C. F. Trust, Incorporated; Atlantic Funding Corporation v. First Flight Limited Partnership

MODIFIED OPINION
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 No. 01-1753 GROUP, INCORPORATED; MARYLAND
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: August 20, 2002
Amended Opinion Filed: September 23, 2002

-- 1 of 22 --

Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.
Questions certified by published opinion. Judge Motz wrote the opin-
ion, 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 appeals
from the district court’s order declaring First Flight the alter ego of
Barrie Peterson and, therefore, making its assets subject to judgments
entered against Peterson in favor of C.F. Trust, Incorporated, and
Atlantic Funding Corporation. Because we find Virginia law on the
issues presented in this case uncertain, we respectfully certify two
questions to the Supreme Court of Virginia.
I.
C.F. Trust and Atlantic Funding each hold commercial promissory
notes endorsed and guaranteed by Peterson.1 As the district court
1Neither C.F. Trust nor Atlantic Funding originally held the notes. C.F.
Trust was incorporated for the sole purpose of acquiring its two notes
from their prior holder, Central Fidelity Bank. Atlantic Funding pur-
chased its note from Resolution Trust Corporation. C.F. Trust and Atlan-
tic Funding are related entities in that C.F. Trust’s vice-president owns
all shares of Atlantic Funding, as well as all shares of a corporation that
owns 25% of C.F. Trust.
2 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 2 of 22 --

noted, this case constitutes just one chapter in a prolonged tale involv-
ing 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, a Florida corporation, holds two notes, dated November
1, 1993, in the total principal amount of $6,064,903.57. Not only Bar-
rie 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. See C.F. Trust, Inc. v. Peterson, No. 96-1128-A, 1996 WL
33165192 (E.D. Va. Dec. 9, 1996). On February 1, 1996, a Virginia
state court entered judgment in favor of C.F. Trust and against the
Petersons, jointly and severally, for the amount of the notes, plus
interest. C.F. Trust, Inc. v. Peterson, No. 39433 (Va. Cir. Ct. Feb 1,
1996). In September 1998, when the Petersons still had not paid on
the judgment, C.F. Trust sought and obtained a charging order from
the state court that charged the Peterson interests in various partner-
ships, including First Flight, with paying the judgment on the notes.
Then, on March 18, 1999, the district court issued garnishment orders
against various Peterson corporations, including Birchwood Holdings
Group, Inc., to C.F. Trust.2
Atlantic Funding, a Nevada corporation, 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 Vir-
ginia state 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
2These garnishment summons required each garnishee, or recipient, to
"withhold from the judgment debtor any sums of money to which the
judgment debtor is or may be entitled" during the garnishment period.
Each garnishee responded that "said garnishee does not owe [the Peter-
sons] any sums of money, nor are [the Petersons] entitled to receive any
sums of money for the period covering said garnishment from this gar-
nishee."
3 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 3 of 22 --

charging order charging another Peterson entity with paying the same
judgment.
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. In Count I, C.F. Trust and Atlantic Funding alleged that Peter-
son 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. In Counts II and III, C.F. Trust and Atlantic Funding
further sought an injunction and the appointment of a receiver to pre-
vent the defendants from transferring assets "to and for the benefit of
Barrie Peterson and Nancy Peterson for the purposes and with the
effects of secreting their assets from legitimate creditors, of delaying,
hindering and defrauding [C.F. Trust] and [Atlantic Funding] and of
evading compliance with lawful federal court judgments, federal and
state court charging orders and a federal court garnishment sum-
mons." Finally, C.F. Trust and Atlantic Funding advanced seven other
claims, including violation of the charging orders and garnishment
summons, statutory and common law conspiracy, and violation of the
Racketeer Influenced and Corrupt Organizations Act (RICO), 18
U.S.C.A. § 1961 et seq. (West 2000).
Prior to trial, the district court dismissed all but Counts I, II, and
III, and dismissed many of the Peterson entities as defendants. The
district court also entered summary judgment in favor of Mrs. Peter-
son and Scott Peterson. However, the court refused to grant summary
judgment to the remaining parties — Peterson, First Flight, and Mary-
land Air Industries, Incorporated — on the remaining claims, reason-
ing that "material facts [we]re indeed genuinely disputed" as to
whether Peterson abused the corporate form of his "captive" business
entities "with the intent to defraud creditors or to evade a personal
obligation." See C.F. Trust, Inc. v. First Flight Ltd. P’ship, 111 F.
Supp. 2d 734, 743 (E.D. Va. 2000).
The court also determined that it would allow C.F. Trust and Atlan-
tic Funding to pursue an alter ego claim against First Flight; if suc-
cessful, this would permit C.F. Trust and Atlantic Funding to pierce
the corporate veil in reverse, i.e., "to reach the assets of a corporation
4 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 4 of 22 --

to satisfy claims against a corporate insider." Id. at 740. The court
ruled that although the Supreme Court of Virginia had not previously
recognized outsider reverse veil-piercing, the Commonwealth likely
would recognize the doctrine. Id. at 739-41. The court reasoned that
outsider reverse veil-piercing, like traditional veil-piercing, aimed to
prevent misuse of the corporate form "to evade a personal obligation,
to perpetrate fraud or a crime, to commit an injustice, or to gain an
unfair advantage." Id. at 742 (internal quotation marks, emphasis, and
citation omitted). Accordingly, because the Supreme Court of Vir-
ginia had permitted traditional veil-piercing as a means of obtaining
these ends in the appropriate case, and the Court of Appeals of Vir-
ginia had permitted outsider reverse veil-piercing to advance the same
goals, the court concluded that C.F. Trust and Atlantic Funding could
pursue their alter ego claim under Virginia law. Id. at 741.
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 then directed BHG to
pay more than $2 million of Peterson’s personal expenses.
Through this method, Peterson maintained a lifestyle that, he esti-
mated, 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; 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 Peter-
son and Mrs. Peterson, as well as by various Peterson entities, to
5 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 5 of 22 --

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 judg-
ments. However, BHG’s accountant testified — and the ledgers
reflected — that many of BHG’s payments toward Peterson’s per-
sonal expenses were "distributions," not loan repayments. Moreover,
no underlying 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 indus-
trial rental property called Top Flight Airpark. Beginning in 1992 and
continuing through March 15, 1996, Barrie Peterson held a 98% lim-
ited 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 result-
ing 98% partnership interest in First Flight to Scott Peterson. Upland
Group, however, retained its 2% general partnership interest. Through
this transfer, Peterson purportedly surrendered legal control of First
Flight to Scott Peterson, although Peterson himself continued to man-
age 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
6 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 6 of 22 --

BHG, to pay his personal expenses. Peterson directed Scott Peterson
to distribute First Flight’s funds to himself, and then pay those distri-
butions 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, it 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 dis-
tributions to partners, although the amendment did not expressly alter
its pro rata payout requirement. 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.
The district court rejected these arguments and instead 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 district court applied Virginia’s two-factor test
for traditional veil-piercing, requiring C.F. Trust and Atlantic Funding
to 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., 431 S.E.2d 318, 320 (Va. 1993))
(additional citation omitted).
As to the first factor, the court expressly found that "First Flight is
the alter ego of Barrie Peterson" and "that the ‘separate personalities
of [First Flight and Barrie Peterson] no longer exist[.]’" Id. at 644
(quoting O’Hazza, 431 S.E.2d at 321) (alterations in original). In sup-
port of this finding, the court cited abundant evidence that Peterson
"treated his corporate and personal affairs as if they were indistin-
guishable," used First Flight "as a device to pay his personal
7 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 7 of 22 --

expenses," "maintained control over First Flight’s operations," "re-
tained decisionmaking control over First Flight," "direct[ed] that
[First Flight] make distributions of substantial funds to Scott Peterson
and to BHG for the payment of Barrie Peterson’s personal expenses,"
"commingled his personal funds with the funds of the entities that he
controlled and owned," and "caused First Flight to ignore the require-
ments of its partnership agreement," which "conclusively estab-
lish[ed]" that First Flight "failed to follow the requisite business and
corporate formalities." Id. at 633-35, 644-45 (internal quotation marks
and citations omitted). The court also found that Peterson exercised
this unilateral control over First Flight notwithstanding Upland
Group’s general partnership interest and Scott Peterson’s limited part-
nership interest in First Flight.
The district court further expressly found that C.F. Trust and Atlan-
tic Funding had satisfied the second factor for traditional veil-
piercing: Peterson "used this control [over First Flight] to evade his
obligations to his creditors . . . by directing the transfer of millions
of dollars out of First Flight to Scott Peterson and to BHG for the pay-
ment of his personal expenses," without any "legitimate business pur-
pose." Id. at 644. The court relied on the extensive evidence that
Peterson directed First Flight to violate its partnership agreement by
making distributions — which totaled more than $4.3 million —
exclusively to Scott Peterson, then further directing Scott Peterson to
funnel substantial sums toward Peterson’s personal expenses, out of
the reach of Peterson’s creditors.3 The court also noted the evidence
3The court rejected First Flight’s argument that the 1996 amendments
to the partnership agreement permitted Scott Peterson to make the $4.3
million in distributions, stating that the amendments gave Scott Peterson
discretion whether to make distributions, but did not alter the require-
ment that all distributions be made to limited partners on a pro rata basis.
C.F. Trust, 140 F. Supp. 2d at 635-36. Thus, all distributions from First
Flight after 1996 "should have been made [to Peterson and Scott Peter-
son] in proportion to each limited partner’s respective ownership inter-
ests." Id. at 635. If this had been done, Peterson would have been entitled
to $2.15 million in distributions that would have been subject to the C.F.
Trust and Atlantic Funding judgments, after satisfaction of a judgment
obtained by Carnett Commercial Investors, Inc. ("Carnett"), a corpora-
tion owned by Scott Peterson, to the extent that the Carnett judgment
remained valid. Id.
8 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 8 of 22 --

that First Flight’s transfers to BHG, made on Peterson’s demand, sub-
stantially exceeded BHG’s cost allocation and that Peterson specifi-
cally used BHG as part of a "scheme" to "siphon money from [his]
entities to pay approximately $2 million for his personal benefit"
because BHG’s funds were "not subject to plaintiffs’ charging
orders." Id. at 636, 638.
For these reasons, the court held that C.F. Trust and Atlantic Fund-
ing were "entitled to an order declaring that First Flight [was] the alter
ego[ ] of Barrie Peterson" and making its "assets . . . subject to" the
judgments in favor of C.F. Trust and Atlantic Funding, although it
denied the request for a receiver. Id. at 645. On March 22, 2001, the
district court entered judgment in favor of C.F. Trust and Atlantic
Funding.
Less than a month later, on April 6, 2001, Peterson, in his individ-
ual capacity, filed a voluntary bankruptcy petition pursuant to Chapter
11. First Flight timely noted an appeal in this action shortly thereafter.
A year later, on March 1, 2002, the bankruptcy court held that to the
extent that Peterson’s bankruptcy petition effected a stay of this
appeal pursuant to the Bankruptcy Code’s automatic stay provision,
11 U.S.C.A. § 362 (West 1993), the court lifted that stay. Of course,
as C.F. Trust and Atlantic Funding conceded at oral argument, deter-
mination of the relative priority of the interests of Peterson’s creditors
remains a matter for the bankruptcy court.
II.
First Flight offers several reasons why the complaint assertedly "al-
leges" no "valid" alter ego claim against it.
Initially, First Flight argues that the district court should have dis-
missed the alter ego claim for lack of subject matter jurisdiction, cit-
ing Peacock v. Thomas, 516 U.S. 349 (1996). In Peacock, however,
the Court held only that federal jurisdiction over claims leading to an
underlying judgment provides no ancillary federal jurisdiction over a
subsequent, post-judgment alter ego claim. Id. at 354-56. Peacock
does not prohibit a federal court from taking jurisdiction over a post-
judgment alter ego claim where an independent basis for jurisdiction
exists.
9 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 9 of 22 --

In this case, unlike the plaintiff in Peacock, C.F. Trust and Atlantic
Funding assert an independent basis for subject matter jurisdiction
over their alter ego claim — diversity of citizenship — and First
Flight does not contend that the diversity requirements have not been
met. Accordingly, Peacock is inapposite. Cf. United States v. Vitek
Supply Corp., 151 F.3d 580, 585-86 (7th Cir. 1998) (rejecting judg-
ment debtor’s argument that "federal courts cannot collect debts by
piercing the corporate veils of judgment debtors" where an indepen-
dent basis for jurisdiction exists).
Second, First Flight contends that the complaint fails to allege a
necessary prerequisite to an alter ego claim, i.e., "an existing liability"
owed by Peterson to the plaintiffs. Brief of Appellant at 28 (emphasis
in original). In making this argument, First Flight fundamentally mis-
understands what makes a liability "existing" for purposes of bringing
a successful alter ego claim. First Flight maintains that a liability no
longer "exist[s]" after a court reduces it to judgment, and that, by
extension, post-judgment conduct cannot form the basis of an alter
ego claim.
This appears to be in the nature of a res judiciata or merger argu-
ment, though its logic is difficult to discern. What is clear, however,
is that C.F. Trust and Atlantic Funding have alleged (and proved)
Peterson’s liability to them for the valid notes they hold. That this lia-
bility has been already reduced to judgment does not somehow invali-
date it or render it an improper basis upon which to assert an alter ego
claim, as First Flight seems to believe. Often a court has reduced a
defendant’s underlying liability to judgment before a plaintiff asserts
an alter ego claim. See, e.g., Steyr Daimler-Puch of Am. Corp. v. Pap-
pas, 852 F.2d 132 (4th Cir. 1988) (applying Virginia law and consid-
ering whether judgment creditor or bankruptcy trustee had authority
to bring post-judgment alter ego claim); Greenberg v. Common-
wealth, 499 S.E.2d 266, 270-72 (Va. 1998) (determining whether suf-
ficient evidence existed to pierce the veil on a post-judgment alter ego
claim); Sloan v. Thornton, 457 S.E.2d 60 (Va. 1995) (same).
Furthermore, because a judgment establishes, rather than extin-
guishes, a party’s liability, C.F. Trust and Atlantic Funding can prop-
erly allege Peterson’s post-judgment conduct as a basis for their alter
ego claim. After all, to prevail on an alter ego claim, a party must
10 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 10 of 22 --

show that the individual uses the alter ego to "evade a personal obli-
gation, to perpetrate fraud or a crime, to commit an injustice, or to
gain an unfair advantage." Greenberg, 499 S.E.2d at 272 (quoting
O’Hazza, 431 S.E.2d at 320) (emphasis added). A defendant’s post-
judgment actions frequently illustrate his use of an alter ego to "evade
a personal obligation." Cf. Select Creations, Inc. v. Paliafito Am., Inc.,
852 F. Supp. 740, 774 (E.D. Wis. 1994) ("It is particularly appropriate
to apply the alter ego doctrine in ‘reverse’ when the controlling party
uses the controlled entity to hide assets or secretly to conduct business
to avoid the pre-existing liability of the controlling party." (emphasis
added)).
For these reasons, we reject First Flight’s contentions as to the
validity of the allegations in the complaint.
III.
Alternatively, First Flight argues that the district court erred in per-
mitting C.F. Trust and Atlantic Funding to pursue their alter ego
claim. First Flight asserts that Virginia does not recognize the kind of
alter ego claim alleged here — one for "outsider reverse veil-
piercing." In addition, First Flight maintains that, even if Virginia
does recognize a claim for outsider reverse veil-piercing, the doctrine
applies only to corporations and does not extend to limited partner-
ships.
A.
In a traditional veil-piercing case, a creditor of a corporation seeks
to reach the assets of a corporate shareholder or director to satisfy a
corporate debt. See, e.g., Perpetual Real Estate Servs. v. Michaelson
Props., 974 F.2d 545, 548-49 (4th Cir. 1992). Outsider reverse veil-
piercing extends this traditional veil-piercing doctrine to permit a
third-party creditor to "pierce[ ] the veil" to satisfy the debts of an
individual out of the corporation’s assets. See, e.g., Goya Foods, Inc.
v. Unanue, 233 F.3d 38, 43 (1st Cir. 2000).
Indisputably, as First Flight concedes, Virginia has long recognized
traditional veil-piercing claims. Although Virginia courts strongly
11 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 11 of 22 --

adhere to the principle that "a corporation is a legal entity entirely
separate and distinct from the shareholders or members who compose
it," Cheatle v. Rudd’s Swimming Pool Supply Co., 360 S.E.2d 828,
831 (Va. 1987), they have held that traditional veil-piercing "is justi-
fied 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." O’Hazza, 431
S.E.2d at 320-21 (citations omitted); see also, e.g., Greenberg, 499
S.E.2d at 272. However, Virginia courts clearly regard corporate veil-
piercing as an "extraordinary" remedy, permitted only in exceptional
circumstances when "necessary to promote justice." Cheatle, 360
S.E.2d at 831 (citation omitted).
Thus, Virginia courts require a party seeking to pierce a corporate
veil to prove that (i) the corporation is "the alter ego, alias, stooge, or
dummy" of the individual, Cheatle, 360 S.E.2d at 830-31, and (ii) the
individual used the corporation to "evade a personal obligation, to
perpetrate fraud or a crime, to commit an injustice, or to gain an
unfair advantage." Greenberg, 499 S.E.2d at 272 (quoting O’Hazza,
431 S.E.2d at 320); see also Beale v. Kappa Alpha Order, 64 S.E.2d
789, 798 (Va. 1951). Accordingly, by this second requirement, Vir-
ginia, unlike some jurisdictions, mandates proof of fraud or a legal
"wrong" as a requisite to recovery. See Perpetual Real Estate, 974
F.2d at 548-49; Cheatle, 360 S.E.2d at 831; see also Lewis Trucking
Corp. v. Commonwealth, 147 S.E.2d 747, 753 (Va. 1966) (stating that
the second requirement is satisfied "although the acts of the parties
amount to constructive fraud only, the rule not being limited to cases
where they have been guilty of actual fraud and criminal intent" (cita-
tion omitted)).4
4One commentator has erroneously stated that this court has not man-
dated compliance with Virginia’s requirement of fraud or a "legal
wrong." See Wendy B. Davis, The Failure of the Federal Courts to Sup-
port Virginia’s Reluctance to Pierce the Corporate Veil, 5 J. Small &
Emerging Bus. L. 203, 216 (2001). In fact, we have consistently enforced
this requirement and in Perpetual Real Estate reiterated that "Virginia
adheres to a rigorous standard requiring proof that the defendant used the
corporation to ‘disguise’ some legal ‘wrong’," unlike some jurisdictions
that "permit[ ] the corporate veil to be pierced in appropriate circum-
stances even in the absence of fraud or wrongdoing." 974 F.2d at 548-49
(internal quotation marks and citations omitted).
12 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 12 of 22 --

"Many jurisdictions recognize that the same considerations that jus-
tify piercing the corporate veil may justify piercing the veil in
‘reverse.’" 1 William Meade Fletcher, Cyclopedia of the Law of Pri-
vate Corporations, § 41.70 at 685 (rev. vol. 1999) (citations omitted));
see also 718 Arch St. Assocs. v. Blatstein (In re Blatstein), 192 F.3d
88, 100-01 (3d Cir. 1999); American Fuel Corp. v. Utah Energy Dev.
Co., 122 F.3d 130, 134 (2d Cir. 1997); Permian Petroleum Co. v.
Petroleos Mexicanos, 934 F.2d 635, 643 (5th Cir. 1991); LFC Mktg.
Group, Inc. v. Loomis, 8 P.3d 841, 846 (Nev. 2000); Roepke v. West-
ern Nat. Mut. Ins. Co., 302 N.W.2d 350, 352-53 (Minn. 1981); Litch-
field Asset Mgmt. Corp. v. Howell, 70 Conn. App. 133, 149-52
(2002).
As the Supreme Court of Vermont has explained in permitting an
outsider reverse veil-piercing claim, "[a]lthough one purpose of cor-
poration law is to limit shareholders’ liability for corporate debts, . . .
corporations are not intended to be used to shelter the assets of share-
holders from lawful claims of judgment creditors." Winey v. Cutler,
678 A.2d 1261, 1262 (Vt. 1996); see also LFC Mktg. Group, 8 P.3d
at 845-46; Olen v. Phelps, 546 N.W.2d 176, 179-80 (Wis. Ct. App.
1996); Lambert v. Farmers Bank, 519 N.E.2d 745, 747-49 (Ind. Ct.
App. 1988).5
5Indeed, although outsider reverse veil-piercing reflects a relatively
recent modification of the traditional veil-piercing doctrine, state courts
that have denied a claim for reverse veil-piercing typically have done so
because the facts of the given case did not support reverse veil-piercing,
not because they reject outsider reverse veil-piercing per se. See, e.g.,
Plaza Props. v. Prime Bus. Invs., 524 S.E.2d 306, 310 (Ga. Ct. App.
1999) (stating that court "need not consider whether a ‘piercing the cor-
porate veil’ theory may be applied in reverse — i.e., to render a corpora-
tion liable for its sole shareholder’s individual obligations — because
such a theory was not raised at trial nor ruled on by the trial court"
(emphasis omitted)); Thomsen Family Trust, 1990 v. Peterson Family
Enters., Inc., 989 S.W.2d 934, 937-38 (Ark. App. 1999) (stating that
although appellants were "seeking a ‘reverse piercing of the corporate
veil,’" court found "no evidence to warrant disregarding the corporate
form"); Castillo v. M.E.K. Constr., Inc., 741 So.2d 332, 342 (Miss. Ct.
App. 1999) ("In conclusion, we find that this case has not presented facts
sufficient to justify [reverse] piercing of the corporate veil[.]").
13 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 13 of 22 --

The district court concluded that Virginia, too, would recognize
"the outsider reverse piercing cause of action." C.F. Trust, 111 F.
Supp. 2d at 740. The court reasoned that because "the rationale for
traditional piercing operates with equal force in support of reverse
piercing," and because the Court of Appeals of Virginia "ha[d] recog-
nized the outsider reverse piercing cause of action," the Supreme
Court of Virginia would also do so if a "plaintiff c[ould] establish the
requisite grounds." Id. at 740-41.
The Court of Appeals case on which the district court relied, Fox
v. Fox, Nos. 0721-97-4 & 1094-97-4, 1998 WL 114010 (Va. Ct. App.
1998), involved a doctor in the midst of a divorce, who had "em-
barked upon a scheme to defraud" his wife "through the use of a
series of limited partnerships, trusts, and corporations which in reality
[we]re simply an attempt by [Dr. Fox] to fraudulently hide marital
assets and prevent their proper distribution." Id. at *8. On appeal, Dr.
Fox "appear[ed] to contend that the trial court erred in finding that
various entities were, in fact, his alter egos" but "advance[d] no argu-
ment to support this contention." Id. at *7. The Court of Appeals,
after noting that it would not make Dr. Fox’s argument for him, con-
cluded, without further discussion, that the record supported the trial
court’s determination that "various entities and Dr. Fox shared a unity
of interest and ownership, such that their separate personalities no
longer existed." Id. at *8. The appellate court thus affirmed the trial
court’s reverse veil-piercing order.
First Flight contends that Fox constitutes "inadequate authority" to
predict Virginia law because its "alter ego discussion" constitutes
dicta and the opinion is not reported. Even if the Fox court’s reverse
veil-piercing discussion constitutes dicta — which is not at all clear
to us — no authority states that this precludes a federal court from
using it to predict state law. Fox’s unreported status does limit, but
not eliminate, its predictive value. See King v. Order of United Com-
mercial Travelers, 333 U.S. 153, 160-61 (1948) (holding that while
an unpublished opinion from lower state court on an issue of state law
does not control, a federal court may "properly attribute[ ] some
weight" to it). The district court’s decision to accord Fox predictive
value, despite its unpublished status, seems particularly justified given
that in a later, reported opinion, also involving Dr. Fox, the Court of
Appeals of Virginia noted — and seemingly approved — the trial
14 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 14 of 22 --

court’s subsequent decision to allow reverse veil-piercing against still
another "sham" entity, a limited partnership that the trial court "de-
clared to be the ‘alter ego’ of Dr. Fox." Glanz v. Mendelson, 538
S.E.2d 348, 350 (Va. Ct. App. 2000).
Furthermore, eight years before Fox, the Court of Appeals of Vir-
ginia had recognized reverse veil-piercing in a reported opinion. See
Stainback v. Stainback, 396 S.E.2d 686, 692-93 (Va. Ct. App. 1990).
In Stainback, another domestic relations suit, the court expressly
approved the use of outsider reverse veil-piercing and upheld the trial
court’s finding that a corporation, formed by the husband and his
father, whose assets consisted exclusively of artwork created by the
husband, was the husband’s alter ego. Id. at 693. The Court of
Appeals of Virginia briefly explained:
[The husband’s father formed the corporation] for the bene-
fit of the husband and his father, and the interests of owner-
ship and management are inextricably intertwined. The
husband has served as president and director since incep-
tion. . . . The parties, together with the husband’s parents,
guaranteed corporate debt. Profits, including monies gener-
ated by sale of the husband’s paintings, are expended for the
husband’s personal use.
Id. at 692-93. The court’s judgment declaring the corporation the alter
ego of the husband therefore rendered the corporation liable for, or
made its assets susceptible to, the marital liabilities of the husband,
i.e., pierced the veil in reverse. Id.
Unquestionably, when a federal court sits in diversity, as in the
case at hand, it "is not free to reject [a] state rule merely because it
has not received the sanction of the highest state court." West v.
AT&T, 311 U.S. 223, 236 (1940) (citations omitted). Rather, when
"an intermediate appellate state court rests its considered judgment
upon the rule of law which it announces, that is a datum for ascertain-
ing state law which is not to be disregarded by a federal court unless
it is convinced by other persuasive data that the highest court of the
state would decide otherwise." Id. at 237; accord Stoner v. New York
Life Ins. Co., 311 U.S. 464, 467 (1940); Assicurazioni Generali,
S.p.A. v. Neil, 160 F.3d 997, 1002-03 (4th Cir. 1998); United States
15 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 15 of 22 --

v. Little, 52 F.3d 495, 498 (4th Cir. 1995); Liberty Mut. Ins. Co. v.
Triangle Indus., 957 F.2d 1153, 1156 (4th Cir. 1992).6
Although First Flight has offered no such "data," we have difficulty
discerning precisely what "rule of law" the Court of Appeals of Vir-
ginia has announced in its brief discussions in Fox and Stainback.
Clearly, the court has approved reverse veil-piercing in two domestic
relations cases, but without identifying the scope of the doctrine or
articulating what standards a plaintiff must meet to establish such a
claim.
The district court implicitly or explicitly resolved both of these
unanswered questions. First, the district court apparently concluded
that the reverse veil-piercing doctrine was not confined to the particu-
lar circumstances in Fox (the court did not cite Stainback) or the
domestic relations context, but rather generally available. The court
then expressly held that a party seeking to pierce the corporate veil
in reverse must satisfy the two-factor test required in a traditional
veil-piercing case, i.e., proof of a unity of interest and control
between an individual and a corporation and that the individual used
the corporation to commit fraud or a legal wrong. See C.F. Trust, 111
F. Supp. 2d at 741-43. As noted above, the district court then issued
detailed findings, supported by ample evidence, outlining how C.F.
Trust and Atlantic Funding had "conclusively established" both tradi-
tional factors. See supra at 7-9; see also C.F. Trust, 140 F. Supp. 2d
at 633-45; C.F. Trust, 111 F. Supp. 2d at 737-44.
The district court certainly acted reasonably in following this test
and making these findings. A Virginia court, confronted with the evi-
6One of our sister circuits has refused to permit reverse veil-piercing
"[a]bsent a clear statement" by the state’s highest court adopting the doc-
trine, but in doing so it noted that no state case in the applicable jurisdic-
tion had previously recognized reverse veil-piercing — unlike the
situation here. Cascade Energy & Metals Corp. v. Banks, 896 F.2d 1557,
1576-77 (10th Cir. 1990); see also Floyd v. IRS, 151 F.3d 1295, 1298-99
& n.4 (10th Cir. 1998) (requiring a "clear statement" because although
the highest state court had once "appl[ied] a variant of reverse piercing
. . . in a jurisdictional context," that application "should not be presumed
to translate into substantive corporate law" (emphasis omitted)).
16 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 16 of 22 --

dence in this case, might well reach identical conclusions. However,
we do not believe that Virginia case law enables us to predict this
with authority.
Given Virginia’s well-established treatment of traditional veil-
piercing as an "extraordinary exception," Cheatle, 360 S.E.2d at 831
(citation omitted), a Virginia court might refuse to extend the doctrine
to allow reverse veil-piercing beyond the particular facts of Fox and
Stainback, or the domestic relations context. We note that while "it
is not unusual for a domestic relations court to pierce the corporate
veil [in reverse] in a dissolution proceeding," see, e.g., Medlock v.
Medlock, 642 N.W.2d 113, 125 (Neb. 2002) (citing cases), reverse
veil-piercing is less common in ordinary commercial cases. No court
has discussed the reason for this.
Possibly, a Virginia court might regard reverse veil-piercing as par-
ticularly appropriate in domestic relations cases because of the special
nature of marital property, see, e.g., Va. Code Ann. § 20-107.3(a)(2)
(Michie 2000), the strong interest in effecting a fair distribution of
"accumulate[d] marital wealth" at the end of a marriage, see Dietz v.
Dietz, 436 S.E.2d 463, 467 (Va. Ct. App. 1993), and the state’s strong
public policy favoring protection of dependent spouses and children.
See, e.g., Verrocchio v. Verrocchio, 429 S.E.2d 482, 486 (Va. Ct.
App. 1993); Blank v. Blank, 389 S.E.2d 723, 724 (Va. Ct. App. 1990);
see also Va. Code Ann. § 20-107.1 (Michie 2000) (spousal support);
id. § 20-108.2 (Michie 2000 & Supp. 2001) (child support). To be
sure, a Virginia court might afford creditors, who may also have
strong equitable claims, as C.F. Trust and Atlantic Funding do in this
case, the benefits of reverse veil-piercing. But a court could differenti-
ate between the two situations and conclude that reverse veil-piercing
should be confined to domestic relations cases.
Alternatively, a Virginia court might well permit reverse veil-
piercing in the commercial context, at least on egregious facts like
those at issue here, but require proof beyond the two factors necessary
for traditional veil-piercing. For example, some courts and commenta-
tors have suggested that in a true outsider reverse veil-piercing case,
a plaintiff also must prove that no innocent third party, such as a
third-party creditor or shareholder, would suffer harm or prejudice as
a consequence of reverse veil-piercing. See, e.g., State Bank in Eden
17 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 17 of 22 --

Valley v. Euerle Farms, Inc., 441 N.W.2d 121, 125 (Minn. Ct. App.
1989) (considering harm to other creditors); Litchfield Asset Mgmt.,
70 Conn. App. at 151 & n.14 (stating that reverse veil-piercing is per-
mitted only "when necessary to achieve an equitable result and when
unfair prejudice will not result" and considering whether harm to
other shareholders would result); 1 Fletcher § 41.20 at 596 (stating
that the alter ego doctrine "cannot be applied to prejudice the rights
of an innocent third party"); Gregory S. Crespi, The Reverse Pierce
Doctrine: Applying Appropriate Standards, 16 J. Corp. L. 33, 65
(1990) (stating that a "key factor" in an outsider reverse veil-piercing
case is the prejudice to "corporate shareholders other than the insider
against whom the outsider is asserting the primary claim"). A Virginia
court might — or might not — regard this additional factor as a nec-
essary safeguard against the potential for harm or prejudice to inno-
cent third-party shareholders or creditors not otherwise liable on the
underlying judgment, a risk that does not exist in the traditional veil-
piercing context.
Because of the brevity and generality of the discussion in the Vir-
ginia cases approving reverse veil-piercing, Fox and Stainback, we
simply do not know if Virginia would recognize the doctrine outside
the specific or general context of those cases, and, if so, what proof
it would require for a reverse veil-piercing claim in the present con-
text.
B.
First Flight also maintains that in any event reverse veil-piercing
cannot apply to it as a limited partnership. First Flight argues that
even if Virginia generally would permit outsider reverse veil-piercing
claims against corporations, no corollary right permits reverse veil-
piercing claims against limited partnerships.
A limited partnership, like a corporation, exists under state statu-
tory law and constitutes a business entity separate from its members.
See Va. Code Ann. § 50-73.1 (Michie 1998). One or more general
partners and one or more limited partners comprise a limited partner-
ship. Id. A general partner manages the partnership’s operation and
bears responsibility for the partnership’s obligations; in contrast, "like
a corporate minority shareholder, a limited partner generally has no
18 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 18 of 22 --

voice in the management of the partnership and cannot control invest-
ment policies or partnership distribution." Estate of Godley v. Com-
missioner, 286 F.3d 210, 215 (4th Cir. 2002) (internal quotation
marks and citation omitted); accord Kumar v. Metro. Hosp., L.P., 30
Va. Cir. 226 (1993); First Union Nat’l Bank v. Allen Lorey Family
Ltd., 34 Va. Cir. 474 (1994).
Limited partnerships and corporations share many common fea-
tures; of particular significance here, "[d]ebts of limited partnerships
and corporations generally are not the personal liability of limited
partners or corporate shareholders." Sloan, 457 S.E.2d at 61. The
reverse also holds true; limited partnerships and corporations gener-
ally bear no responsibility for the liabilities of limited partners or cor-
porate shareholders. See 14A Michie’s Jurisprudence of Virginia and
West Virginia § 77 at 430 (1989) (discussing partnerships); 1 Fletcher
§ 14 at 432 (discussing corporations).
Of course, exceptions to these general rules exist, as the traditional
veil-piercing cases themselves demonstrate. Moreover, in Fox, the
primary reverse veil-piercing case relied on by the district court, the
Court of Appeals of Virginia permitted reverse veil-piercing against
a limited partnership. In the later, related Glanz case, the same court
noted that the trial court had subsequently permitted reverse veil-
piercing against another "sham" entity of Dr. Fox, also a limited part-
nership. Glanz, 538 S.E.2d at 350.
However, in Sloan, a traditional veil-piercing case, the Supreme
Court of Virginia seems to have suggested a possible distinction
between the application of veil-piercing to a corporation and its appli-
cation to a limited partnership. The plaintiff in Sloan sought to hold
an individual — who was both a limited partner of the limited partner-
ship and a shareholder of the partnership’s general partner, a corpora-
tion — personally liable for the debts of a limited partnership. The
Sloan court compared the bases for the individual’s potential liability
in each of these roles, stating:
A limited partner . . . may be liable for the obligations of the
limited partnership if the limited partner is also a general
partner or if he participates in the control of the business.
Code § 50-73.24. Similarly, under certain conditions, the
19 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 19 of 22 --

corporate structure may be disregarded or pierced and a
shareholder or director of the corporation held personally
liable for the corporation’s debts. O’Hazza v. Executive
Credit Corp., 246 Va. 111, 431 S.E.2d 318 (1993); Cheatle
v. Rudd’s Swimming Pool Supply Co., 234 Va. 207, 360
S.E.2d 828 (1987). . . .
. . . .
. . . . The liabilities of limited partners for the debts of
limited partnerships are governed by the Virginia Revised
Uniform Limited Partnership Act, not the common law.
Sloan, 457 S.E.2d at 61-62, 64.
Sloan does not necessarily preclude veil-piercing of a limited part-
nership, because the plaintiff there did not attempt to apply the veil-
piercing doctrine to the limited partnership; he only sought to pierce
the veil of a corporation — the general partner — or hold the defen-
dant limited partner liable under the Virginia Revised Uniform Lim-
ited Partnership Act, §§ 50-73.1 to 50-73.77 (Michie 1998) (the Act).
But the above-quoted language implies that, while shareholders of a
corporation may be liable for a corporation’s obligations in a
common-law, traditional veil-piercing action, limited partners may be
liable for a limited partnership’s obligations only under circumstances
expressly set forth in the Act.7
7The Act provides that a limited partner may be liable for the obliga-
tions of the partnership if the limited partner "is also a general partner"
or if he "participates in the control of the business," but even then only
to creditors that "reasonably believ[e], based on the limited partner’s
conduct, that the limited partner is a general partner." Va. Code Ann.
§ 50-73.24. For judgment creditors of an individual limited partner,
rather than the partnership, the Act provides that the creditor may apply
to the court for a charging order charging "the partnership interest of the
partner with payment of the unsatisfied amount of the judgment with
interest." Id. § 50-73.46. The statute defines "partnership interest" as "a
partner’s share of the profits and losses of a limited partnership and the
right to receive distributions of partnership assets." Va. Code Ann. § 50-
73.1.
20 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 20 of 22 --

The discussion in Sloan leaves us uncertain whether, under Vir-
ginia law, the Act provides the exclusive remedy for judgment credi-
tors of individual limited partners. Moreover, even if this constitutes
the general rule, we cannot discern whether Virginia courts would
allow an exception in circumstances like those in the case at hand, in
which the defendant has improperly foiled the plaintiff-creditors in
pursuing the remedies provided by the Act. Both C.F. Trust and
Atlantic Funding, consistent with the Act, sought and obtained charg-
ing orders charging Peterson’s partnership interest in First Flight with
paying their respective judgments against him. Their efforts proved
futile, however, and the judgments remained outstanding because
First Flight refused payment based on Peterson’s engineered plan to
disclaim any partnership interest while simultaneously siphoning mil-
lions of dollars from First Flight.
Recently, a Connecticut court considered a similar situationin
Litchfield Asset Management, 70 Conn. App. 133. There the court
upheld reverse veil-piercing against a limited liability company — a
business organization similar to a limited partnership — notwith-
standing a statutory provision worded almost identically to § 50-
73.46. Id. at 148-53. The court held extension of the reverse veil-
piercing doctrine to limited liability companies particularly appropri-
ate when the debtor "did not receive regular distributions but rather,
paid her personal bills directly using limited liability company funds.
Any attempt by the plaintiff to attach distributions, therefore, would
have been fruitless." Id. at 151 n.14. If a Virginia court followed the
rationale of Litchfield Asset Management, outsider reverse veil-
piercing against the limited partnership would be a viable option in
this case, even if not generally permitted in cases involving limited
partnerships. If not, and if the Act provides the exclusive remedies for
creditors of individual limited partners seeking to reach the assets of
the limited partnership, then no action for reverse veil-piercing would
lie against First Flight as a limited partnership.
For these reasons, we cannot conclude that Virginia courts would
permit reverse veil-piercing against a limited partnership.
C.
In sum, we remain uncertain as to whether Virginia would permit
a reverse veil-piercing claim in this commercial case against a limited
21 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 21 of 22 --

partnership, and what standards would apply if the Commonwealth
did permit such a claim. Accordingly, we respectfully certify to the
Supreme Court of Virginia, pursuant to its discretionary authority
under Rule 5:42 of the Rules of the Supreme Court of Virginia, the
following interrelated questions:
(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 lim-
ited partnership?
See Va. Sup. Ct. R. 5:42(a).
In the event that the Supreme Court of Virginia accepts certifica-
tion and answers the first question in the negative, C.F. Trust and
Atlantic Funding cannot pierce the veil of First Flight, and we there-
fore must reverse the judgment of the district court. If the Supreme
Court of Virginia accepts certification and answers the first question
in the affirmative, however, C.F. Trust and Atlantic Funding may
pierce the veil of First Flight in reverse, provided they meet the stan-
dards articulated by the Supreme Court of Virginia in response to the
second question.
IV.
We cannot determine from the applicable Virginia authorities
whether Virginia would permit an outsider reverse veil-piercing claim
in this case and, if so, what standards must be met before Virginia
would allow reverse veil-piercing of the limited partnership. We
therefore certify the above questions to the Supreme Court of Vir-
ginia. The accompanying certification order shall first be released to
counsel, who shall have 7 days to submit suggested changes to the
statement of facts. We reserve the right to modify this opinion in light
of the comments received.
QUESTIONS CERTIFIED TO THE
SUPREME COURT OF VIRGINIA
22 C. F. TRUST v. FIRST FLIGHT LIMITED PARTNERSHIP

-- 22 of 22 --