7th Circuit sides with supplier in second egg dispute

The 7th Circuit Court of Appeals has ruled for an Iowa-based egg supplier in a second action brought against it by an Evansville-based buyer after finding that Indiana’s claim-splitting ban applied to the buyer’s new action.

After its partial loss on summary judgment, but before the trial in Rexing v. Rembrandt, 3:17-cv-00141 – referred to as Rexing I – Rexing Quality Eggs of Evansville brought the action at hand, Rexing II, in state court just one month after the U.S. District Court for the Southern District of Indiana ordered summary judgment for Rembrandt Enterprises, Inc. in the first case.

There, Rexing suffered a $1.46 million jury verdict over a broken agreement to buy more than 100 million eggs from Rembrandt after Rexing’s primary customer for the eggs ultimately stopped buying, which prompted Rexing to quit buying eggs from Rembrandt.

Rexing appealed the district court’s dismissal of its separate lawsuit against Rembrandt for the torts of conversion and deception, claiming that Rembrandt had refused to return reusable shipping materials, including plastic flats, dividers, and pallets, called EggsCargoSystem. In Rexing II, Rexing sought 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.

In its defense, Rembrandt removed Rexing II to federal court and moved to dismiss the action, arguing that the claims 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.

It also argued that Rexing had improperly split its claims between the two cases, which the Southern District Court agreed with in Rexing Quality Eggs v. Rembrandt Enterprises, Inc., 3:19-cv-00031, referred to as Rexing II.

The 7th Circuit Court of Appeals likewise sided with Rembrandt, affirming the district court in Rexing Quality Eggs v. Rembrandt Enterprises, Inc., 19-2146. It found all three of Rexing’s arguments failed, beginning by noting that the district court did not apply the wrong test for establishing whether claim-splitting had occurred.

“There is no meaningful difference between the ‘identical evidence’ test, so understood, and the test that the district court applied. We have held as much in earlier cases applying Indiana’s identical-evidence test,” Chief Judge Diane Wood wrote for the 7th Circuit. “Although the Indiana Supreme Court has not ruled on this issue directly, it has favorably cited our cases applying the identical-evidence rule. Thus, the district court properly applied Indiana’s law concerning claim splitting, and Rexing’s argument to the contrary fails.”

Additionally, the 7th Circuit found that the egg buyer could not evade the application of the rule against claim splitting by contesting that it could not have raised its arguments about the EggsCargoSystem at the time it filed Rexing I because the claim was not ripe or the facts were unknown.

Lastly, the 7th Circuit concluded there is no continuing tort exception to the rule against claim splitting in cases of conversion, rejecting Rexing’s final argument that an exception to the rule against claim splitting should apply to cases of conversion.

“Despite Rexing’s best efforts to paint these proceedings in a different light, we agree with the district court that they were logically part of Rexing I and that the attempt to rehash them in Rexing II was an impermissible effort at claim splitting,” the 7th Circuit concluded.