March 26, 2026|Franchise Frontlines
March 26, 2026 | U.S. District Court, W.D. Texas | Unpublished Order
Executive Summary
In an unpublished decision, the U.S. District Court for the Western District of Texas denied a motion to remand and dismissed a non-diverse affiliate after finding it was improperly joined in an employment dispute against Akumin Imaging Texas, LLC and related entities. The plaintiff asserted discrimination, retaliation, and breach of contract claims and attempted to impose liability on a Texas-based affiliate to defeat diversity jurisdiction. The defendants argued that the affiliate was not a proper party because it was neither named in the administrative charge nor a signatory to the employment agreement. The court agreed, holding that the plaintiff failed to establish any viable cause of action against the in-state entity. In doing so, the court rejected efforts to extend liability through joint employer and contract “incorporation” theories, reinforcing the limits of such arguments at the pleading stage.
Relevant Background
The plaintiff brought claims under the Texas Labor Code for discrimination and retaliation, along with breach of contract claims arising from his termination. The employment agreement at issue was executed between the plaintiff and a corporate entity distinct from the Texas-based affiliate that the plaintiff later named as a defendant.
After the case was filed in state court, defendants removed the action to federal court based on diversity jurisdiction. The plaintiff moved to remand, arguing that the presence of the Texas affiliate destroyed diversity. Defendants responded that the affiliate had been improperly joined because there was no reasonable basis for recovery against it under any asserted theory.
The plaintiff advanced two principal arguments to support inclusion of the affiliate: first, that the entities operated as a joint employer or joint enterprise; and second, that a separate asset purchase agreement effectively incorporated the employment agreement, thereby extending contractual liability to the affiliate.
Decision
The court denied the motion to remand and dismissed the Texas affiliate, concluding that it was improperly joined because the plaintiff could not establish a viable claim against it.
With respect to the discrimination claims, the court found that the plaintiff failed to exhaust administrative remedies as required under Texas law. The plaintiff’s administrative charge did not name or reference the Texas affiliate, and courts have consistently held that a party not named in the administrative process cannot later be sued in a civil action. Because the plaintiff did not address this deficiency or identify any applicable exception, the court concluded there was no reasonable basis for recovery on those claims .
The court then turned to the breach of contract claim and rejected the plaintiff’s attempt to extend liability to a non-signatory entity. It emphasized the well-established principle that only parties to a contract are bound by its terms. The Texas affiliate did not sign the employment agreement, and the plaintiff failed to identify any recognized legal doctrine that would permit the court to disregard that limitation.
The plaintiff’s reliance on joint employer and joint enterprise theories was unavailing. The court explained that the factors articulated in Trevino v. Celanese Corp. are used to assess employer status in discrimination cases, not to impose contractual liability on a non-signatory. The plaintiff cited no authority supporting the extension of those principles to breach of contract claims, and the court declined to adopt such an expansion.
Similarly, the court rejected the argument that a separate asset purchase agreement “incorporated” the employment agreement in a manner that would bind the affiliate. The plaintiff offered no legal support for this theory, and the court found no basis to disregard the plain language of the employment contract.
Because the plaintiff’s theories amounted to, at most, a “theoretical possibility of recovery,” the court concluded that the affiliate was improperly joined. Once dismissed, complete diversity existed, and federal jurisdiction was proper.
Looking Forward
This decision reinforces the continued importance of corporate separateness in multi-entity structures. Courts remain reluctant to extend liability across affiliated entities absent a clear legal basis grounded in recognized doctrines. Assertions that entities operate in a coordinated manner, or even share operational responsibilities, are not sufficient to impose contractual liability where the entity in question did not execute the agreement at issue.
The ruling also highlights the limits of joint employer theories outside their intended context. While such theories may be relevant in employment discrimination or wage-and-hour cases, they do not automatically translate into broader liability for contractual obligations. Attempts to apply those frameworks beyond their established scope are likely to face significant judicial resistance.
From a procedural standpoint, the case illustrates how improper joinder arguments can be used to clarify the proper parties to a dispute at an early stage. Where a plaintiff includes an in-state entity without a viable claim, courts may dismiss that entity and retain federal jurisdiction.
At the same time, the decision reflects a fact-specific application of established principles rather than a categorical rule. Claims involving affiliated entities will continue to turn on the particular legal theories asserted and the supporting factual allegations. Careful attention to contract formation, entity structure, and the scope of applicable doctrines remains essential in evaluating potential exposure.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
