## Facts

- C.F. Trust, Inc. held two commercial promissory notes exceeding $6 million that were endorsed and guaranteed by Barrie M. Peterson and Nancy Peterson; Atlantic Funding Corp. held rights to enforce a separate note and judgment against Barrie Peterson.
- After defaults, the creditors obtained Virginia judgments totaling more than $8 million and later obtained charging orders against Barrie Peterson’s partnership interests, including his interest in First Flight Limited Partnership.
- Barrie Peterson held a controlling interest in First Flight and allegedly used First Flight and related entities to route funds while avoiding payment on the judgments.
- Evidence showed that Peterson caused substantial transfers through his wholly owned corporation, Birchwood Holdings Group, Inc., which paid many of his personal expenses (including housing, club fees, car and credit card payments, tuition, and payments benefiting Nancy Peterson).
- After entry of the judgments and charging orders, Peterson transferred half of his First Flight interest to his son, Scott Peterson, and allegedly directed distributions through Scott to entities and family members that paid Barrie Peterson’s personal expenses.
- The judgment creditors filed a federal diversity action seeking a declaration that First Flight (and related entities) were Peterson’s alter egos, permitting entity assets to satisfy the personal judgments.

## Issues

1. Whether Virginia recognizes “outsider reverse veil-piercing” allowing judgment creditors of an individual to reach assets of a limited partnership alleged to be the debtor’s alter ego.
2. If recognized, what standards govern reverse veil-piercing of a limited partnership, including consideration of effects on innocent partners and bona fide creditors.

## Decision

- The Supreme Court of Virginia answered both certified questions “yes.”
- Virginia recognizes outsider reverse veil-piercing under the facts presented and does not categorically bar the remedy against a limited partnership.
- The Court held that reverse veil-piercing is governed by Virginia’s stringent traditional veil-piercing standards, with additional attention to potential prejudice to innocent partners and bona fide creditors and to the availability of less drastic remedies.

## Legal Principles

- Veil-piercing in Virginia requires more than ownership or control; the entity must be shown to be the owner’s alter ego and used as a device to evade personal obligations or to disguise wrongs, obscure fraud, or conceal crime.
- There is no categorical doctrinal distinction between traditional veil-piercing (entity liability reaching the owner) and outsider reverse veil-piercing (owner’s creditors reaching the entity) when the required misuse and unity of interest are proven.
- Reverse veil-piercing may apply to a limited partnership when the partnership is used as the debtor’s alter ego to hinder satisfaction of valid judgments.
- Because reverse veil-piercing can affect non-wrongdoers, courts must consider prejudice to innocent partners and bona fide creditors and should consider whether less intrusive remedies (including statutory remedies such as charging orders) would adequately protect creditors.

## Conclusion

Virginia permits outsider reverse veil-piercing against a limited partnership when the debtor so dominates and misuses the entity that it functions as the debtor’s alter ego to evade lawful obligations, but the remedy remains exceptional and must be applied with safeguards to avoid unfair harm to innocent partners and legitimate entity creditors.


C.F. Trust, Inc. v. First Flight Ltd. P’ship, 266 Va. 3, 580 S.E.2d 806 (Va. 2003)