Present: All the Justices 

C.F. TRUST, INC., ET AL. 

 OPINION BY CHIEF JUSTICE LEROY R. HASSELL, SR. 

 June 6, 2003 

v. Record No. 022212 

FIRST FLIGHT LIMITED PARTNERSHIP 

UPON QUESTIONS OF LAW CERTIFIED BY THE 

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT 

I. 

 Pursuant to Rule 5:42, the United States Court of Appeals 

for the Fourth Circuit certified to this Court the following 

questions of law, which we agreed to consider: 

 "(1) Would Virginia recognize a claim for 

outsider reverse veil-piercing under the facts of 

this case? 

 "(2) If the answer to (1) is yes, what 

standards must be met before Virginia would allow 

reverse veil-piercing of the limited partnership 

here?" 

II. 

A. 

 C.F. Trust, Inc., a Florida corporation, and Atlantic 

Funding Corporation, a Nevada corporation, filed an action in 

the United States District Court for the Eastern District of 

Virginia and sought a declaration that First Flight Limited 

Partnership, a Virginia limited partnership, is the alter ego 

of Barrie M. Peterson, who had endorsed and guaranteed certain 

promissory notes. C.F. Trust and Atlantic Funding obtained 
judgments against Peterson for the principal and interest on 

the notes and sought to satisfy their judgments against 

Peterson with assets held by First Flight. The federal 

district court concluded that this Court would permit reverse 

veil piercing and that court entered a judgment requiring 

First Flight to use its assets to satisfy the judgments of 

C.F. Trust and Atlantic Funding. 

B. 

 The United States Court of Appeals' certification order 

contained the following facts which are relevant to our 

disposition of this proceeding. 

 "C.F. Trust and Atlantic Funding each hold commercial 

promissory notes endorsed and guaranteed by Peterson. As the 

district court noted, this case constitutes just one chapter 

in a prolonged tale involving C.F. Trust's and Atlantic 

Funding's efforts to collect a combined total of more than $8 

million on their notes, and Peterson's equally determined 

efforts to avoid paying anything to them. 

 "C.F. Trust . . . holds two notes, dated November 1, 

1993, in the total principal amount of $6,064,903.57. Not 

only Barrie Peterson, individually and as trustee, but also 

his wife, Nancy Peterson, endorsed and guaranteed both notes. 

C.F. Trust formally notified the Petersons of their default on 

the notes on August 31, 1995. . . . On February 1, 1996, a 

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[circuit court in Virginia] entered judgment in favor of C.F. 

Trust and against the Petersons, jointly and severally, for 

the amount of the notes, plus interest. . . . In September 

1998, when the Petersons still had not paid on the judgment, 

C.F. Trust sought and obtained a charging order from the 

[circuit] court that charged the Peterson[s'] interests in 

various partnerships, including First Flight, with paying the 

judgment on the notes. Then, on March 18, 1999, the [federal] 

district court issued garnishment orders against various 

Peterson corporations, including Birchwood Holdings Group, 

Inc., to C.F. Trust. 

 "Atlantic Funding . . . holds a single note, endorsed and 

guaranteed by Peterson, individually and as trustee, in the 

principal amount of $1,000,000. Atlantic Funding purchased 

its note along with the right to enforce a corresponding and 

preexisting judgment, entered on November 15, 1991, against 

Peterson for the principal amount of that note, plus interest. 

On March 1, 1996, a Virginia [circuit] court granted Atlantic 

Funding a charging order charging Peterson's interest in First 

Flight with paying the judgment on the Atlantic Funding note, 

and, on March 15, 1996, issued a second charging order 

charging another Peterson entity with paying the same 

judgment. 

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 "On November 18, 1999, having still received no payment 

on the judgments, C.F. Trust and Atlantic Funding initiated 

this diversity action against Peterson, Mrs. Peterson, and 

Peterson's son, Scott Peterson, as well as against various 

Peterson entities, including First Flight. . . . C.F. Trust 

and Atlantic Funding alleged that Peterson still owed on the 

judgments and sought a declaration that each of the other 

defendants was Peterson's alter ego and, therefore, liable on 

the judgments. 

. . . . 

 "A four-day bench trial began on August 28, 2000. The 

evidence presented at trial showed that Peterson had engaged 

in two different practices in order to avoid paying C.F. 

Trust's and Atlantic Funding's judgments. 

 "First, Peterson directed transfers from various Peterson 

entities to Birchwood Holdings Group, Inc. (BHG), a 

corporation wholly owned by Peterson. BHG provided managerial 

and administrative support to other Peterson entities for a 

fee, which was calculated according to a cost allocation 

method. During the relevant period, however, Peterson 

directed transfers of approximately $1.9 million in 

overpayments to BHG – excess payments beyond those to which 

BHG was entitled based on the applicable cost allocation – and 

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then directed BHG to pay more than $2 million of Peterson's 

personal expenses. 

 "Through this method, Peterson maintained a lifestyle 

that, he estimated, cost 'between 10 and 15 thousand dollars a 

month.' The expenses paid by BHG included: mortgage and 

repair payments on a Peterson residence in Fairfax, Virginia; 

mortgage payments on a Peterson residence in Nantucket, 

Massachusetts; Peterson's country club membership fees; car 

payments for Peterson's Mercedes [Benz]; the Petersons' credit 

card bills; Peterson's ATM fees; college tuition for 

Peterson's younger son, Christopher Peterson; and payments to 

Mrs. Peterson. BHG even paid the substantial legal fees 

incurred by Peterson and Mrs. Peterson, as well as by various 

Peterson entities, to defend the suits brought by C.F. Trust 

and Atlantic Funding to collect on their notes. 

 "Yet, Peterson contended that he derived no salary and 

had no income subject to the judgments entered in favor of 

C.F. Trust and Atlantic Funding. Peterson instead testified 

that the BHG payments toward his personal expenses constituted 

repayments of prior loans that he had made to his corporations 

before the dates of the judgments. However, BHG's accountant 

testified – and the ledgers reflected – that many of BHG's 

payments toward Peterson's personal expenses were 

'distributions,' not loan repayments. Moreover, no underlying 

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documentation supported Peterson's explanation for the 

disbursements or the companies' asserted obligations to 

Peterson, other than the checks and distributions themselves. 

Only in 1999 did Peterson generate 'promissory notes,' 

purportedly representing monies owed to him by his companies 

as repayment for the asserted loans. 

 "First Flight provided the bulk of the transfers to BHG 

during this time period. First Flight, the primary source of 

outside revenue for the Peterson entities, owned and operated 

a large commercial and industrial rental property called Top 

Flight Airpark. Beginning in 1992 and continuing through 

March 15, 1996, Barrie Peterson held a 98% limited partnership 

interest in First Flight, including a 2% interest held by Top 

Flight Airpark, Incorporated, a corporation wholly owned by 

him. Upland Group, an entity wholly owned by Peterson's elder 

son, Scott Peterson, held the remaining 2% general partnership 

interest. 

 "However, on March 15, 1996 – six weeks after C.F. Trust 

obtained a judgment against Peterson and two weeks after 

Atlantic Funding obtained its first charging order – Top 

Flight withdrew as 2% partner of First Flight, and Peterson 

transferred half of his resulting 98% partnership interest in 

First Flight to Scott Peterson. Upland Group, however, 

retained its 2% general partnership interest. Through this 

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transfer, Peterson purportedly surrendered legal control of 

First Flight to Scott Peterson, although Peterson himself 

continued to manage First Flight's day-to-day affairs. 

 "This transfer provided Peterson a second means of 

siphoning money from First Flight, other than through 

intercompany transfers to BHG, to pay his personal expenses. 

Peterson directed Scott Peterson to distribute First Flight's 

funds to himself, and then pay those distributions to Mrs. 

Peterson or to BHG, or use the distributions to pay the 

personal expenses of Peterson and Mrs. Peterson. Thus, 

between March 15, 1996, and December 31, 1999, although First 

Flight did not directly distribute funds to Barrie Peterson, 

[First Flight] distributed more than $4.3 million to Scott 

Peterson. 

 "To justify these distributions, Peterson and Scott 

Peterson amended First Flight's partnership agreement to allow 

Scott Peterson, as the general partner, 'to approve any 

distributions to the limited partners' and 'to determine 

whether any part of the profits of the Partnership should be 

distributed to the limited partners.' At trial, Peterson and 

Scott Peterson contended that this amendment to the 

partnership agreement extinguished the agreement's requirement 

of pro rata distributions to partners, although the amendment 

did not expressly alter its pro rata payout requirement. 

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Peterson also argued that money used by his son to pay 

Peterson's own personal expenses were repayments of loans 

Peterson had made to his respective companies." 

C. 

 The federal district court held that C.F. Trust and 

Atlantic Funding had "conclusively established the grounds 

necessary to support piercing the corporate veil in reverse." 

C.F. Trust, Inc. v. First Flight Ltd. P'ship, 140 F.Supp.2d 

628, 645 (E.D. Va. 2001). The federal district court applied 

this Court's precedent for traditional veil piercing and 

required that C.F. Trust and Atlantic Funding prove (i) a 

"unity of interest and ownership" between Peterson and First 

Flight, and (ii) that Peterson "used the corporation to evade 

a personal obligation, to perpetrate fraud or a crime, to 

commit an injustice, or to gain an unfair advantage." Id. at 

643 (quoting O'Hazza v. Executive Credit Corp., 246 Va. 111, 

115, 431 S.E.2d 318, 320 (1993)). The federal district court 

concluded that First Flight was the alter ego of Barrie 

Peterson and "that the 'separate personalities of [First 

Flight and Barrie Peterson] no longer exist[ed].' " C.F. 

Trust, 140 F.Supp.2d at 644 (quoting O'Hazza, 246 Va. at 115, 

431 S.E.2d at 321). 

III. 

A. 

8
 First Flight argues that this Court should not permit 

outsider reverse piercing of a limited partnership by a 

creditor of a limited partner. Responding, C.F. Trust and 

Atlantic Funding assert that this Court has permitted 

traditional veil piercing and that the same principles this 

Court applied in those instances would also permit reverse 

veil piercing in the present case. 

 We have stated that "[t]he proposition is elementary that 

a corporation is a legal entity entirely separate and distinct 

from the shareholders or members who compose it. This 

immunity of stockholders is a basic provision of statutory and 

common law and supports a vital economic policy underlying the 

whole corporate concept." Cheatle v. Rudd's Swimming Pool 

Supply Co., Inc., 234 Va. 207, 212, 360 S.E.2d 828, 831 

(1987); accord Beale v. Kappa Alpha Order, 192 Va. 382, 397, 

64 S.E.2d 789, 797 (1951). The decision to ignore the 

separate existence of a corporate entity and impose personal 

liability upon shareholders for debts of the corporation is an 

extraordinary act to be taken only when necessary to promote 

justice. O'Hazza, 246 Va. at 115, 431 S.E.2d at 320; Cheatle, 

234 Va. at 212, 360 S.E.2d at 831. 

 We have stated that "no single rule or criterion 

. . . can be applied to determine whether piercing the 

corporate veil is justified," O'Hazza, 246 Va. at 115, 431 

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S.E.2d at 320, and that the corporate entity will be 

disregarded and the veil pierced only if: 

"[T]he shareholder sought to be held personally 

liable has controlled or used the corporation to 

evade a personal obligation, to perpetrate fraud or 

a crime, to commit an injustice, or to gain an 

unfair advantage. . . . Piercing the corporate veil 

is justified when the unity of interest and 

ownership is such that the separate personalities of 

the corporation and the individual no longer exist 

and to adhere to that separateness would work an 

injustice." 

Greenberg v. Commonwealth, 255 Va. 594, 604, 499 S.E.2d 266, 

272 (1998) (quoting O'Hazza, 246 Va. at 115, 431 S.E.2d at 

320-21); accord Lewis Trucking Corp. v. Commonwealth, 207 Va. 

23, 31, 147 S.E.2d 747, 753 (1966). The decision to disregard 

a corporate structure to impose personal liability is a factspecific determination, and the factual circumstances 

surrounding the corporation and the questioned act must be 

closely scrutinized in each case. Greenberg, 255 Va. at 604, 

499 S.E.2d at 272. 

 This Court has been very reluctant to permit veil 

piercing. We have consistently held, and we do not depart 

from our precedent, that only "an extraordinary exception" 

justifies disregarding the corporate entity and piercing the 

veil. Id.; Cheatle, 234 Va. at 212, 360 S.E.2d at 831; Beale, 

192 Va. at 397, 64 S.E.2d at 797-98. 

10
 Traditionally, a litigant who seeks to pierce a veil 

requests that a court disregard the existence of a corporate 

entity so that the litigant can reach the assets of a 

corporate insider, usually a majority shareholder. In a 

reverse piercing action, however, the claimant seeks to reach 

the assets of a corporation or some other business entity, as 

in this instance the assets of a limited partnership, to 

satisfy claims or a judgment obtained against a corporate 

insider. This proceeding, often referred to as "outsider 

reverse piercing," is designed to achieve goals similar to 

those served by traditional corporate piercing proceedings.1

 We conclude that there is no logical basis upon which to 

distinguish between a traditional veil piercing action and an 

outsider reverse piercing action. In both instances, a 

claimant requests that a court disregard the normal 

protections accorded a corporate structure to prevent abuses 

of that structure. Therefore, we hold that Virginia does 

recognize the concept of outsider reverse piercing and that 

this concept can be applied to a Virginia limited partnership. 

Indeed, limited partnerships, like corporations, have a legal 

existence separate from the partners in the limited 

partnership, and the structure of the statutorily-created 

 1 See Gregory S. Crespi, The Reverse Pierce Doctrine: 

Applying Appropriate Standards, 16 J. Corp. L. 33 (1990). 

11
limited partnership limits the potential liability of each 

limited partner. See Code § 50-73.24. 

 We note that the following jurisdictions also have 

approved the concept of reverse veil piercing. See, e.g., In 

re Blatstein, 192 F.3d 88, 100 (3d Cir. 1999); American Fuel 

Corp. v. Utah Energy Dev. Co., Inc., 122 F.3d 130, 134 (2d 

Cir. 1997); Stoebner v. Lingenfelter, 115 F.3d 576, 579-80 

(8th Cir. 1997); Towe Antique Ford Found. v. IRS, 999 F.2d 

1387, 1390 (9th Cir. 1993); Permian Petroleum Co. v. Petroleos 

Mexicanos, 934 F.2d 635, 643 (5th Cir. 1991); Valley Fin., 

Inc. v. United States, 629 F.2d 162, 171-72 (D.C. Cir. 1980), 

cert. denied, 451 U.S. 1018 (1981); Litchfield Asset Mgmt. 

Corp. v. Howell, 799 A.2d 298, 309, 312 (Conn. App. Ct. 2002); 

Estudios, Proyectos e Inversiones de Centro America, S.A. v. 

Swiss Bank Corp. (Overseas) S.A., 507 So. 2d 1119, 1120-21 

(Fla. Dist. Ct. App. 1987); Minich v. Gem State Developers, 

Inc., 591 P.2d 1078, 1084 (Idaho 1979); Lambert v. Farmers 

Bank, 519 N.E.2d 745, 748-49 (Ind. Ct. App. 1988); Central 

Nat'l Bank & Trust Co. of Des Moines v. Wagener, 183 N.W.2d 

678, 682 (Iowa 1971); Roepke v. Western Nat'l Mut. Ins. Co., 

302 N.W.2d 350, 352 (Minn. 1981); LFC Mktg. Group, Inc. v. 

Loomis, 8 P.3d 841, 846 (Nev. 2000); Winey v. Cutler, 678 A.2d 

1261, 1262-63 (Vt. 1996); Olen v. Phelps, 546 N.W.2d 176, 181 

(Wis. Ct. App. 1996). But see Floyd v. IRS, 151 F.3d 1295, 

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1298-99 (10th Cir. 1998); Scholes v. Lehmann, 56 F.3d 750, 758 

(7th Cir.), cert. denied, 516 U.S. 1028 (1995); Sturtevant v. 

Town of Winthrop, 732 A.2d 264, 270 (Me. 1999). 

B. 

 Virginia has adopted the Revised Uniform Limited 

Partnership Act, Code § 50-73.1, et seq. First Flight argues 

that the Act "specifies whether and when a limited partner may 

be held liable for the debts of the partnership, and thereby 

provides a statutory remedy analogous to the judiciallycreated remedy of piercing the corporate veil. . . . More 

importantly, the Act also provides a remedy for creditors of a 

limited partner by specifying the manner in which the assets 

of a limited partnership may be subjected to a creditor's 

claims." Continuing, First Flight claims that the Virginia 

Revised Uniform Limited Partnership Act prescribes the only 

methods that creditors may utilize to reach assets of a 

limited partnership. 

 We agree with First Flight that the Virginia Revised 

Uniform Limited Partnership Act prescribes certain statutory 

remedies for creditors of a limited partnership. For example, 

Code § 50-73.46, which is a part of the Act, permits a court 

to charge the partnership interest of a limited partner 

against whom a judgment has been entered. However, there is 

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simply no language in the Act that prohibits a court from 

piercing the veil of a limited partnership. 

IV. 

 When determining whether reverse piercing of a limited 

partnership is appropriate, a court must consider the same 

factors summarized in Part III.A. of this opinion that this 

Court considers when determining whether traditional veil 

piercing should be permitted. Also, as we have stated in Part 

III.A. of this opinion, even though no single rule or 

criterion is dispositive, the litigant who seeks to disregard 

a limited partnership entity must show that the limited 

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. 

 In Virginia, unlike in some states, the standards for 

veil piercing are very stringent, and piercing is an 

extraordinary measure that is permitted only in the most 

egregious circumstances, such as under the facts before this 

Court. The 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 partnership and the 

individual no longer exist, and adherence to that separateness 

would create an injustice. 

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 Additionally, a court considering reverse veil piercing 

must weigh the impact of such action upon innocent investors, 

in this instance, innocent limited partners or innocent 

general partners.2 A court considering reverse veil piercing 

must also consider the impact of such an act upon innocent 

secured and unsecured creditors. The court must also consider 

the availability of other remedies the creditor may pursue.3 

And, a litigant who seeks reverse veil piercing must prove the 

necessary standards by clear and convincing evidence. 

V. 

 In view of the foregoing, we answer the first certified 

question in the affirmative, and we answer the second 

certified question by referring the United States Court of 

Appeals for the Fourth Circuit to Parts III.A. and IV. of this 

opinion. 

Certified question answered in the affirmative. 

 2

 We note that based upon the facts contained within the 

order of certification and the federal district court's 

opinions, there are no innocent limited or general partners 

involved in this proceeding. 

3

 Based upon the facts contained within the order of 

certification and the federal district court's opinions, C.F. 

Trust and Atlantic Funding exhausted all remedies available to 

them. 

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