Reported / Citable
Background
Steward Partners Investment Solutions, LLC filed suit in September 2024, alleging diversity jurisdiction under 28 U.S.C. § 1332. In a February 2025 Rule 26(f) report, Steward maintained that no jurisdictional issues remained, while Vincent Connor Fuchs disputed that position.
In May 2026, Steward moved to dismiss voluntarily without prejudice after determining that diversity jurisdiction was lacking. Steward explained that one or more members of Steward Partners Holdings, LLC—the sole member of Steward—were Texas citizens. Fuchs opposed that motion and separately sought dismissal with prejudice for want of prosecution, arguing that Steward had engaged in contumacious conduct and that aggravating circumstances warranted the harsher sanction.
The Court’s Holding
The court granted Steward’s motion and dismissed its claims without prejudice. It concluded that complete diversity was absent and therefore the court lacked subject-matter jurisdiction. Under Federal Rule of Civil Procedure 12(h)(3), dismissal was mandatory once the jurisdictional defect became clear.
The court denied Fuchs’s request for dismissal with prejudice. Because a dismissal with prejudice operates as a judgment on the merits, a federal court lacking subject-matter jurisdiction has no authority to impose it. Although the court expressed doubt that sophisticated counsel should have needed nearly two years to discover the jurisdictional problem, any limitations arguments or consequences of Steward’s conduct must be addressed by a court possessing jurisdiction.
Key Takeaways
- An LLC’s citizenship for diversity purposes depends on the citizenship of its members, including members traced through any LLC ownership chain.
- A federal court must dismiss an action once it determines that subject-matter jurisdiction is absent.
- A jurisdictional dismissal must be without prejudice, even when the opposing party alleges delay or contumacious conduct.
Why It Matters
The order underscores the need to investigate every layer of an LLC’s ownership before invoking diversity jurisdiction. A citizenship issue discovered late in litigation can require dismissal regardless of the time and resources already invested.
It also separates jurisdiction from litigation misconduct: concerns about delay, limitations defenses, or a party’s ability to pursue its claims elsewhere do not empower a court without jurisdiction to enter a merits-based dismissal with prejudice.