract with the

accountant before the Joint Stipulation went into effect on July 2, 2024. That means the initiation

of the accountant’s contract was not subject to a two-thirds vote.9

As a result, Martinez and Peyton have not carried their burden to show by clear and

convincing evidence that Grant violated subsection (a) of the Joint Stipulation, as it modified

subsection 8(c)(xiv) of the shareholder agreement. See Ga. Power Co., 484 F.3d at 1291. For that

reason, the Court need not reach the other two steps of the contempt analysis. Instead, the Court

9 Continued payment of the accountant could have violated a different provision of the Joint Stipulation,

specifically subsection (a) as it modified subsection 8(c)(vi) of the shareholder agreement, had any post-

Joint Stipulation payment been for more than $5,000. But the evidence does not demonstrate Nexxt Gen

made any such payment. As the financial statements attached to Peyton’s and Martinez’s supplemental

declarations demonstrate, all post-Joint Stipulation payments were less than $5,000 except one, see ECF

No. [63-2] at 52, and Grant testified that transaction was money the accountant was holding as a retainer

but that not yet been deemed an “expense” or been paid out, see Hr’g Tr. vol. 1, 94–95, Sept. 9, 2024

finds that Grant did not violate subsection (a) of the Joint Stipulation, as it modified subsection

8(c)(xiv) of the shareholder agreement, and is not in contempt as to that provision.

2. Joint Stipulation Provision (c) – Signatory Access to Financial Accounts

Subsection (c) of the Joint Stipulation required Grant to add Martinez and Peyton “onto the

Nexxt Gen financial accounts as signatories within three (3) days.” See ECF No. [99-11] at 1.

Martinez and Peyton assert in their briefs that Grant violated this provision by unilaterally

removing their access to Nexxt Gen’s “Chase bank account on July 19, 2024.” See ECF No. [63]

at 3. They reiterated that assertion at the Hearing. See Hr’g Tr., 86–87, 100–11, Sept. 6, 2024;

Hr’g Tr. vol. 2, 5, Sept. 9, 2024.

In his own hearing testimony, Grant admitted Martinez and Peyton did not have signatory

access to the Chase bank accounts. See Hr’g Tr. vol. 1, 105–07, 150–53, Sept. 9, 2024. Grant first

explained that, when he attempted to give them that access, Chase told him that they were “already

owners on the account” because “they added themselves” on July 3, 2024. See Hr’g Tr. vol. 1,

106, Sept. 9, 2024. He then testified that he gave them signatory access to the Chase credit card

on July 8, 2024, which took longer than the mandated three days to do because he “received a new

credit card from Chase, and the card had to be activated. So, as quick as” he “received the card,

and activated it, and was able to add them to it,” he did. See Hr’g Tr. vol. 1, 114, Sept. 9, 2024.

Finally, he testified that he revoked their access to the Chase bank accounts on July 19, 2024

because he was “concerned that they were going to drain the bank account.” See Hr’g Tr. vol. 1,

105–07, 150–51, Sept. 9, 2024. As of the Hearing on September 9, their signatory access to the

Chase bank accounts had still not been restored. See Hr’g Tr. vol. 1, 153, Sept. 9, 2024; Hr’g Tr.

vol. 2, 5, Sept. 9, 2024.

Based on that testimony, the Court finds that Grant violated subsection (c) of the Joint

Stipulation. That provision required Grant to add Martinez and Peyton “onto the Nexxt Gen

financial accounts as signatories within three (3) days.” See ECF No. [99-11] at 1. Although

Martinez and Peyton had signatory access to the Chase bank accounts within three days of the

Joint Stipulation becoming effective,10 Grant removed that access on July 19, 2024, and as of

September 9, 2024, he had not restored it. Grant’s removal of Martinez and Peyton as signatories

to Nexxt Gen’s Chase bank accounts and his failure to restore their access to such accounts is a

violation of subsection (c) of the Joint Stipulation.

Because Martinez and Peyton produced clear and convincing evidence that Grant violated

the Joint Stipulation as to subsection (c), Grant is in contempt unless he can show that he was

unable to comply with that provision despite making all reasonable efforts. See Ga. Power Co.,

484 F.3d at 1291; Wellington Precious Metals, 950 F.2d at 1529. He has not done so. In fact,

Grant’s hearing testimony demonstrated that the opposite is true — that he could and did add

Martinez and Peyton as signatories to those accounts. Grant’s counsel conceded this point at the

Hearing when asked what evidence was presented regarding Grant’s inability to comply with

subsection (c) of the Joint Stipulation, and he responded: “There was none, Judge.” See Hr’g Tr.

vol. 2, 43-44, Sept. 9, 2024. Accordingly, the Court finds that Grant is in contempt for violating

subsection (c).

3. Joint Stipulation Provision (d) – Viewing Access on Other Accounts

Subsection (d) of the Joint Stipulation required Grant to add Martinez and Peyton “onto

the Nexxt Gen Quickbooks, Chase credit card, and American Express card accounts with ‘viewing’

10 Martinez and Peyton argue that Grant had to comply with subsections (c)–(f) of the Joint Stipulation by

June 29, 2024, see ECF No. [63] at 3, presumably because the Parties agreed to the Joint Stipulation on

June 26, 2024. But the Joint Stipulation did not become effective until the Court approved it on July 2,

2024, see ECF No. [47], so Grant had until at least July 5, 2024 to comply. And because the Court was

closed on July 5, 2024 due to a designated Court holiday, Grant effectively had until July 8, 2024.

access within three (3) days.” See ECF No. [99-11] at 1. Martinez and Peyton assert in their briefs

that Grant violated this provision because, as of August 2, 2024, they were still “without viewing

access to” Nexxt Gen’s “credit cards and QuickBooks accounts.” See ECF No. [52] at 3. At the

Hearing, they reiterated that assertion and attempted to demonstrate their lack of viewing access

by pulling up various Nexxt Gen accounts in the courtroom and showing the Court what material

they were and were not able to see. See Hr’g Tr., 76–91, Sept. 6, 2024.

In his hearing testimony, Grant testified that he gave Martinez and Peyton viewing access

to Nexxt Gen’s QuickBooks and “American Express credit card accounts” between July 2 and July

5, 2024. See Hr’g Tr. vol. 1, 113–14, Sept. 9, 2024. He also testified that, as of September 9,

2024, they had “full viewing capacity” of Nexxt Gen’s Chase bank accounts. See Hr’g Tr. vol. 1,

153, Sept. 9, 2024.

During closing arguments, the Court asked each party’s counsel to define “viewing access”

as that phrase was used in the Joint Stipulation. See Hr’g Tr. vol. 2, 24–27, 37, 45, Sept. 9, 2024.

Counsel for Martinez and Peyton explained that their clients’ testimony established “what the

appropriate viewing access would be” and argued that “the access should be an access to get the

information in realtime.” See Hr’g Tr. vol. 2, 24–27, 37, 45, Sept. 9, 2024. Their counsel also

acknowledged that, if the Court found both sides’ interpretations of “viewing access” to be

reasonable, the Court would be justified in finding subsection (d) ambiguous. See Hr’g Tr. vol. 2,

26, Sept. 9, 2024. Counsel nonetheless contended that Peyton’s testimony “laid out what it was

and why he needed greater access to be given.” See Hr’g Tr. vol. 2, 26, Sept. 9, 2024.

Grant’s counsel did not define “viewing access”; instead, he argued that all three men

testified that Grant had given Martinez and Peyton all the access the Joint Stipulation required.

See Hr’g Tr. vol. 2, 37, 45, Sept. 9, 2024. He noted that the in-court demonstration proved Peyton

and Martinez “have access to QuickBooks, Chase, American Express” but that they had “decided

they wanted more, and allegedly voted to give themselves more access -- which apparently, was

not . . . provided to their liking -- but, that’s not what the joint stipulation provides.” See Hr’g Tr.

vol. 2, 37, Sept. 9, 2024.

Based on that testimony, and looking at the plain language of subsection (d), the Court

finds that Grant did not violate the Joint Stipulation. The text of the Joint Stipulation requires only

that Grant add Martinez and Peyton “onto the Nexxt Gen Quickbooks, Chase credit card, and

American Express card accounts with ‘viewing’ access within three (3) days.” See ECF No. [99-

11] at 1. Grant, Martinez, and Peyton all testified that Grant did so.

Where the Parties’ testimony diverged was with respect to what the phrase “viewing

access” means. Martinez and Peyton’s position is that viewing access means whatever level of

access would allow them to see account information in real time. See Hr’g Tr. vol. 2, 24–27, Sept.

9, 2024. Grant’s view is that he has given Martinez and Peyton all the access the Joint Stipulation

requires. See Hr’g Tr. vol. 2, 37, 45, Sept. 9, 2024.

While the Court expresses no opinion on what “viewing access” actually means, based on

the Parties’ diverging definitions of the phrase, the Court finds subsection (d) of the Joint

Stipulation to be ambiguous. Significantly, the Parties did not define the phrase “viewing access”

in the Joint Stipulation and have taken contrary positions on its definition since entering into the

Joint Stipulation. And the law in this Circuit is clear that courts must “construe any ambiguities

or uncertainties” in “a light favorable to the person charged with contempt.” Ga. Power Co., 484

F.3d at 1291; see also Wellington Precious Metals, 950 F.2d at 1529. Because subsection (d) of

the Joint Stipulation is ambiguous, Martinez and Peyton have not carried their burden to show by

clear and convincing evidence that Grant violated a valid, lawful, clear, and unambiguous order.

See Ga. Power Co., 484 F.3d at 1291. As a result, the Court need not address the other two steps

of the contempt analysis. Instead, the Court finds that Grant did not violate subsection (d) of the

Joint Stipulation and is not in contempt of that provision.

4. Joint Stipulation Provisions (e) and (f) – Primary Administrator of Nexxt Gen

Quickbooks Accounts and Certain Systems

Subsection (e) of the Joint Stipulation required Grant to make Samantha Dominguez “the

‘primary administrator’ of the Nexxt Gen Quickbooks accounts within three (3) days.” See ECF

No. [99-11] at 1. Similarly, subsection (f) of the Joint Stipulation required Grant to make

Dominguez “the ‘primary administrator’ of all Nexxt Gen Information Technology and Google

systems, including, but not necessarily limited to, email, Salesforce, Google Drive, web site, phone

system and Google suites within three (3) days.” See ECF No. [99-11] at 1–2. It also noted that

if Dominguez “steps down or resigns from this function, and those identified in Section (e), the

Parties will work together in good faith to adopt an alternative administrator.” See ECF No. [99-

11] at 2. Because Martinez and Peyton make the same arguments about both provisions, the Court

evaluates them together.

Martinez and Peyton assert in their briefs that Grant violated these provisions by

“instruct[ing] Samantha Dominguez, the agreed ‘primary administrator’ of Nexxt” Gen, “to deny

Martinez and Peyton access to” Nexxt Gen’s “accounts despite the terms of the Joint Stipulation.”

See ECF No. [52] at 3. They argue that “Dominguez must abide by the 2/3rds voting without

interference from” Grant but that she has not attended meetings during which Martinez and Peyton

intended to have her “share her screen and make updates based on a 2/3rds vote,” nor has she made

the requested updates. See ECF No. [52-3] at 3.

At the Hearing, they reiterated the argument that Dominguez has “not served” as primary

administrator as contemplated in the Joint Stipulation because she has not given Martinez and

Peyton “full access” to “conduct the business of the company.” See Hr’g Tr. vol. 2, 13–14, Sept.

9, 2024. They testified that, while Dominguez was given the title of primary administrator, she

has not actually performed that role because “the purpose of the primary administrator was to

ensure no more shenanigans and accounts being locked out. Emails, turned off access to systems

being restricted,” but they still “do not have access to those systems.” See Hr’g Tr., 69–70, Sept.

6, 2024. They also testified that, about two weeks after she became Nexxt Gen’s primary

administrator, Dominguez stopped responding to their communications. See Hr’g Tr., 41–42, 118–

19, Sept. 6, 2024. Finally, they testified that, because of Dominguez’s lack of responsiveness, they

voted to terminate her as primary administrator. See Hr’g Tr., 41–42, 118–19, Sept. 6, 2024.

In his own hearing testimony, Grant testified that he made Dominguez the primary

administrator on Nexxt Gen’s QuickBooks accounts on July 5, 2024. See Hr’g Tr. vol. 1, 115,

Sept. 9, 2024. He testified that he made Dominguez the primary administrator of Nexxt Gen’s

“information technology”; “technology systems”; “Google systems,” which included email; “sales

force accounts”; and “website” sometime between July 2 and July 5, 2024. See Hr’g Tr. vol. 1,

115–16, Sept. 9, 2024. And he testified that, though Dominguez “conveyed” to him that she was

“not comfortable with the hostile nature of the calls” she had with Martinez and Peyton, he did not

instruct her not to speak with them. See Hr’g Tr. vol. 1, 36–37, Sept. 9, 2024. He told her only

“to follow the stipulation.” See Hr’g Tr. vol. 1, 37, Sept. 9, 2024.

Based on that testimony, and looking at the plain language of subsections (e) and (f), the

Court finds that Grant did not violate the Joint Stipulation. The text of the Joint Stipulation requires

only that Grant “cause Samantha Dominguez to become the ‘primary administrator’ of” certain

facets of Nexxt Gen within three days of it becoming effective. See ECF No. [99-11] at 1–2.

Grant, Martinez, and Peyton all testified that Grant did so.

Where the Parties’ testimony diverged was with respect to what Dominguez was required

to do after she became primary administrator. In Grant’s view, Dominguez was required “to follow

the stipulation,” about which “she can make her own decisions.” See Hr’g Tr. vol. 1, 37, Sept. 9,

2024. In Martinez and Peyton’s view, Dominguez was required to give them “full access” to

“conduct the business of the company” so that “they can run the company and do the job they

want.” See Hr’g Tr. vol. 2, 13–14, Sept. 9, 2024. The problem with Martinez and Peyton’s view,

however, is that the plain text of the Joint Stipulation does not support it.

During closing arguments, the Court asked Martinez and Peyton to point to language in the

Joint Stipulation requiring Grant to do more than simply make Dominguez the primary

administrator of certain facets of Nexxt Gen — specifically, language that required the “additional

step” of them receiving access after Dominguez became the primary administrator. See Hr’g Tr.

vol. 2, 13–17, Sept. 9, 2024. They could not. Given that lack of language, it seems clear that what

Martinez and Peyton are asking the Court to do is “expand the scope of the stipulation,” which is

not something the Court can do in the context of a contempt hearing and, in any event, not

something the Court is inclined to do with an agreement the Parties “negotiated among

themselves” and confirmed on the record contained all the terms of their agreement. See Hr’g Tr.

vol. 2, 13–17, Sept. 9, 2024; Ga. Power Co., 484 F.3d at 1291.

As a result, Martinez and Peyton have not carried their burden to show by clear and

convincing evidence that Grant violated subsections (e) and (f) of the Joint Stipulation. See Ga.

Power Co., 484 F.3d at 1291. For that reason, the Court need not reach the other two steps of the

contempt analysis. Instead, the Court finds that Grant did not violate subsections (e) and (f) of the

Joint Stipulation and is not in contempt as to those provisions.

After considering the Parties’ briefs and the evidence presented at the Hearing, the

undersigned RECOMMENDS that Grant be found in contempt of: (1) subsection (a) of the

Joint Stipulation, as it modified subsection 8(c)(ii) of the shareholder agreement, and (2)

subsection (c) of the Joint Stipulation. The Court RECOMMENDS that Grant not be found in

contempt of: (1) subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(vi) of the

shareholder agreement; (2) subsection (a) of the Joint Stipulation, as it modified subsection

8(c)(xiv) of the shareholder agreement; (3) subsection (d) of the Joint Stipulation; (4) subsection

(e) of the Joint Stipulation; and (5) subsection (f) of the Joint Stipulation. Accordingly, the

undersigned RECOMMENDS that the Motion for Contempt, ECF No. [52], be GRANTED in

part and DENIED in part.

B. Motion for Sanctions

In the Motion for Sanctions, Martinez contends that the Court should “impose Rule 11

sanctions” on Grant and his counsel because Grant’s Answers to Martinez’s Intervenor Complaint

and Peyton’s Amended Complaint “assert defenses that are not well grounded in law or fact” and

“without having conducted a reasonable inquiry into the underlying facts of this case.” ECF No.

[53]. Specifically, Martinez argues that Grant’s Answers “contain factual allegations that lack any

evidentiary support, including” that “there is no executed shareholder agreement between the

parties”; “contain arguments that are frivolous because they have either been previously admitted

openly by Grant before this Court” or “waived by him pursuant to applicable law”; and “are made

for the improper purpose of delay and to deny Martinez and Nexxt” Gen the “relief sought in”

Martinez’s Interpleader Complaint. ECF No. [53] at 2.

In his Response to the Motion for Sanctions, Grant notes that, while he admits to signing

the shareholder agreement, he “questions the validity of” it and puts that question to the Court for

“judicial interpretation.” See ECF No. [75] at 2. Grant highlights that this case “is in the infancy

stages of discovery,” which means the Court is “still without sufficient facts” to “determine the

alleged frivolity of” that “affirmative defense.” See ECF No. [75] at 2. He contends he “must be

given an opportunity to develop his claim through the normal use of discovery” because “Rule 11

cannot be used as a tool to prematurely rule on the merits of the case.” See ECF No. [75] at 6.

And he argues that Martinez has not shown that Grant displayed blatant indifference to any obvious

facts and that his “assertions are grounded in law.” See ECF No. [75] at 5–9.

In his Reply in support of the Motion for Sanctions, Martinez contends that Grant failed to

plead with specificity his legal validity defense, so it is waived. See ECF No. [96] at 2–3 & n.1.

He argues that Grant’s “factual contentions have no evidentiary support,” his “legal defenses and

legal contentions are not warranted by existing law,” and his new legal theory about why the

shareholder agreement was not properly executed is both “recently manufactured” and

“fabricated.” See ECF No. [96] at 4–6. Specifically, Martinez points to Grant’s statement in his

Answer to Peyton’s Amended Complaint that he “den[ies] the validity of the signature” on the

shareholder agreement, see ECF No. [42] at 2, as being contradicted by his response to the Motion

for Sanctions, in which he “admits to the signing” of the agreement, see ECF No. [75] at 2. See

ECF No. [96] at 5–7.

As noted above, “Rule 11 sanctions are proper (1) when a party files a pleading that has no

reasonable factual basis; (2) when the party files a pleading that is based on legal theory that has

no reasonable chance of success and that cannot be advanced as a reasonable argument to change

existing law; or (3) when the party files a pleading in bad faith for an improper purpose.” Almeida,

335 F.R.D. at 465 (quotation marks omitted). Evaluating a motion for Rule 11 sanctions requires

the Court to determine first “whether the party’s claims are objectively frivolous — in view of the

facts or law.” McGreal, 87 F.3d at 1254. If they are, the Court then determines “whether the

person who signed the pleadings should have been aware that they were frivolous; that is, whether

he would have been aware had he made a reasonable inquiry.” Id. The Court’s evaluation uses

an objective standard that tests the signer’s conduct by inquiring what was reasonable to believe

when the pleading was submitted. See Donaldson, 819 F.2d at 1556.

Like many of the courts to have considered a pre-trial motion for Rule 11 sanctions, this

Court finds that Martinez’s Motion for Sanctions is premature. See, e.g., Almeida, 335 F.R.D. at

466–67; Doe, 2019 WL 1316041, at *2; Bigford, 2012 WL 12886184, at *2; Thomas, 880 F.2d

1243 n.11; Wheeler, 2021 WL 3501097, at *1; Rodriguez, 2022 WL 1222671, at *1. The Motion

for Sanctions is based on the asserted waiver or inapplicability of the legal defenses Grant raises

in his Answers to the Amended Complaint and the Interpleader Complaint. But a motion for

sanctions is not the appropriate vehicle for a party to test the “legal sufficiency” of a defense,

whether based on waiver, inapplicability, or differing interpretations of the pleadings — those

types of arguments must first be raised and determined in a dispositive motion or at trial. See

Bigford, 2012 WL 12886184, at *2. Particularly in a case like this one, where the Parties have

until the end of December 2024 to finish discovery and until mid-January 2025 to file dispositive

motions, id.; see also Didie, 988 F.2d at 1105, “the Court cannot say conclusively at this point

that” Grant’s affirmative defenses are “frivolous,” see Doe, 2019 WL 1316041, at *2.

Because Martinez “is pursuing sanctions based upon” Grant’s pleadings, the undersigned

finds it appropriate to reserve determination of the Motion for Sanctions until the end of this

litigation — or at least until the Court has been presented with and adjudicated Grant’s asserted

legal defenses in a dispositive motion. See Bigford, 2012 WL 12886184, at *2. Accordingly, I

respectfully RECOMMEND that the Motion for Sanctions, ECF No. [53], be DENIED

WITHOUT PREJUDICE.

IV. CONCLUSION

For those reasons, I respectfully RECOMMEND that:

1. The Motion for Contempt, ECF No. [52], be GRANTED in part and DENIED in part.

a. I recommend the Motion for Contempt be GRANTED as to

i. subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(ii) of

the shareholder agreement; and

ii. subsection (c) of the Joint Stipulation.

b. I recommend the Motion for Contempt be DENIED as to

i. subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(vi) of

the shareholder agreement;

ii. subsection (a) of the Joint Stipulation, as it modified subsection 8(c)(xiv) of

the shareholder agreement;

iii. subsection (d) of the Joint Stipulation;

iv. subsection (e) of the Joint Stipulation; and

v. subsection (f) of the Joint Stipulation.

2. To coerce Grant into compliance with the Joint Stipulation, I recommend that

a. Grant be ORDERED to comply with subsection (a) of the Joint Stipulation, as it

modified subsection 8(c)(ii) of the shareholder agreement and subsection (c) of the

Joint Stipulation; and

b. Grant be fined $500 per day he is not in compliance. See Watkins, 943 F.2d at

1304.

3. The Motion for Sanctions, ECF No. [53], be DENIED WITHOUT PREJUDICE.

CASE NO. 24-CV-21649-BLOOM/Elfenbein

Pursuant to Local Magistrate Rule 4(b), the parties have fourteen (14) days from the date

of being served with a copy of this Report and Recommendation within which to file written

objections, if any, with the Honorable Beth Bloom, United States District Judge. Failure to timely

file objections shall bar the parties from a de novo determination by the District Judge of an issue

covered in the Report and shall bar the parties from attacking on appeal unobjected-to factual and

legal conclusions contained in this Report except upon grounds of plain error if necessary in the

interest of justice. See 28 U.S.C. § 636(b)(1); Thomas v. Arn, 474 U.S. 140, 149 (1985); Henley

v. Johnson, 885 F.2d 790, 794 (11th Cir. 1989); 11th Cir. R. 3-1.

DONE and ORDERED in Chambers in Miami, Florida on October 18, 2024.

Moly Cb—

MARTY FULGUEIRA ELFENBEIN

UNITED STATES MAGISTRATE JUDGE

ce: All Counsel of Record

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