Question

Plaintiff OTR Associates, a limited partnership, owns a shopping mall in Charlotte, North Carolina, in which it leased space in 2004 for use by a Blimpie franchisee, Samyrna, Inc., a corporation owned by Sam Iskander and his wife. The franchise agreement, styled as a licensing agreement, had been entered into in 2003 between Samyrna and the franchisor, Blimpie International, Inc. Blimpie International, Inc. was the sole owner of a subsidiary named IBC Services, Inc. (IBC), created for the sole purpose of holding the lease on premises occupied by the Blimpie franchisee Samyrna. It was IBC that entered into the lease with OTR in 2004 and, on the same day and with OTR's consent, subleased the space to the franchisee Samyrna. IBC had its own officers and directors, it filed annual reports, kept corporate minutes, held meetings, and had a bank account. IBC had no assets other than the lease itself and IBC had no independent right to transfer its interest in the lease but was subject to Blimpie International, Inc. exclusive control. IBC had no business premises of its own, sharing the New York address of Blimpie International, Inc. IBC had no income other than the rent payments by the franchisee Samyrna, which were made directly to OTR by Samyrna. IBC does not have any employees or office staff. Blimpie International, Inc. retained the right to approve the premises to be occupied by the franchisee and leased by IBC. The Executive Vice President of Blimpie International, Inc. and former vice president of IBC testified that IBC is overseen by Blimpie International, Inc. and that IBC did not make a profit. The history of the tenancy was marked by regular and increasingly substantial rent arrearages, and the lease was terminated in 2008. In 2010 OTR commenced an action for unpaid rent, then in the amount of close to $150,000, against IBC and Blimpie International, Inc. Blimpie International, Inc. argues that it cannot be held liable for the obligation incurred by its wholly owned subsidiary, IBC. Can Blimpie International, Inc. be held liable for IBC’s obligation under the lease with OTR, why or why not?

Answer 1

Yes in my opinion, Blimpie International Inc. must be held responsible for IBC's obligation under the lease with OTR. This is because IBC is a wholly owned subsidiary of Blimpie International Inc. and any profits generated our of IBC's business and any rent income are transferred to Blimpie International Inc. Hence in a similar manner, if any legal suit is filed against IBC, then Blimpie International Inc. is liable for it. Any unpaid rent amount by IBC must be settled by Blimpie International Inc. and they must pay OTR on IBC'S behalf.