### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 19-2146

R EXING Q UALITY E GGS, Plaintiff-Appellant,

v.

R EMBRANDT E NTERPRISES, I NC ., Defendant-Appellee

.

____________________ Appeal from the United States District Court for the

Southern District of Indiana, Evansville Division. No. 3:19-cv-00031 — Jane Magnus-Stinson, Chief Judge

.

____________________
A RGUED D ECEMBER 3, 2019

— D ECIDED M ARCH 26, 2020

____________________

Before W OOD , Chief Judge, and H AMILTON and S CUDDER , Circuit Judges

. W OOD , Chief Judge . This case is the second to arise out of an ill-fated relationship between Rexing Quality Eggs and Rembrandt Enterprises, Inc. The fi rst case addressed various claims arising under a contract that the two parties formed at the outset of their business dea lings. Although this case arises out of the same transaction, this time Rexing, the plainti ff , has raised tort claims. The questionon appeal is whether its e ff ort2 No. 19-2146

to bring a new action is consis tent with Indiana’s prohibition on claim spli tt ing, under which a plainti ff is forbidden tobring a case presenting claims that arise out of the same transaction or events that underlie claims brought in another lawsuit. We hold that the claim-spli tt ing ban applies here, and so

we a ffi rm the district court’s judgment.

I Rexing and Rembrandt entered into a contract under which Rembrandt, a producer of eggs, promised to supply Rexing, a distributor, with 3,240,000 cage-free eggs every week for a year. Eight months after the agreement took e ff ect, Rexing repudiated it, claiming that Rembrandt had breached its obligations by failing to provide eggs that met the quality standards speci fi ed in the agreement. Rexing refused to accept any more loads of eggs. In the aftermath, Rexing sued Rembrandt, seeking a declaration th at it was excused from accepting any more eggs, as well as incidental and consequential damages for alleged breaches of warranty in the purchase agreement. Rexing Quality Eggs v. Rembrandt Enterprises, Inc. , 360 F. Supp. 3d 817 (S.D. Ind. 2018) ( Rexing I). Rexing sought $67,261.50 in general damages, $60,204.84 in lost pro fi ts, and $997,650 in start-up costs. Rembrandt counterclaimed, seeking damages for breach of contract. After discovery, both parties moved for summaryjudgment. The trial court determined that Rexing had unilaterally terminated the contract and that the breach was not excused. At the same time, it ruled that Rembrandt was not entitled to summary judgment onthe question whether it was entitled to damages, and it allowed the case to move forward to trial on that issue. The dist rict court held a trial in November 2019; it resulted in a jury verdict in Rembrandt’s favor andNo. 19-2146 3

an award of $1,522,302.61 in damages against Rexing. Rexing fi led a timely notice of appeal, but on January 2, 2020, it voluntarily dismissed the appeal pu rsuant to Federal Rule of Appellate Procedure 42(b). It appears that some post-verdict wrangling over a tt orney’s fees and costs is still ongoing. After its partial loss on summary judgment but before the trial in Rexing I , Rexing brought this action ( Rexing II) in state court, one month after the district court ordered summary judgment in the first case. This time, Rexing sued Rembrandt for the torts of conversion and deception. Rexing claimed that Rembrandt had refused to return reusable shipping materials, including plastic flats, dividers, and pallets, collectively called the “EggsCargoSystem.” Rexinghad provided the EggsCargoSystem to Rembrandt to use in loading eggs for Rexing to pick up. The original contract called for Rexing to provide Rembrandt with the materials, but it did not require Rembrandt to return the EggsCargoSystem at the termination of the agreement. Nonetheless, Rexing made three demands thatRembrandt return the EggsCargoSystem. Rembrandt returned some, but not all, of the materials in November 2018. In Rexing I, Rexing had sought the value of the EggsCargoSystem as part of the start-up costs that it alleged it incurred in reliance on the original agreement with Rembrandt. Now, in Rexing II , Rexing seeks damages for the unreturned materials,as well as for the loss of the use of the EggsCargoSystem during the time that Rembrandt allegedly unlawfully possessed it. Taking advantage of the fact that the parties were of diverse citizenship (Rembrandt is an Iowa corporation with itsprincipal place of business in that state, and Rexing is an Indiana partnership whose only tw o partners are both citizens4 No. 19-2146

of Indiana), and the amount in controversy easily exceeded $75,000, Rembrandt removed Rexing II to federal court and moved to dismiss the action. 28 U.S.C. §§ 1332(a)(1) & (c), 1441(b). It argued that the claims in Rexing II were barred by the claim-preclusion branch of res judicata in light of the district court’s grant of partial summary judgment in Rexing I , and it contended that Rexing ha d improperly split its claims between the two cases. The district court granted Rembrandt’s motion to dismiss, ruling that, while the new case was not barred by claim preclusion, Rexing had impermissibly split its claims. Under Indiana’s doctrine prohibiting cl aim splitting, a plaintiff cannotbring a new lawsuit based upon the same transaction or occurrence that underlies claims br ought in another lawsuit. Because Rexing I and Rexing II both centered around the samecontroversy, the district court determined that Rexing had impermissibly split its claim and dismissed the case. Rexing appeals.

II Rexing o ff ers three arguments why the rule against claim spli tt ing should not apply to this ca se. First, it argues that thedistrict court applied the wrong test under Indiana law for establishing claim spli tt ing, and that it would have prevailed under the proper test. Second, it argues that claim spli tt ing cannot prevent litigation of fact s that were unknown at the time the original case was fi led. Finally, it argues that the rule against claim spli tt ing does not apply to continuing torts, and that conversion is a continuing tort under Indiana law. Each of these arguments fails, as discussed below.No. 19-2146 5

A Before addressing Rembrandt’s arguments, we need tosay a word about the law that applies to them. Rexing’s position is a bit hard to follow, but it appears to argue that Indiana law applies because this is a substantive ma tt er and that the district court deviated from In diana’s rules; it then expends considerable time arguing that the district court erroneously relied on Telamon Corp. v. Charter Oak First Ins. Co. , 2016 WL 67297 (S.D. Ind. 2016), a ff

’d, 850 F.3d 866 (7th Cir. 2017), when it resolved this issue. Rembrandt responds fi rst that there is no material di ff erence between Indiana law and federal law, and that it wins either way. In fact, the district court a pproached this issue in the appropriate way. It fi rst recognized that the law on claimspli tt ing is part of the law of res judicata . See Palka v. City of Chicago , 662 F.3d 428, 437 (7th Cir. 2011); Alvear-Velez v. Mukasey, 540 F.3d 672, 678 (7th Cir. 2008). It then noted that when a federal court is considering the e ff ect of an earlier ruling in a case within its diversity jurisdiction, as Rexing I was, for purposes of claim preclusion “federal common law governs the ... e ff ect of a dismissal by a federal court si tt ing in diversity.” Semtek Int’l Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 508 (2001). Nonetheless, the Supreme Court continued, the content of the federally prescribed rule should be taken from “the law that would be applied by state courts in the State in which the federal diversity court sits.” Id. Like the district court, we see no reason why this approach should not apply with equal force to the problem of claim-spli tt ing. We therefore hold that the content of the law governing the e ff ect of Rexing I comes from Indiana law, which is incorporated as6 No. 19-2146

the applicable federal common law. Our references below to Indiana law should be understood in this light. The rule against claim spli tt ing prohibits a plainti ff from bringing a new case raising is sues arising out of the same transaction or occurrence as an earlier case, when those issues could have been raised in the fi rst litigation. Indiana law has long recognized this prohibition. See MicroVote Gen. Corp. v. Indiana Election Comm’n , 924 N.E.2d 184, 192 (Ind. Ct. App. 2010) (“[A] party is not allowed to split a cause of action, pursuing it in a piecemeal fashion and subjecting a defendant to needless multiple suits.”); Quimby v. Becovic Mgmt. Grp., Inc. , 946 N.E.2d 30, 34 n.4 (Ind. Ct. App. 2011) (“[M]ultiple legal theories supporting relief on a ccount of one transaction must be litigated at one go.”) (quoting Wabash Valley Power Ass’n, Inc. v. Rural Electri fi cation Admin. , 903 F.2d 445, 455 (7th Cir. 1990)). The district court here applied a two-part test drawn from Telamon . In that case, another judge from the same district summarized the governing law as follows: a court should fi nd that a plainti ff split her claims when “( 1) the second claim is based on the same transaction or occurrence as the fi rst claim and there is (2) an identity of parties or their privies.” 2016 WL 67297, at *2. (Although it was not clear from the districtcourt’s citations whether it was looking to federal law or Indiana law, on appeal we exp licitly recognized that the Semtek approach governs. See Telamon , 850 F.3d at 872–73.) The court in Rexing II determined that Rexing had merely repackaged its failed a tt empt to sue Rembrandt for breach of contract as a tort case, and that the rule against claim spli tt ing barred the second action.No. 19-2146 7

Though acknowledging that Indiana law prohibits claim spli tt ing, Rexing argues that the district court applied the wrong test for establishing whether claim spli tt ing had occurred. Rexing points to Indiana cases that have held that “the test for making [the claim-spli tt ing] determination is whether identical evidence will support th e issues involved in both actions.” MicroVote, 924 N.E.2d at 192. Referring to this approach as the “identical evidence test,” Rexing argues that in Indiana, the rule against claim spli tt ing applies only when there is no di ff erence between the evidence needed to support the claims in each of the two ac tions. Because the elements ofa claim for breach of contract and a claim for deception or conversion are supported by di ff erent facts, Rexing reasons, different evidence is required to substantiate each claim and thus it did not split its claims across the two cases. Although Indiana courts do sometimes use the term “identical evidence,” Rexing ov erstates the significance of those words. The rule against claim splitting does not applyexclusively to cases in which the second claim can be supported only by exactly the same evidence that supported the first. The Indiana cases on poin t show that the “identical evidence” test requires only that “the same general evidence would be used to adjudicate all of [the] claims.” Hilliard v. Jacobs , 957 N.E.2d 1043, 1047 (Ind. Ct. App. 2011). There is no meaningful di ff erence between the “identical evidence” test, so understood, an d the test that the district court applied. We have held as much in earlier cases applying Indiana’s identical-evidence test. Wabash Valley, 903 F.2d at456 (observing that identical evidence is “another way of asking whether the two suits deal with a common occurrence”); Atkins v. Hancock Cnty. Sheri ff

’s Merit Bd. , 910 F.2d 403, 405 (7th8 No. 19-2146

Cir. 1990) (“Understood literally, [the identical-evidence] approach would con fi ne a plea of res judicata to cases in which the claim in plainti ff ’s second suit was identical to the claim in his fi rst, and would invite piecemeal litigation with avengeance. We have not thought that Indiana intended to confi ne res judicata so narrowly[.]”). Although the Indiana Supreme Court has not ruled on this issue directly, it has favorably cited our cases applying the identical-evidence rule. See, e.g. , Erie Ins. Co. v. George, 681 N.E.2d 183, 190 (Ind. 1997) (citing Wabash Valley, 903 F.2d at 455). Thus, the district court properly applied Indiana’s law concerning claim spli tt ing, and Rexing’s argument to the contrary fails.

B Rexing also urges that the bar on claim spli tt ing does not apply to this case because the claim in Rexing II arises from events that occurred after it fi led Rexing I . Because Rexing wasunaware that Rembrandt would not return the EggsCargoSystem at the time it fi led Rexing I , it argues, the rule against claim spli tt ing does not apply.As the district court held, Rexing has not shown that material unknown facts were later revealed. Before initiating Rexing I , Rexing had already formally demanded the return of the EggsCargoSystem. It again demanded that Rembrandt return the System the day after fi ling Rexing I . Additionally, in its complaint in Rexing I , Rexing sought the recovery of the cost of the EggsCargoSystem. The conclusion is irresistible that Rexing knew at the time it fi led the fi rst case that the custody or ownership of the EggsCargoSystem was part of the dispute between the parties; itthus should have raised anything it had to say about that claim at the time. No material facts that were unknown at the time Rexing fi led Rexing I laterNo. 19-2146 9

came to light. Rexing cannot evade the application of the rule against claim spli tt ing by arguing that it could not have raised its arguments about the System at the time it fi led Rexing I because the claim was not ripe or the facts were unknown.

C Finally, Rexing argues that an exception to the rule against claim spli tt ing should apply to cases of conversion. Pointing to the American Law Institute’s Restatement (Second) of Judgments, it argues that “continuing or concurrent wrong[s]” are exempt and that th e tort of conversion is such a wrong. R ESTATEMENT (S ECOND ) OF J UDGMENTS § 26(1)(e) (ALI 1982); see also Van Bibber v. Norris , 404 N.E.2d 1365, 1380 (Ind. Ct. App. 1980) (“Conversion is a continuing tort, lasting as long as the person entitled to the use and possession of his property is deprived of it.”). We are also unpersuaded by this argument. Rexing has not directed our a tt ention to any case lawshowing that Indiana has adopted Section 26 of the Restatement. But even if we were to overlook this serious de fi cit, it would not help Rexing. Section 26(1)(e) applies only to situations in which a harm cannot be remedied at one go. The Restatement gives nuisance as an example of such a continuingtort. There, a defendant’s activity on her own land causes ongoing harm to the plainti ff in the use of her land. In such cases, the plainti ffmay be able to sue repeatedly to remedy the continuing harm as it accrues. Even in such a case, however, “the plainti ff , to avoid spli tt ing, must claim all damages su ff ered [up] to the time of the suit.” R ESTATEMENT (S ECOND ) OF J UDGMENTS § 26 cmt. h.10 No. 19-2146

Conversion is not a continuingtort within the meaning of Section 26(1)(e). Even viewing th e facts in the light most favorable to Rexing, Rembrandt unlawfully appropriated theEggsCargoSystem only one time. Rexing knew that Rembrandt remained in possession of the System at the time it fi led Rexing I; indeed, it had already demanded that the System be returned to it. The factthat Rembrandt continued to refuse to return the System does not render the conversion a “continuous” tort in the sens e intended by the Restatement (or in any other sense we normally see). Indiana courts have dismissed conversion claims on claim-spli tt ing grounds, demonstrating that Indiana law does not recognize the rule that Rexing advocates. Hilliard, 957 N.E.2d at 1048. There is no continuing tort exception to the rule against claim spli tt ing in cases of conversion.

III Despite Rexing’s best e ff orts to paint these proceedings in a di ff erent light, we agree with th e district court that they were logically part of Rexing I and that the a tt empt to rehash them in Rexing II was an impermissible e ff ort at claim splitting. We therefore A FFIRMthe judgment of the district court.