PEYTON

v.

GRANT

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 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). 6 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 7 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, 8 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 9 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., 10 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 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 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. 22 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 23 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. 24 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 25 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. 26 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 27 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 28 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 29 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. 30 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. 31 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. cc: All Counsel of Record MARTY FULGUEIRA ELFENBEIN UNITED STATES MAGISTRATE JUDGE 32