Key Points

  • The D.C. Circuit held that an LLC's citizenship for diversity purposes depends on the citizenship of each of its members, not the place-of-formation and principal-place-of-business test used for corporations.
  • The panel affirmed dismissal of federal statutory claims as barred by res judicata because the plaintiff raised or could have raised those claims in prior D.C. state court litigation.
  • The district court erred by finding diversity jurisdiction sua sponte based on corporate citizenship rules when the complaint did not establish the citizenship of the LLC members.
  • On remand, the district court must decide whether to dismiss the D.C. law claims, exercise supplemental jurisdiction, or conduct a proper diversity analysis tracing each LLC member's citizenship.

The D.C. Circuit vacated a district court's finding of diversity jurisdiction on Tuesday after the lower court applied corporate citizenship rules to a limited liability company, underscoring that federal courts must trace an LLC's citizenship through each of its members before exercising jurisdiction over state-law claims.

The three-judge panel affirmed dismissal of federal statutory claims in the underlying real estate dispute but sent the remaining District of Columbia law claims back for the district court to decide whether it has any basis to hear them at all. The per curiam opinion in Solon Phillips v. WCP Fund I LLC marks another reminder from the circuit that the citizenship inquiry for LLCs differs fundamentally from the test for corporations.

The case arose from a failed real estate development deal in the District of Columbia. Remus Enterprises, 1 LLC, a developer, borrowed money from WCP Fund I LLC, a real estate financer, to purchase and renovate property in the District. When Remus failed to repay the loans on time, WCP foreclosed, purchased the property for a nominal $1,000, and listed it for sale at the same price Remus had sought.

Remus had already sued WCP unsuccessfully in D.C. Superior Court before the foreclosure. That judgment was affirmed by the District of Columbia Court of Appeals in August 2024. After the foreclosure, Remus filed suit in federal district court, alleging claims under both federal statutes and D.C. law.

The district court granted WCP's motion to dismiss. It ruled that res judicata barred all of the federal claims and that several of the D.C. law claims failed to state a claim under Federal Rule of Civil Procedure 12(b)(6). In doing so, the district court concluded on its own initiative that it had diversity jurisdiction based on the parties' allegations in the complaint.

The problem, as the D.C. Circuit explained, was that the district court applied the wrong legal test. For corporations, citizenship is determined by the state of incorporation and the state where the corporation has its principal place of business. For LLCs, however, the rule is different.

"LLC jurisdiction depends on the citizenship of each of the members of the parties," the court wrote, citing its 2016 decision in CostComand, LLC v. WH Administrators, Inc.

The district court "concluded, sua sponte on the face of the complaint, that it had diversity jurisdiction upon applying the law for corporations (based on places of formation and principal places of business)," the panel wrote. But the citizenship of the LLC members "was not apparent on the face of the amended complaint," and supplemental filings from both parties confirmed that the information necessary for a proper diversity analysis was never before the district court.

The jurisdictional error cascaded into the merits ruling. Because the district court believed it had diversity jurisdiction over the entire case, it proceeded to dismiss the D.C. law claims for failure to state a claim rather than addressing whether it had any independent basis to hear them once the federal claims fell away.

The D.C. Circuit affirmed the dismissal of the federal statutory claims. Those claims, the court held, were barred by res judicata because Remus "raised or could have raised those claims in the D.C. litigation." The panel cited Calomiris v. Calomiris, a 2010 D.C. Court of Appeals decision.

But the panel vacated the district court's treatment of the D.C. law claims. On remand, the district court must now decide how to proceed with those claims. The court has three options: it may dismiss the D.C. claims entirely under the framework set out in Araya v. Morgan Chase Bank, N.A.; it may exercise supplemental jurisdiction over the D.C. claims; or it may conduct a proper diversity analysis to determine whether it has original jurisdiction after all.

The last option would require the district court to determine the citizenship of every member of both LLCs.

The issue the D.C. Circuit flagged is not uncommon in commercial litigation involving LLCs, particularly in real estate finance disputes where parties frequently organize as limited liability companies for tax and liability reasons. Courts and litigants sometimes overlook the distinction between corporate and LLC citizenship rules, leading to jurisdictional findings that cannot withstand scrutiny.

A jurisdictional defect discovered on appeal can unravel an otherwise final judgment, as happened here with the D.C. law claims.

The panel comprised Circuit Judges Walker and Childs and Senior Circuit Judge Rogers. Solon Phillips, proceeding pro se as member-trustee of Remus Enterprises, filed the briefs for the appellant. Eric Waldman represented WCP Fund I LLC.

The case was submitted on September 18, 2026, and decided eleven days later. The short, unsigned opinion runs to only three pages but addresses a procedural mistake that can derail federal litigation involving LLCs.

Eric Waldman represented WCP Fund I LLC; Solon Phillips appeared pro se for Remus Enterprises.

On remand, the district court must now revisit the D.C. law claims with jurisdiction squarely in mind. If it concludes that diversity jurisdiction exists after a proper member-by-member analysis, it may reach the merits of those claims. If not, it must decide whether supplemental jurisdiction is appropriate or whether the claims should be dismissed for lack of jurisdiction and left for D.C. courts to resolve.

The case is Solon Phillips v. WCP Fund I LLC, No. 25-7130, in the United States Court of Appeals for the District of Columbia Circuit.