C.F. Trust, Inc. v. First Flight Ltd. Partnership

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

C. F. TRUST, INCORPORATED; 
ATLANTIC FUNDING CORPORATION,
Plaintiffs-Appellees,
v.
FIRST FLIGHT LIMITED PARTNERSHIP,
Defendant-Appellant,
and
BIRCHWOOD ORGANIZATION,
INCORPORATED; BIRCHWOOD HOLDINGS
GROUP, INCORPORATED; MARYLAND
 No. 01-1753

AIR INDUSTRIES, INCORPORATED; PVD
LIMITED PARTNERSHIP; OCCOQUAN
LIMITED PARTNERSHIP; CARNETT
COMMERCIAL INVESTORS,
INCORPORATED; BARRIE M. PETERSON;
BARRIE M. PETERSON, Trustee;
NANCY A. PETERSON; SCOTT
PETERSON; DOE ENTITIES 1-10,
Defendants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis, III, District Judge.
(CA-99-1742-A)

Argued: June 4, 2002

Decided: July 29, 2003

Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.
2 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP
Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Widener and Judge Williams joined.

COUNSEL

ARGUED: Russell James Gaspar, COHEN MOHR, L.L.P., Wash-
ington, D.C., for Appellant. Harvey Alan Levin, BIRCH, HORTON,
BITTNER & CHEROT, Washington, D.C., for Appellees. ON
BRIEF: Barbara A. Miller, BIRCH, HORTON, BITTNER & CHE-
ROT, Washington, D.C.; James R. Schroll, BEAN, KINNEY &
KORMAN, P.C., Arlington, Virginia, for Appellees.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

In this diversity action, First Flight Limited Partnership appealed
from the district court’s order declaring First Flight the alter ego of
Barrie Peterson and thereby making First Flight’s assets subject to
judgments entered against Peterson. We previously held that the dis-
trict court had properly exercised jurisdiction over the post-judgment
alter ego claims of C. F. Trust, Incorporated and Atlantic Funding
Corporation and that those claims constituted an existing liability suf-
ficient to support a veil piercing claim under Virginia law. See C. F.
Trust, Inc. v. First Flight Ltd. Partnership, 306 F.3d 126, 133-34 (4th
Cir. 2002).

However, we found it "uncertain" whether Virginia law would per-
mit outsider reverse veil piercing against a limited partnership and, if
so, what standards would have to be met before Virginia would per-
mit such a claim. Id. at 141. Accordingly, after outlining the involved
facts of this case and the legal issues they presented, we certified to
the Supreme Court of Virginia, pursuant to Rule 5:42 of the Rules of
the Supreme Court of Virginia, the following two questions:

1) Would Virginia recognize a claim for outsider reverse
veil-piercing under the facts of this case?
 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP 3
2) If the answer to (1) is yes, what standards must be met
before Virginia would allow reverse veil-piercing of the lim-
ited partnership?

Id. (citing Va. Sup. Ct. R. 5:42(a)).

The Supreme Court of Virginia accepted our certification request
and answered both questions. See C. F. Trust, Inc. v. First Flight Lim-
ited Parthershp, 580 S.E.2d 806 (Va. 2003). It answered the first cer-
tified question in the affirmative, holding "that Virginia does
recognize the concept of outsider reverse piercing and that this con-
cept can be applied to a Virginia limited partnership." Id. at 810.

With respect to the second question, the Supreme Court of Virginia
explained: "[w]hen determining whether reverse piercing of a limited
partnership is appropriate, a court must consider the same factors"
that it "considers when determining whether traditional veil piercing
should be permitted." Id. at 811. Thus, although "no single rule or cri-
terion is dispositve, the litigant who seeks to disregard a limited part-
nership entity must show that the partnership sought to be pierced has
been controlled or used by the debtor to evade a personal obligation,
to perpetrate a fraud or a crime, to commit an injustice, or to gain an
unfair advantage." Id. The court further explained that "[t]he piercing
of a veil is justified when the unity of interest and ownership is such
that the separate personalities of the corporation and/or limited part-
nership and the individual no longer exist, and adherence to that sepa-
rateness would create an injustice." Id.

The Supreme Court of Virginia also explained that when "consider-
ing reverse veil piercing" a court "must weigh the impact of such
action upon innocent investors," and "innocent secured and unsecured
creditors," as well as "the availability of other remedies the creditor
may pursue." Id. The court noted that in this case, however, "there are
no innocent limited or general partners involved" and that "C.F. Trust
and Atlantic Funding have exhausted all remedies available to them."
Id. at 181 nn.2-3.

In sum, the court concluded that although "[i]n Virginia, unlike in
some states, the standards for veil piercing are very stringent and
piercing is an extraordinary measure" it "is permitted[ ] . . . in the
4 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP
most egregious circumstances, such as under the facts before this
Court." Id. (emphasis added).

In view of these answers to the certified questions, we affirm the
judgment of the district court.

AFFIRMED