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Law School Case Brief

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

Rule:

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. 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. No single rule or criterion can be applied to determine whether piercing the corporate veil is justified, and the corporate entity will be disregarded and the veil pierced only if the 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.

Facts:

Plaintiffs, two corporations, filed an action against defendant First Flight Limited Partnership, seeking a declaration that the Partnership was the alter ego of a judgment debtor. The debtor had endorsed and guaranteed certain promissory notes, and the plaintiffs were judgment creditors seeking to satisfy their judgments with assets held by the partnership. The lower court found for the plaintiffs. Defendant Partnership appealed, and the United States Court of Appeals certified two questions to the Virginia Supreme Court. 

Issue:

Does the State Virginia recognize a claim for outsider reverse veil piercing of a limited partnership?

Answer:

Yes.

Conclusion:

The court held that Virginia would recognize a claim for outsider reverse veil piercing of a limited partnership as there was nothing in the Revised Uniform Limited Partnership Act, Va. Code Ann. § 50-73.1 et seq. to prohibit such piercing. The standards to be met would be the same standards as those used when determining whether traditional veil piercing of a corporation would be permitted. Additional factors, such as the impact of the piercing upon innocent investors or partners, also needed to be considered.

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