In the

United States Court of Appeals

For the Seventh Circuit

No. 99-1321

BANKRUPTCY ESTATE OF LAKE GENEVA SUGAR

SHACK, INCORPORATED, a Wisconsin corporation,

and BANKRUPTCY ESTATE OF DANA MONTANA,

Plaintiffs-Appellants,

v.

GENERAL STAR INDEMNITY COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 91 C 163--Lynn Adelman, Judge.

Argued November 4, 1999--Decided January 11, 2000

 Before MANION, KANNE, and EVANS, Circuit Judges.

 EVANS, Circuit Judge. This is a diversity case

based on the Wisconsin tort of bad faith in

denying insurance coverage. The district court

granted the motion of the General Star Indemnity

Company (GenStar) for summary judgment and

dismissed the case on the basis of claim

preclusion. Bankruptcy Estate of Lake Geneva

Sugar Shack, Inc. v. General Star Indemnity Co.,

32 F. Supp. 2d 1059 (E.D. Wis. 1999). The issue

before us is whether this action is barred by a

judgment in a case brought by the insurer in

Walworth County, Wisconsin, a case in which

counterclaims were filed, including one for

breach of the contract.

 The Lake Geneva Sugar Shack, Inc. is a

Wisconsin corporation that operated the Sugar

Shack nightclub in Lake Geneva, Wisconsin. Dana

Montana was the sole shareholder and principal

officer of the corporation. The Sugar Shack

purchased insurance from General Star in July

1989. In February 1990 a fire substantially

damaged the building, and within 24 hours GenStar

announced that it intended to deny coverage

because it concluded that Montana was somehow

involved in starting the fire. GenStar suspected

that Montana had a financial motive to burn the

building and it ordered a financial background
check, which confirmed that the building was

mortgaged and that the mortgage was crosscollateralized with other properties, including

Montana’s home. As a result of GenStar’s advising

the mortgage company that Montana set the fire,

Montana lost a refinancing of her properties

which had been approved. The building was

demolished and the mortgagee foreclosed on her

other properties, which were worth $3.327

million.

 But GenStar did not formally deny coverage

until after 11 months of investigation. During

that time, which Montana contends was dragged out

in an attempt to deplete her financial resources,

GenStar refused to reinstate coverage and refused

to refund her premiums.

 GenStar brought a declaratory judgment action

against the Sugar Shack and Montana in the

Walworth County circuit court, seeking to

dissolve the insurance agreement. GenStar accused

Montana of fraud, breach of the policy agreement,

and other dastardly deeds. Sugar Shack and

Montana then filed the present action in federal

court, alleging claims of breach of contract and

bad faith. The late Judge Robert W. Warren, to

whom the case was assigned, stayed the federal

action pending resolution of the state court

case. In granting the stay request, Judge Warren

said:

 If the court stays the action, it will be able

to rely on the state court’s findings of fact

instead of eliciting the facts contemporaneously

alongside the state court in two separate

proceedings. Any state court finding will reduce

the amount of litigation in a parallel federal

matter. If Montana prevails, she will not only be

able to have her day in court, but she will be

leveraged into a better bargaining position if

she chooses to settle out of court. If General

Star prevails, Montana’s claim will be mooted

without both parties having to go through another

expensive, time-consuming procedure.

After the stay was entered, Montana (from here

on, we will often refer to the plaintiffs simply

as Montana) attempted to obtain a stipulation to

consolidate all of her claims in the federal

action with the Walworth County action. GenStar

refused to consolidate the bad faith claim but

agreed to consolidate the vicarious liability and

breach of contract claims. The stipulation as to

the latter claims was entered.

 In January 1994 Judge Warren inquired into the

status of the federal action. GenStar responded,

in writing, as follows:
As all matters that were initially embraced in

the federal court action have been embraced in

the state court action, I see no reason why the

federal court action can not simply be dismissed.

Montana did not agree, and she wrote this letter

to Judge Warren:

In no event, should this matter be dismissed as

the Walworth County action does not contain the

same causes of action as this case. . . . A

dismissal of this action would seriously

prejudice the plaintiffs’ rights because it would

create statute of limitations problems for the

causes of action pled in this case that were not

contained in the Walworth County case.

Specifically, the plaintiffs’ Complaint contains

a cause of action for bad faith which has never

been alleged in the Walworth County case.

Judge Warren responded by closing the case

administratively/1 but saying:

Nothing herein should be considered a dismissal

or disposition of this matter, however, and

either party may reopen the case at any time by

advising the court and opposing counsel in

writing that further proceedings are desired.

 On January 11, 1994, Montana’s attorney,

Christopher Hale, appeared in Walworth County

court and said he was considering bringing a

motion to assert a bad faith claim in that court.

GenStar contends that Hale expressly acknowledged

at the January hearing the risk of his bad faith

claim being barred by claim preclusion if he did

not file it in Walworth County. But Montana

contends that Hale was only concerned about the

statute of limitations. Montana has the better of

this dispute, both on the record and because of

the principle that for purposes of summary

judgment, disputes of fact are resolved in favor

of the nonmovant. The transcript shows:

 THE COURT: Well, first of all, Bad Faith

wouldn’t be an issue in this case, would it? It

would come after a decision is rendered in the

case it would seem to me. In other words, you’ve

got a new lawsuit. Question arises whether his

objection to the statute or not would survive--

that would--I can’t see how that issue would come

up here until it was a judgment in this case.

 MR. HALE: I think the law is, your Honor, and

Mr. Baxter will correct me, that when facts

giving rise to evidence that there was not a

reasonable basis at the time of the denial of

coverage that at that point in time your cause of

action for Bad Faith accrues and you have two

years to bring it and I think the case law has
Bad Faith claims in trials like this where they

are tried together with the arson case itself.

Hale was clearly discussing the statute of

limitations, not claim preclusion.

 Sugar Shack and Montana filed for bankruptcy in

September 1994, which automatically stayed the

Walworth County case. GenStar moved to lift the

stay. Montana wanted to consolidate the Walworth

County coverage claim with the federal bad faith

claim under 28 U.S.C. sec. 1452(a), providing for

removal of claims related to bankruptcy cases.

However, instead, the bankruptcy court lifted the

stay; plaintiffs appealed again, arguing for one

forum, the federal forum. On appeal to the

district court, GenStar again opposed the

request, saying:

As set forth in the Decision . . . Judge Warren

realized the state law nature of those claims,

and stayed further proceedings in the Federal

Court Action until conclusion of the Walworth

County Action. At that time, Appellants could

proceed with the Federal Court Action and

adjudicate their bad faith claim.

 . . . .

 . . . The Walworth County Action is the best

forum for resolution of all claims other than the

bad faith claim and the bad faith claim should be

litigated in the Federal Court Action after

completion of the Walworth County Action.

Judge John W. Reynolds, to whom the bankruptcy

appeal was assigned, said:

If General wins in state court, obviously there

is no bad faith claim. If General loses, issue

preclusion will prevent General from relitigating

most issues in the bad faith claim. The trustees

would have a stronger case if claim preclusion

and a final resolution of the state case would

bar the federal action, thereby denying the

trustees the right to ever raise the bad faith

claim. Because the trustees have not raised this

issue, the court assumes it is not a problem.

 After a 2-week trial in Walworth County, a jury

found that GenStar breached the contract and

awarded Montana and Sugar Shack $260,000 in

insurance coverage damages and $3.327 million in

consequential damages. The state trial judge, on

motions after verdict, set aside both awards. The

Wisconsin Court of Appeals affirmed in part and

reversed in part, reinstating the $260,000 coverage

award.

 Montana and Sugar Shack then sought to reopen
and restore this case to the court’s active

docket so they could pursue their bad faith

claim. By letter dated March 9, 1998, Judge Lynn

Adelman, to whom the case had now been assigned,

raised the question of claim preclusion on his

own motion and ordered briefing on the issue.

Seizing the moment, GenStar moved for summary

judgment, claiming that the case was in fact

barred. Finding no controlling Wisconsin law on

the issue before him, the judge conducted a

general, Restatement-based, analysis of claim

preclusion law as he predicted the Wisconsin

courts would do in this situation. He then

granted GenStar’s motion for summary judgment and

dismissed the case. Sugar Shack and Montana

appeal.

 We disagree with the conclusion that Wisconsin

law offers too little guidance on this issue.

Because existing snippets of Wisconsin law offer

strong hints of how Wisconsin courts would view

these facts, we cannot agree with the district

court. Furthermore, even under a purely legal

analysis of the issue as one of first impression

in Wisconsin (such as the district judge

conducted), the facts lead us to a conclusion

contrary to the one reached in the district

court.

 It can hardly be disputed that everyone assumed

all along that the bad faith claim could proceed

in federal court after the trial was completed on

the other issues pending in state court. There

was no issue of judicial economy and no way to

avoid two trials. Even had the bad faith claim

been filed in Walworth County, the state court

judge stated that he would have tried that claim

separately from the rest of the case. That suited

GenStar, which quite naturally wanted bad faith

issues kept out of the first trial. More than

likely, GenStar was not very concerned all along

with the stayed federal case because it thought

it would win in Walworth County and the bad faith

case would go away. Although GenStar tried to get

rid of the bad faith suit when it incorrectly

told Judge Warren that there was nothing left of

the federal case, it did not object when he

declined to dismiss the case. Plus, on more than

one occasion, GenStar specifically acknowledged

that the federal case could proceed after the

state case was over.

 At least two Wisconsin cases strongly suggest

that in this situation, Wisconsin courts would

not be offended by the existence of an action

based on the tort of bad faith and a separate

action regarding coverage issues. That is what

happened in Heyden v. Safeco Title Insurance

Company, 175 Wis. 2d 508, 498 N.W.2d 905 (Wis.

App. 1993), overruled on other grounds, Weiss v.
United Fire, 197 Wis. 2d 365, 541 N.W.2d 753

(1995). Prior to the 1993 decision in Heyden, the

court of appeals had issued (in 1989) an

unpublished order which concerned precisely the

issue before us. Even though the unpublished

order is not controlling precedent (see sec.

809.23(3) Wisconsin Statutes) there is no

impediment to noting what the court of appeals

said in the published decision about its holding

in the unpublished order:

[O]ur November 20, 1989, order, which is the law

of this case, made it clear that I.W.S.’s "bad

faith" action against Safeco is not barred by the

earlier breach-of-contract action.

At 520. Further, in a footnote, the court said:

On November 20, 1989, this court summarily

reversed the judgment of dismissal, holding that

the breach-of-contract claim and the bad-faith

claim "each arose from a separate transaction"

for res judicata purposes.

N.2, at 515. What we learn from Heyden, then, is

that in at least one instance a bad faith claim

was not barred by a prior breach of contract

action. When we are predicting the course of

Wisconsin law, clues like these indicate to us

that Wisconsin courts might very well be willing

to allow Montana’s bad faith claim to proceed.

 The second case is Davis v. American Family

Mutual Insurance Company, 212 Wis. 2d 382, 569

N.W.2d 64 (Wis. App. 1997), in which the insured

was injured in a one-vehicle accident in Hennepin

County, Minnesota, in a vehicle driven by an

underinsured motorist. Davis settled with the

driver (for less than the inadequate policy

limits) and then claimed underinsured motorist

benefits from his insurance company, American

Family. American Family denied the claim and

Davis sued in Minnesota, which allows an insured

to sue for underinsured motorist benefits after

the acceptance of a settlement for less than the

policy limits of the underinsured motorist. Davis

won. He then filed a bad faith action against

American Family in Wisconsin. American Family

moved to transfer the case to Minnesota; the

Wisconsin judge granted the motion and said that

to the extent claim is unavailable in Minnesota,

he presumably would allow the parties to proceed.

The Hennepin County court dismissed the case

because Minnesota does not recognize a tort of

bad faith. Back in Wisconsin, American Family

moved for summary judgment on res judicata

principles. The court granted the motion and

Davis appealed. The court of appeals rejected the

argument. Davis, even though he seemed clearly to

be forum shopping, was allowed to proceed with
his bad faith claim. In finding that the suit was

not barred, the court relied heavily on what the

trial judge said he would do:

 Davis argues that claim preclusion is

inapplicable to this case. We agree. As a matter

of law, claim preclusion does not apply when the

plaintiff accepts the trial court’s invitation to

file his claim elsewhere. Schneider v. Mistele,

39 Wis.2d 137, 158 N.W.2d 383 (1968). "[A] prior

judgment is not res adjudicata or an estoppel bar

as to any matter which the court in the earlier

case expressly refused to submit to the jury and

expressly directed should be litigated in another

forum, or in another action." Id. at 141, 158

N.W.2d at 385 (footnote omitted). Here, the trial

court granted a stay so that Davis’ bad faith

claim could be tried in Minnesota, and ordered

that "[t]o the extent that the claim and

prosecution are unavailable in Minnesota, this

court would retain jurisdiction and allow the

parties to pursue action in this Court for

ultimate determination." We conclude that the

trial court’s order granting the stay but

permitting Davis to return with his bad faith

claim to Wisconsin prevents the application of

claim preclusion to bar Davis’ bad faith claim.

The situation bears a strong similarity to what

happened in the present case.

 We think Wisconsin courts would look to the

procedural history of Montana’s case, to what the

judges and the parties said and assumed, and

determine that, at least under these peculiar

facts, the bad faith case is not barred.

 Our conclusion is consistent with the longstanding view of the Wisconsin courts that a

breach of contract claim and a bad faith claim

are separate claims. See Anderson v. Continental

Ins. Co., 85 Wis. 2d 675, 271 N.W.2d 368 (1978).

In fact, in Warmka v. Hartland Cicero Mutual

Insurance Company, 136 Wis. 2d 31, 400 N.W.2d 923

(1987), the court said that the bad faith claim

is not based on the policy (as is the breach of

contract claim, of course) but grows out of a

breach of a duty to properly investigate a claim.

While these cases are not dispositive on the

claim preclusion issue, taken together with

Heyden and Davis they further bolster our belief

that Wisconsin courts--at least in the odd

circumstances of this case--would allow the bad

faith claim to proceed.

 We hesitate to say more because the procedural

facts before us make this a poor case in which to

proclaim general principles of law. Particularly,

it is not a good case for the federal courts to

make unnecessary predictions about the future of
Wisconsin law. That said, we will comment only

briefly on the effect of the Restatement (Second)

on Judgments (1982).

 In the absence of what it perceived to be a

clear statement of Wisconsin law, the district

court turned to the Restatement (Second) of

Judgments (1982) to analyze whether the bad faith

claim should be allowed to proceed. Determining

that Wisconsin follows a transaction approach,

the district court proceeded to look to the

Wisconsin rule on counterclaims. Although it

recognized that the Wisconsin rule generally

provides for permissive counterclaims,/2 the

court concluded that the permissive counterclaim

rule did not answer the question whether a

defendant may split its counterclaims, as Montana

did here by bringing some in Walworth County and

maintaining the bad faith claim in federal court.

It is at this point that the analysis was guided

by the Restatement, which says in the comment to

sec. 21 that a defendant who interposes a

counterclaim is in effect a plaintiff to whom the

rules of merger apply--which means that a party

who obtains a judgment cannot bring a separate

action on any part of the original claim because

the original claim is merged into the judgment.

sec. 18(1). The district court then concluded

that a defendant who obtains a judgment on a

counterclaim is foreclosed from recovering on

other counterclaims arising out of the same

transaction.

 At best, we think the district court’s analysis

stops one step short of the finish line. The

Restatement also sets out exceptions to the general

rule against splitting counterclaims in sec. 26.

The Comment to that section notes that splitting is

not prohibited when the opposing party consents to

or acquiesces in the splitting. We will quote at

length:

 (a) Consent to or acquiescence in splitting

(Subsection (1)(a)). A main purpose of the

general rule stated in sec. 24 is to protect the

defendant from being harassed by repetitive

actions based on the same claim. The rule is thus

not applicable where the defendant consents, in

express words or otherwise, to the splitting of

the claim.

 The parties to a pending action may agree that

some part of the claim shall be withdrawn from

the action with the understanding that the

plaintiff shall not be precluded from

subsequently maintaining an action based upon it.

The agreement will normally be given effect. Or

there may be an effective agreement, before an

action is commenced, to litigate a part of a

claim in that action but to reserve the rest of
the claim for another action. So also the parties

may enter into an agreement, not directed to a

particular contemplated action, which may have

the effect of preserving a claim that might

otherwise be superseded by a judgment, for

example, a clause included routinely in

separation agreements between husband and wife

providing that the terms of the separation

agreement shall not be invalidated or otherwise

affected by a judgment of divorce and that those

terms shall survive such a judgment.

 Where the plaintiff is simultaneously

maintaining separate actions based upon parts of

the same claim, and in neither action does the

defendant make the objection that another action

is pending based on the same claim, judgment in

one of the actions does not preclude the

plaintiff from proceeding and obtaining judgment

in the other action. The failure of the defendant

to object to the splitting of the plaintiff’s

claim is effective as an acquiescence in the

splitting of the claim.

 The record shows that GenStar clearly acquiesced

in--and in fact encouraged--the splitting of

Montana’s claim. Even under an analysis based on

the Restatement, Montana must be allowed to

proceed with her bad faith claim.

 The judgment of the district court is

REVERSED and REMANDED.

/1 A device which permits a district court to remove

a case like this from its active docket and thus

relieve the court from reporting on its status at

periodic intervals.

/2 For an exception, see A.B.C.G. Enterprises, Inc.

v. First Bank Southeast, 184 Wis. 2d 465, 515

N.W.2d 904 (1994).