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

• Decision Date: 22 March 2001
• Docket Number: No. CIV.A. 99-1742-A.,CIV.A. 99-1742-A.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: C.F. TRUST, INC., et al., Plaintiffs, v. FIRST FLIGHT LIMITED PARTNERSHIP, et al., Defendants.

140 F.Supp.2d 628

C.F. TRUST, INC., et al., Plaintiffs, v. FIRST FLIGHT LIMITED PARTNERSHIP, et al., Defendants.

No. CIV.A. 99-1742-A.

United States District Court, E.D. Virginia, Alexandria Division.

March 22, 2001.

As Amended April 26, 2000.

Thomas Lawrence Albert, Birch, Horton, Bittner & Cherot, Washington, DC, James Robert Schroll, Bean, Kinney & Korman, P.C., Arlington, VA, for Plaintiffs.

Russell James Gaspar, Cohen Mohr L.L.P., Washington, DC, James Thomas Bacon, Allred, Bacon, Halfhill, Landau & Young, P.C., Fairfax, VA, for Defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

This action is plaintiffs' latest attempt in a seven year effort to collect in full the more than $8 million in judgments they hold against defendant Barrie Peterson. After pursuing the full range of conventional collection remedies¹ — largely unsuccessfully —plaintiffs brought this action against Barrie Peterson and various of his entities (i) alleging that Peterson used his various corporations and partnerships as alter egos to avoid payment of his obligations under the judgments and (ii) seeking to pierce the corporate veil in reverse to reach the assets of these entities. A four-day Bench trial followed the completion of discovery and disposition of the parties' cross-motions for summary judgment.² This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law pursuant to Rule 52, Fed. R.Civ.P.

FINDINGS OF FACT

I. Parties, Related Entities, and Background of Dispute

1. C.F. Trust is a Florida corporation with its principal place of business in Florida. C.F. Trust owns two commercial notes (the "CF Notes") dated November 1, 1993 on which Barrie Peterson individually, Barrie Peterson, Trustee, and Nancy Peterson are personally liable in the total original principal amount of $6,064,903.57. Following an event of default, C.F. Trust obtained a judgment, entered on February 1, 1996 against Barrie Peterson individually, Barrie Peterson, Trustee, and Nancy Peterson jointly and severally on their endorsements of the CF Notes, in the total original principal amount of $6,117,813 plus post-judgment interest at the rate of 9% per annum. See C.F. Trust, Inc. v. Peterson, Law No. 39433 (Prince William County Cir. Ct. Feb. 1, 1996). C.F. Trust also has a charging order dated September 8, 1998, as corrected September 28, 1998, charging the entire partnership interests of the Petersons in, inter alia, First Flight Limited Partnership ("First Flight"), PVD Limited Partnership ("PVD"), and Occoquan Limited Partnership ("Occoquan") with payment of the CF Judgments. See C.F. Trust, Inc. v. Peterson, Order, Civ. A. Nos. 96-264-A, 96-265-A (E.D.Va. Sept. 28, 1998). Pursuant to this charging order, the Petersons are required "to take all available steps to cause the Specified Partnerships to comply with their duties under this Charging Order."

2. Atlantic Funding Corporation ("Atlantic Funding") is a Nevada corporation with its principal place of business in Florida. Atlantic Funding owns a Note (the "AFC Note") on which Barrie Peterson individually and as Trustee is liable in the total original principal amount of $1,000,000. Atlantic Funding also has a judgment, entered November 15, 1991, against Barrie Peterson individually and as Trustee, on the AFC Note in the total principal amount of $1,217,201.96 plus interest. See Resolution Trust Corp. v. Peterson, Order, Civ. A. No. 91-1084-A (E.D.Va. Nov. 15, 1991). Atlantic Funding has also obtained two charging orders on its judgment from the Prince William County Circuit Court, one dated March 1, 1996 charging the partnership interest of Barrie Peterson in First Flight and another dated March 15, 1996 charging Barrie Peterson's partnership interest in PVD. See Atlantic Funding Corp. v. Peterson, Chancery No. 39647 (Prince William County Cir. Ct. Mar. 15, 1996); Atlantic Funding Corp. v. Peterson, Chancery No. 39459 (Prince William County Cir. Ct. Mar. 1, 1996).

3. Defendant Barrie Peterson is an individual residing in Fairfax, Virginia.

4. Nancy Peterson, a resident of Fairfax, Virginia, is the wife of Barrie Peterson.

5. Scott Peterson, a resident of Fairfax, Virginia, is Barrie Peterson's son.

6. Defendant First Flight is a limited partnership with its principal place of business in Woodbridge, Virginia. Barrie Peterson and Scott Peterson each hold a 49% limited partnership interest in First Flight. The general partner is the Upland Group, a corporation wholly owned and controlled by Scott Peterson.³ First Flight owns and operates a commercial/industrial rental property in Hagerstown, Maryland, known as the Top Flight Airpark. Top Flight Airpark consists of a building of approximately 1 million square feet in size, located on 55 acres near the Hagerstown Airport. Space in the building is leased to approximately 15-20 tenants. First Flight employs approximately 12 people at the Airpark, including a secretary/office manager, roofers, and maintenance and security personnel. Barrie Peterson used First Flight funds to pay his personal expenses directly and indirectly through distributions to Scott Peterson and payments to Birchwood Holdings Group ("BHG"). See infra ¶¶ 19-21, 27.

7. BHG is a corporation organized under the laws of Virginia and has its principal place of business in Woodbridge, Virginia. Until June 2000, when BHG was sold to Atlantic Funding at a judicial sale, it was wholly owned by Barrie Peterson.⁴ BHG provided administrative and management services, chiefly to other Barrie Peterson-controlled entities. Also, BHG was one of the Barrie Peterson controlled entities he used as part of his scheme to avoid plaintiffs' judgments and charging orders by having his personal expenses paid with BHG funds. See infra ¶¶ 28-29.

8. Birchwood Organizations, Inc. ("BOI") is a corporation organized under the laws of Virginia and has its principal place of business in Woodbridge, Virginia. Until its judicial sale in June 2000, BOI was wholly owned by Barrie Peterson. BOI, through Barrie Peterson — the company's president and sole employee — purported to provide technical support to manage and maintain the operating systems at Top Flight Airpark, and to supervise First Flight's employees in their day-to-day operations. BOI charged First Flight a fee based on four percent of its rental revenues at Top Flight. This fee totaled approximately $308,000 for 1996-1998.⁵ BOI also paid Barrie Peterson's personal expenses directly and indirectly through payments to BHG, that were unsupported by any legitimate business purpose. See infra ¶¶ 27, 28 n. 16.

9. Defendant Maryland Air Industries, Inc. ("Maryland Air") is a Virginia corporation, wholly owned and controlled by Barrie Peterson. In C.F. Trust v. Peterson, Civil Action No. 97-2003-A (E.D.Va. Jan. 8, 1999), Maryland Air was determined to be the alter ego of Barrie Peterson.

10. PVD is a Virginia limited partnership. Barrie Peterson is PVD's sole general partner and its 93% limited partner. He is personally liable on PVD indebtedness secured by its real property. His wife, Nancy Peterson, is a 5% limited partner of PVD.

11. Occoquan is a Virginia limited partnership. Barrie Peterson, a 39% limited partner in Occoquan, owns an interest in Occoquan's sole general partner and is personally liable for Occoquan's indebtedness, which is secured by Occoquan's real property.

12. Carnett Commercial Investors, Inc., ("Carnett") is owned by Scott Peterson. Carnett holds a judgment against Barrie Peterson, individually and as Trustee, in the principal amount of $1,710,909.67. This judgment was entered by the Prince William County Circuit Court on July 30, 1993. On August 10, 1993, Carnett obtained a charging order on its judgment from the Prince William County Circuit Court against Barrie Peterson's partnership interest in First Flight. To the extent that the Carnett judgment against Barrie Peterson remains valid, it is in a priority position superior to the judgments held by C.F. Trust and Atlantic Funding.

II. Procedural History

13. The parties in this action have engaged in extensive and protracted litigation regarding plaintiffs' effort to collect on their judgments. A listing of the principal cases follows:

(i) C.F. Trust v. Peterson, Civil Action No. 96-1128-A (E.D.Va. Dec. 9, 1996) (voiding as a fraudulent conveyance a deed of trust that Barrie and Nancy Peterson placed on their residence);

(ii) C.F. Trust, Inc. v. DEP, Inc., Adversary Proceeding No. 97-1017 (Bankr.E.D.Va. Oct. 31, 1997) (finding J.P. Development, a corporation wholly owned and controlled by Scott Peterson, to be Barrie Peterson's alter ego), aff'd sub nom. J.P. Development, Inc. v. C.F. Trust, Inc., C.A. No. 98-0079 (E.D.Va. Apr. 3, 1999), Case No. 98-1670 (4th Cir. Mar. 5, 1999);

(iii) C.F. Trust, Inc. v. Peterson, Civil Action No. 97-2003-A (E.D.Va. Jan. 8, 1999) (finding (a) that Maryland Air Industries and Maryland Air International were the alter egos of both Barrie and Scott Peterson, (b) that Scott Peterson used shell corporations to create appearance of encumbrances to frustrate legitimate creditors, and (c) that transfer of property to Scott Peterson was void as a fraudulent conveyance), appeal pending sub nom. C.F. Trust, Inc. v. Jubal, Inc., 99-1197, 99-1198, 99-1199 (consolidated) (4th Cir.1999);

(iv) Peterson v. Cooley, 142 F.3d 181 (4th Cir.1998) (upholding the actions of CF Trust in acquiring notes and judgments against defendants);

(v) DEP, Inc. v. Jacques, Adversary Proceeding No. 97-1049 (Bankr. E.D.Va. Sept. 16, 1997) (declaring that CF Trust had a lawful first deed of trust encumbering two DEP properties);

(vi) Peterson v. Atlantic Funding Corp., Civil Action No. 96-531-A (E.D.Va. 1996) (dismissing Barrie Peterson's claim that AFC judgment was not enforceable against him);

(vii) DEP, Inc. v. Atlantic Funding Corp., Adversary Proceeding, No. 96-1167-SSM (Bankr.E.D.Va.1996);

(viii) Peterson v. Atlantic Funding Corp.,...