## Facts

- A shopping-mall owner leased space in Edison, New Jersey for operation by a Blimpie franchisee, Samyrna, Inc., whose franchise agreement with the Blimpie parent predated the lease.
- The lease was executed in July 1985 by IBC Services, Inc. (IBC), a wholly owned Blimpie subsidiary formed solely to hold leases for franchise locations; the space was subleased the same day to the franchisee.
- IBC had no meaningful independent operations and was used as a lease-holding vehicle; Blimpie managed lease approvals and administration from its headquarters.
- The leasing arrangement and communications presented Blimpie as the operative enterprise (including use of Blimpie branding and a “care of” address linking IBC to the parent).
- The tenancy was marked by recurring and increasing rent arrearages and was terminated in 1996 by dispossess judgment and warrant for removal; arrears were near $150,000 at eviction.
- The landlord sued in 1998 for unpaid rent, naming the Blimpie parent (under its corporate names), IBC, and Garden State Blimpie, Inc. (a related wholly owned lease-holding subsidiary to which the lease had been assigned).
- After a bench trial, the trial court pierced the corporate veil and entered judgment of roughly $208,000 against all defendants.

## Issues

1. Whether the trial court was legally justified, based on its factual findings after a bench trial, in piercing the corporate veil to hold the parent corporation liable for a wholly owned subsidiary’s lease debt.
2. Whether use of a purpose-built, undercapitalized lease-holding subsidiary and related conduct supported treating the subsidiary as the parent’s instrumentality to prevent an inequitable result.

## Decision

- The Appellate Division affirmed the judgment imposing liability on the parent and its lease-holding subsidiaries.
- The court held the record supported veil piercing because the subsidiary lacked a genuine separate existence and was used to avoid lease obligations.
- The court characterized the case as a clear example warranting veil piercing.

## Legal Principles

- A corporation’s separate existence is generally respected, but equity permits veil piercing when a parent so dominates a subsidiary that the subsidiary has no independent existence and the corporate form is used to defeat justice or circumvent legal obligations.
- Veil piercing is supported where a subsidiary is created and maintained as a judgment-proof shell (including purposeful undercapitalization and lack of independent business operations) to insulate the parent from foreseeable liabilities.
- A landlord’s reasonable belief that it is dealing with a responsible enterprise, reinforced by the parent’s branding and control over leasing, supports equitable disregard of formal separateness when the structure would otherwise leave the creditor with only an assetless obligor.

## Conclusion

The appellate court affirmed veil piercing and parent liability for unpaid rent where the franchisor created and controlled a lease-holding subsidiary with no meaningful separate operations, used it to shield the parent from lease liabilities, and presented the enterprise in a manner that reasonably led the landlord to believe the parent stood behind the lease obligations.


OTR Assocs. v. IBC Servs., Inc., 353 N.J. Super. 48 (App. Div. 2002)