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

• Decision Date: 31 August 2000
• Docket Number: No. Civ.A. 99-1742-A.,Civ.A. 99-1742-A.
• Citation: 111 F.Supp.2d 734
• Parties: C.F. TRUST, INC., et al., Plaintiffs, v. FIRST FLIGHT LIMITED PARTNERSHIP, et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

111 F.Supp.2d 734

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.

August 31, 2000.

COPYRIGHT MATERIAL OMITTED

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

Russell James Gaspar, Cohen Mohr LLP, Washington, DC, James Thomas Bacon, Allred, Bacon, Halfhill, Landau & Young, PC, Fairfax, VA, Robert Jay Zelnick, Szabo, Zelnick & Erickson, P.C., Woodbridge, VA, Kerr Stewart Evans, Jr., Pepper Hamilton LLP, Washington, DC, for defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

This action arises out of attempts by the plaintiffs to collect on judgments they hold against defendant Barrie Peterson. Plaintiffs, C.F. Trust, Inc. ("CF Trust") and Atlantic Funding Corporation ("AFC"), have brought suit alleging that defendant Barrie Peterson has used various corporations, partnerships, and individuals as alter egos to avoid payment of his obligations under the judgments and seeking to pierce the corporate veil in reverse to reach the assets of these entities. At bar are the parties' cross motions for summary judgment, presenting, inter alia, the question whether Virginia law recognizes a cause of action for reverse piercing of the corporate veil, and if so, what standards govern such an action.

I

Plaintiffs, CF Trust, a Florida corporation with its principal place of business in Florida, and AFC, a Nevada corporation with its principal place of business in Florida, each own commercial notes on which defendant Barrie Peterson, individually, Barrie Peterson as a trustee, and Nancy Peterson,¹ are liable as endorsers and guarantors.² On the basis of its notes, CF Trust has a judgment against these parties jointly and severally in the amount of $6.1 million plus nine percent interest per annum, which judgment was initially entered in Prince William County Circuit Court on February 1, 1996 and later removed to this court. On its note, AFC also has a judgment against Barrie Peterson, individually and as trustee, in the amount of $1.2 million plus interest, entered by this Court on November 5, 1991.³ In addition to these judgments, plaintiffs each hold charging orders issued by both this Court and the Prince William County Circuit Court charging the partnership interests of the parties with payment of the judgments. Plaintiffs have brought the instant suit to declare that the defendants in this suit, Maryland Air Industries, First Flight Limited Partnership ("First Flight"), Birchwood Holding Group ("BHG"), Birchwood Organizations, Inc. ("BOI"), Nancy Peterson and Scott Peterson — various corporations, partnerships, and individuals plaintiffs allege Barrie Peterson owns or substantially controls — are his alter egos, and that through these entities, he has hindered and evaded the collections of these lawful judgments.

This case is by no means the first suit by the plaintiffs claiming that Barrie Peterson has taken steps to evade the payment of these judgments and to defraud his creditors. To the contrary, this case is merely the latest chapter in an ongoing saga. So voluminous is the litigation involving these parties that only a summary is presented in the margin.⁴

In the instant suit, filed in November 1999, plaintiffs initially stated claims for: (i) a declaratory judgment that First Flight, BHG, BOI, PVD Limited Partnership Maryland Air Industries, Occoquan Limited Partnership, Scott Peterson, Nancy Peterson, and other entities owned by Barrie or Scott Peterson are Barrie Peterson's alter egos; (ii) an injunction against asset transfers; (iii) an appointment of a receiver; (iv) violations of charging orders; (v) violation of a garnishment order; (vi) a declaratory judgment that the Carnett charging order issued against Barrie Peterson is extinguished; (vii) conspiracy to injure plaintiffs in their trade or business in violation of Va.Code § 18.2-499 & 500; (viii) common law conspiracy; (ix) RICO violations; and (x) costs and attorneys' fees. Many of the parties and claims have been dismissed either by order of this Court or voluntarily by the parties. At this time, the only remaining claims are Counts I (a declaratory judgment that First Flight, BHG, BOI, Maryland Air Industries, Nancy Peterson, Scott Peterson, and other entities owned by Barrie or Scott Peterson are Barrie Peterson's alter egos), II (an injunction against asset transfers), and III (an appointment of a receiver).⁵ The only remaining parties are Barrie Peterson, Scott Peterson, Nancy Peterson, First Flight Limited Partnership, and Maryland Air Industries.⁶

At all relevant times, Barrie Peterson, a Virginia citizen, wholly owned and controlled defendants BHG, BOI, and Maryland Air Industries and is a 49% limited partner, along with his son Scott Peterson, in defendant First Flight.⁷ First Flight is a limited partnership organized under the laws of Virginia with its principal place of business in Woodbridge, Virginia. The general partner of First Flight is a corporation wholly owned by defendant Scott Peterson, the Upland Group. BHG⁸ and BOI⁹ are both corporations organized under the laws of Virginia with their principal place of business in Woodbridge, Virginia. Maryland Air Industries is a corporation organized under the laws of Virginia with its principal place of business in Woodbridge, Virginia.

Plaintiffs allege that, during and after the initial judgment was entered, defendants engaged in numerous transactions among themselves, and transferred funds among themselves, for the purpose of avoiding Barrie Peterson's obligations to plaintiffs. Plaintiffs also allege that Barrie and Scott Peterson conduct business through First Flight, Maryland Air Industries, and other entities that Barrie or Scott Peterson own and use for Barrie and Nancy Peterson's personal benefit, and that Barrie Peterson uses these entities as his alter ego. For instance, plaintiffs argue that First Flight, in violation of the First Flight partnership agreement, transferred over four million dollars to Scott Peterson. Plaintiffs argue that the general partner, the Upland Group, did not authorize the distribution and that, under the partnership agreement, distributions are to be made to limited partners on a pro-rata basis. Accordingly, plaintiffs argue that approximately half of this amount should have been paid to Barrie Peterson and thus subject to collection by plaintiffs as judgment-creditors. Further, plaintiffs allege (i) that Barrie Peterson caused money to be funneled from First Flight, BOI, and Maryland Air Industries to BHG above and beyond any reasonable fees charged for their services, (ii) that these payments were without any corporate or business purpose, and (iii) that these funds were used to pay the personal expenses of Barrie Peterson and his family.¹⁰ Barrie and Scott Peterson's conduct of business through these entities, according to plaintiffs, is for the purposes of frustrating plaintiffs' attempts to collect their judgments, evading lawful executions processes, and deceiving government entities.

II

On a motion for summary judgment, the moving party must demonstrate that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The facts themselves, and the inferences to be drawn from those facts, must be viewed in the light most favorable to the non-moving party. See Ross v. Communications Satellite Corp., 759 F.2d 355, 364 (4th Cir.1985). Summary judgment is appropriate when a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The opposing party must do more than "simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Indus. Co., Ltd., v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Moreover, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In addition, in a case in which the nonmoving party bears the burden of proof at trial, as in this case, "Rule 56(e) requires the nonmoving party to go beyond the pleadings and by [his] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 56).

III

The threshold question raised by the parties' cross-motions for summary judgment is whether Virginia law permits creditors to pierce the corporate veil in reverse — that is, whether a person with a claim against a corporate insider or limited partner can "attempt to have the insider and the corporate entity treated as a single person." Gregory S. Crespi, The Reverse Pierce Doctrine: Applying Appropriate Standards, 16 J.Corp.L. 33, 36 (1990). Defendants assert that Virginia does not recognize reverse piercing of the corporate veil, and that even if it did, the plaintiffs have failed to establish that Barrie Peterson has used the corporations, limited partnerships, and individuals as his alter egos.

1. Virginia Law Permits Reverse Piercing of the Corporate Veil

The "independent legal existence of the corporation is a basic component of corporate law." O'Hazza v. Executive Credit Corp., 246 Va. 111, 114, 431 S.E.2d 318, 320-21 (1993). While Virginia law permits actions to disregard this separate legal existence, settled precedent cautions courts that piercing of the corporate veil should be...