Opinion ID: 744192
Heading Depth: 2
Heading Rank: 1

Heading: Underlying litigation in the district court

Text: 8 Shortly after the termination of the franchise agreement, in December 1987, GTI and its president and principal shareholder, appellant/cross-appellee Jose Baeza, Sr. (Baeza, Sr.) filed suit in state court for, inter alia, breach of the DMA by wrongful termination. 6 Because diversity jurisdiction existed, Yale removed the case to federal court where it asserted a number of counterclaims, including breach of the DMA through submission of false pricing and warranty claims; fraudulent conveyance of corporate assets which constituted secured collateral; and, failure to pay notes and monies when due on the open account. Yale later amended its counterclaim to add counter-defendants Javier Baeza, Baeza, Jr. (also known as Manny Baeza), 7 and Gonzalez Trading, a Puerto Rican dealership owned and controlled by Baeza, Sr. which sells a competing brand of forklift. Following the filing of the lawsuit, the district court issued a prejudgment writ of replevin for Yale forklifts and parts still remaining on GTI's' premises. 9 In 1990, the parties' claims were tried in a non-jury trial for over 13 days before a judge in the United States District Court for the Southern District of Florida. The presiding judge resigned before the case was completed, and the case ultimately was transferred to District Judge William J. Zloch. 10 B. Referral of underlying litigation to a magistrate judge 11 On August 30, 1991, the parties' attorneys attended a status conference with the new district court judge, and discussed the possibility of having the case referred to a United States magistrate judge. On November 20, 1991, the attorneys for Yale, as well as the attorneys for GTI, Gonzalez Trading, Baeza, Sr., Javier Baeza, and Baeza, Jr. attended a status conference before United States Magistrate Judge Ted. E. Bandstra, and presented a signed consent to the completion of the trial before a United States magistrate judge, pursuant to 28 U.S.C. § 636(c). At the conference, the attorneys stipulated to proceed in the manner provided by Amended Rule 63 of the Federal Rules of Civil Procedure. The preamble of the consent and stipulation listed GTI, Baeza, Sr., Javier Baeza and Yale, and the signature of these parties' attorneys appeared at the end of the document. After receiving the consent and stipulation, the magistrate judge stated that apparently there is an agreed consent to have this case now be completed, not restarted, but completed before me. Is that correct? Yale's attorney responded in the affirmative; no party objected to the magistrate judge's statement regarding consent. 12 Gonzalez Trading was not specified in the preamble; however, that company's attorney, as well as its corporate agent, Baeza Sr., was present at the status conference. In addition, Baeza, Jr. was not listed in the preamble of the consent and stipulation. At the status conference, the magistrate judge asked Baeza, Jr.'s attorney whether Baeza, Jr. would consent to reference of the completion of the bench trial before him. His attorney answered, I don't think we have any problem with that. I think that's fine. 8 13 On November 27, 1991, the district court issued an order of referral, whereby the trial and final disposition of the litigation was referred to a United States magistrate judge pursuant to 28 U.S.C. § 636(c) and pursuant to Rule 1(h) of the Magistrate Rules for the United States District Court, Southern District of Florida. In the order of referral, the district court stated that the consent and stipulation had been carefully reviewed, and was approved, ratified and adopted by the district court. Furthermore, the order of referral stated that any party objecting to the order shall file said Objections with the Clerk of this Court, ... within seven (7) calendar days from the date of this Order. The failure of any party to file Objections to the contents or any provision of this Order shall be deemed a total waiver of the contents and provisions of this Order. (emphasis in original). No party filed objections to the referral within the specified time period. 9 14 After the parties completed the trial, on September, 30, 1992, the magistrate judge ruled for Yale on GTI's wrongful termination claim based on his finding that GTI had repeatedly made false pricing requests and fraudulent warranty claims. 10 Yale was awarded $1,119,612 for GTI's breach of contract, and for various other commercial claims which it asserted. In addition, the magistrate judge found that Yale had filed the involuntary bankruptcy petition in bad faith, and awarded GTI punitive damages of $500,000 pursuant to 11 U.S.C. § 303(i)(1)(B), as well as attorney's fees and costs of $89,777, pursuant to § 11 U.S.C. § 303(i)(1)(A), and (B). Codefendants Javier Baeza, and Gonzalez Trading were not found to be liable. On April 28, 1993, the court entered an amended final judgment which, inter alia, entered judgment in favor of Yale and against GTI and Baeza, Sr. in the amount of $1,139,528; this amount included post-judgment interest. In addition, on November 10, 1993, final judgment in Yale's favor was entered for the additional amount of $2,279,181.36 against GTI and Baeza, Sr., for attorney's fees and costs incurred by Yale in the case. 15 C. Supplementary Proceedings & Impleader of Fraudulent Transferees 16 In conducting its discovery in aid of execution of the judgment, Yale uncovered a number of fraudulent transfers made by GTI and Baeza, Sr. subsequent to September 30, 1992, the date of the magistrate judge's memorandum opinion and order. On July 8, 1993, Yale filed an emergency motion with the magistrate judge, seeking to commence additional proceedings pursuant to Fed.R.Civ.P. 69, and Florida Statute 56.29, in aid of execution of the amended judgment. This motion requested that the magistrate judge ask the following parties to show cause why certain property which they received from GTI and/or Baeza, Sr. should not be subject to execution to satisfy Yale's judgment: (1) Javier Baeza; (2) Jose Baeza, Jr.; (3) Power Depot, a Florida corporation owned and operated by Javier Baeza; (4) Michele M. Baeza, the daughter of Baeza, Sr.; and, (5) Encarnacion Gonzalez, the ex-wife of Baeza, Sr. and mother of Javier Baeza, Baeza, Jr., and Michele M. Baeza. According to Yale, these parties had received assets from GTI and/or Baeza, Sr. in violation of Florida's Uniform Fraudulent Transfers Act (UFTA), Chapter 726, Florida Statutes, and/or in violation of Florida's bulk sales laws, Chapter 676, Florida Statutes. Yale's motion sought to set aside the transfers as fraudulent and sought the conveyance of the subject assets to Yale as partial payment of the final judgments entered by the magistrate judge's amended final judgment. 17 Yale's initial motion was denied by the magistrate judge, but Yale renewed the motion on August 30, 1993. On September 17, 1993, the magistrate judge granted Yale's motion, and impleaded supplemental defendants Michele M. Baeza, Encarnacion Gonzalez, and Power Depot (all of whom are referred to throughout this opinion as new transferees) and ordered them to show cause as to why the subject assets should not be declared fraudulently acquired. In addition, the magistrate judge ordered counter-defendants Baeza, Jr. and Javier Baeza to show cause as to why they should not be subject to Yale's judgments to the extent that each participated in or benefited from the challenged transfers of property and subject assets. 11 All of the new transferees responded to the order to show cause prior to evidentiary hearings on Yale's motion for supplementary proceedings. In addition, all the new transferees filed proposed findings of fact and conclusions of law. 18 After holding evidentiary hearings the magistrate judge issued an order on February 25, 1994, which set aside or invalidated the following transfers: 12 Baeza, Sr.'s transfer of six lots of real property in Miami to Michele Baeza; Baeza, Sr.'s transfer of his 43 foot Bertram yacht to Baeza, Jr.; Baeza, Sr.'s attempt to transfer four lots in West Palm Beach to Javier Baeza; GTI's transfer of $550,000 to GT corporation (formerly Gonzalez Trading); GTI's payment of a bonus of $250,000 to Javier Baeza; and, GTI's payment of a bonus of $26,789 to Baeza, Jr. The magistrate judge concluded that Power Depot was not liable to Yale. On April 12, 1994, separate judgments were entered effectuating the magistrate's order. 13 Yale's objections to the magistrate judge's ruling regarding Power Depot are addressed in this appeal. 14 19 After the magistrate judge entered final judgment, the new transferees filed motions for a new trial in connection with the supplemental proceedings. This motion was withdrawn, however, on April 8, 1994. In withdrawing their motion for a new trial, the new transferees submitted to the magistrate judge a written acceptance of judgment, in which they stated the following: [t]o obtain peace of mind, and go about their business, without admission of any facts, they accept the Judgment entered in the case at bar, dated February 25, 1994....  20 D. Challenges to the magistrate judge's authority 21 On May 2, 1994, the new transferees filed a motion seeking an emergency hearing to vacate the final judgments of the magistrate, wherein they contended that they had not consented to the magistrate judge's authority as required under 11 U.S.C. § 636(c), and that the magistrate judge lacked the subject matter jurisdiction to enter judgments. GTI, Baeza, Sr., Baeza, Jr. and Gonzalez Trading also filed motions challenging the magistrate judge's authority. On May 10, 1994, the magistrate judge conducted a hearing on these parties' emergency motions; the motions were denied on May 23, 1994. The parties appealed the magistrate judge's May 23, 1994, order to this court; that appeal is addressed in this opinion. 22 At the same time that Baeza, Jr. and Gonzalez Trading filed their motion with the magistrate judge to determine whether he had jurisdiction, they also filed a motion with the district court to vacate the order of referral. On October 24, 1994, the district court issued an order denying Baeza, Jr. and Gonzalez's motion. In the order, the district court dismissed the motion for lack of jurisdiction because the issue of the magistrate judge's authority at that time was pending on appeal to this court. In the alternative, the district court found that Baeza, Jr. and Gonzalez Trading had consented to the magistrate judge's authority pursuant to 28 U.S.C. § 636(c). The district court's October 24, 1994, order was appealed to this court. On August 21, 1995, this court affirmed the district court's dismissal, stating that the district court lacked jurisdiction to entertain appellants' motion to vacate the order of referral to the magistrate during the pendency before this Court of the parties' earlier appeals raising the issue of the magistrate's authority in this case. E. Bankruptcy Proceedings 23 On April 8, 1988, three months subsequent to the original litigation in the district court, Yale filed a petition for involuntary bankruptcy against GTI in the United States Bankruptcy Court for the Southern District of Florida, pursuant to Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 303(a). 15 Shortly thereafter, Yale moved for relief from the automatic stay in the bankruptcy court so that it could pursue prejudgment remedies, such as the writ of replevin, in the district court action. That motion was granted. 24 On June 30, 1988, the bankruptcy judge dismissed the involuntary bankruptcy petition following a two-day trial. The bankruptcy court disregarded Yale's claim for inventory payments of approximately $491,000, as well as Yale's claim that GTI had used Yale collateral to pay other creditors, because it concluded that they were subject to a bona fide dispute in the district court action. Once these claims were excluded, the bankruptcy court found that the creditors who brought the involuntary petition had failed to prove that GTI was generally not paying its debts as they became due. In addition, the bankruptcy court concluded, inter alia, that the creditors could obtain adequate relief in the district court action, and that no special circumstances existed to warrant exclusive relief under the Bankruptcy Code. The bankruptcy court's dismissal was affirmed by the district court on May 26, 1989. Yale now appeals the district court's affirmance of the bankruptcy court's dismissal of the involuntary petition. 25 The question of whether Yale wrongfully filed the petition was not addressed by the bankruptcy court, and was reserved for a later determination. That issue was litigated before the magistrate judge along with the issues presented in the underlying litigation. In an opinion issued on September 30, 1992, the court found that Yale filed the involuntary bankruptcy petition in bad faith, and, pursuant to 11 U.S.C. § 303(i)(1)(A), and (B), awarded GTI punitive damages of $500,000 as well as attorney's fees and costs of $87,777. Yale's appeal of this ruling is also addressed in this opinion.