950 F.2d 426
34 Fed. R. Evid. Serv. 604
UNITED STATES of America, Plaintiff-Appellee,v.Richard L. WHITE, Defendant-Appellant.
No. 90-3073.
United States Court of Appeals,Seventh Circuit.
Argued April 11, 1991.Decided Dec. 6, 1991.

Deborah J. Daniels, U.S. Atty.  (argued) and Linda S. Chapman, Asst. U.S. Atty., Office of the U.S. Atty., Indianapolis, Ind., for plaintiff-appellee.
Royal B. Martin, Jr.  (argued), Hope L. Flack, Silets & Martin, Chicago, Ill. and Susan W. Brooks, McClure, McClure & Kammen, Indianapolis, Ind., for defendant-appellant.
Before CUMMINGS, CUDAHY and KANNE, Circuit Judges.
KANNE, Circuit Judge.

1
Richard White and his wife Judith were both convicted of bankruptcy fraud in violation of 18 U.S.C. § 152, and they appealed.   In our opinion found at 879 F.2d 1509 (7th Cir.1989), cert. denied, 494 U.S. 1027, 110 S.Ct. 1471, 108 L.Ed.2d 609 (1990), we reversed Mrs. White's conviction.   As to Mr. White, we remanded his case for further proceedings.   We asked the district court to determine, first, whether the government procured or was otherwise complicit in any violation of Mr. White's attorney-client privilege and, second, if so, whether such conduct resulted in the introduction of evidence sufficiently material and adverse to Mr. White that the failure to exclude it denied him his basic procedural rights.   After an evidentiary hearing, the district court determined that the government was not complicit in any violation of Mr. White's attorney-client privilege, nor did any of the evidence introduced against Mr. White deny him his procedural rights.

2
In late 1984, Mr. and Mrs. White filed a personal bankruptcy petition.   The petition was prepared by or under the direction of the Whites' attorney, Mark Center.   At that time, Mr. Center was a partner of a law firm which represented White Petroleum, Inc., a corporation in which Mr. White and his brothers were involved.   The corporation had become bankrupt in 1983.   Richard and Judith White were discharged in their personal bankruptcy in May 1985.

3
In October 1985, the Federal Bureau of Investigation began investigating White Petroleum, together with some associated companies and individuals, including Mr. and Mrs. White, for possible bankruptcy fraud.   In the course of the investigation, an FBI agent uncovered various transactions related to Mr. White that appeared to involve fraudulent activity with regard to the Whites' personal bankruptcy petition.   The agent discovered what appeared to be assets not disclosed on the Whites' personal bankruptcy petition.   They included an investment in stock, a security interest in Twin Flags Trucking protecting a $10,000 loan, a mortgage on Mr. White's real estate held by Ray Hart, and two large individual life insurance policies owned by Mr. and Mrs. White.

4
Meanwhile, the Whites' attorney, Mark Center, was convicted of bankruptcy fraud in an unrelated case involving a real estate development scheme called "Foxcliff."   On April 1, 1987, while awaiting sentencing, Mr. Center's attorney, Forrest Bowman, was contacted by then-United States Attorney John Tinder who asked whether Mr. Center would like to tell the government anything about the Foxcliff case.   The U.S. Attorney also broached the subject of the White Petroleum bankruptcy, telling Mr. Bowman that the government additionally would like some information from Mr. Center regarding that case.   The district court found, however, that the government did not make any promise that could be interpreted as an exchange with respect to Mr. Center's sentencing for the information he was providing.

5
Mr. Center agreed to cooperate and his attorney, Mr. Bowman, met with the U.S. Attorney, two FBI agents, and a number of Assistant United States Attorneys to respond to questions previously posed by the U.S. Attorney regarding various matters, including the White Petroleum bankruptcy.   Mr. Center also agreed to share nonprivileged information concerning Mr. and Mrs. White.   The applicability of the attorney-client privilege was discussed at the meeting and the government noted it had no waiver of the privilege from Mr. White.   Mr. Bowman gave general information regarding Mr. Center's firm's handling of the White Petroleum bankruptcy case, the decision for the corporation to file under Chapter 11, and who worked on the case at the firm.   Mr. Bowman discussed some of the individual bankruptcies of Mr. White and his brothers and identified some of the creditors of White Petroleum.   He also discussed Twin Flags Trucking, and indicated that a conversation had taken place between Mr. Center and Nancy Dison, a paralegal at the firm.   Later the government learned that during this discussion, Ms. Dison revealed to Mr. Center that she had prepared a mortgage release at Mr. White's request and improperly notarized it.   She also told Mr. Center that she had been romantically involved with Mr. White for several years.

6
On April 30, 1987, Mr. Center was sentenced to one year imprisonment, with all but four months suspended.   An appeal followed.

7
In investigating the White brothers, the FBI drafted a list of questions to be posed to Mr. Center to determine whether he was victimized, was complicit in the fraud, or was "a poor lawyer."   The district court found that by this time the investigation of Richard and Judith White was essentially completed and the government had conducted all interviews and collected all the documents necessary for submitting the case to the grand jury, namely the life insurance records, the $10,000 loan records, the bank stock records, and the Hart mortgage information.

8
On August 26, 1987, two FBI agents met with Mr. Center and his attorney.   Mr. Center described how he handled bankruptcy matters in general, and standard procedures at his former firm for processing bankruptcies.   Later, Mr. Center stated that Ms. Dison probably collected the information contained in the bankruptcy schedules and that he probably reviewed the schedules after completion.

9
The district court found that by September, 1987 the only issues in need of resolution were whether the Whites had in fact provided information about the undisclosed assets to Mr. Center in his capacity as their attorney (in which case he might be complicit in the fraud), or whether there had been some legal decision to omit the assets from the bankruptcy schedules.

10
On September 8, 1987, Mr. Bowman met with Assistant United States Attorney Jackie Bennett and the FBI agents and told them that he wanted to see copies of the schedules Mr. Center had prepared and filed with the bankruptcy court.   Mr. Bowman also indicated that prior to testifying before the grand jury Mr. Center wanted to review the files at his former law firm--particularly the drafts of bankruptcy schedules, the Ray Hart mortgage release, and notes and other information gathered by him to prepare the various petitions filed by the Whites.

11
During Mr. Center's visit to the law firm's offices, he discussed the attorney-client privilege with one of the firm's partners and assured the partner that the privilege attached to information that was confidential and that he would continue to recognize it.   He also explained that he had consulted with Mr. Bowman regarding the privilege.   While there Mr. Center openly reviewed the relevant files in the firm's library and members of the firm wandered through the library and engaged in conversation with him.   Mr. Center had the files copied by a firm employee and chatted with firm members while he waited.   After Mr. Center and Mr. Bowman determined that the photocopied documents did not contain privileged information, they gave the copies of the documents to AUSA Bennett.1  Mr. Bennett was surprised that Mr. Center had copied the documents because he thought Mr. Center intended simply to review the files to refresh his recollection.

12
On September 24 and October 22, 1987, Mr. Center appeared before the grand jury and authenticated the documents he had copied and produced.   He also testified about his former firm's procedures for handling bankruptcies in general and about the Whites' personal bankruptcy.   Ms. Dison also testified before the grand jury.   An indictment was returned on December 16, 1987 against Mr. and Mrs. White.

13
We turn now to the matters raised by Mr. White on remand, that his attorney-client privilege was violated, that the government was complicit in this violation, and that the government engaged in outrageous misconduct.

14
These are serious issues, and care and caution are always called for in inquiries or disclosures of this sort.   This court has adopted the general principles of the attorney-client privilege as outlined by Wigmore:

15
(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.

16
United States v. Lawless, 709 F.2d 485, 487 (7th Cir.1983) (citing 8 Wigmore § 2292).   The burden falls on the party seeking to invoke the privilege to establish all the essential elements.  Id.  The claim of privilege cannot be a blanket claim;  it "must be made and sustained on a question-by-question or document-by-document basis."  Id.  Finally, the scope of the privilege is narrow, because it is in "derogation of the search for truth."  In re Walsh, 623 F.2d 489, 493 (7th Cir.), cert. denied, 449 U.S. 994, 101 S.Ct. 531, 66 L.Ed.2d 291 (1980).   Any findings of fact will not be overturned unless clearly erroneous.  United States v. Nelson, 851 F.2d 976, 978 (7th Cir.1988).

17
In Lawless, we held that "[w]hen information is transmitted to an attorney with the intent that the information will be transmitted to a third party ... such information is not confidential."  Lawless, 709 F.2d at 487.   There, the defendant had provided information to be used in the preparation of an estate tax return.   Apparently, some of the information transmitted to the attorney for this purpose never made it onto the return.   We concluded, "[i]f the client transmitted the information so that it might be used on the tax return, such a transmission destroys any expectation of confidentiality which might have otherwise existed."  Id.;  see also United States v. Windfelder, 790 F.2d 576 (7th Cir.1986).   We also noted that "disclosure of tax information effectively waives the privilege 'not only to the transmitted data but also as to the details underlying that information.' "  Lawless, 709 F.2d at 488 (citation omitted).

18
Here, the district court found that the information in the documents obtained by Mr. Center from the firm was not privileged.   The court also noted that Mr. White had not asserted that any particular information or document was privileged.   The court suggested that some of the information would not even fall into the category of client communications.2

19
When information is disclosed for the purpose of assembly into a bankruptcy petition and supporting schedules, there is no intent for the information to be held in confidence because the information is to be disclosed on documents publicly filed with the bankruptcy court.  In re Feldberg is not to the contrary.   While there we noted the difference between expectations about communications and expectations about documents, we still emphasized that "[i]nformation imparted to counsel without any expectation of confidentiality is not privileged."  In re Feldberg, 862 F.2d 622, 628 (7th Cir.1988).

20
Here, there is no specification as to what information Mr. White gave Mr. Center for which Mr. White had an expectation of confidentiality.   Evidence given to the grand jury was disclosed to Mr. White and yet he is unable to point to any specific information in the documents or Mr. Center's testimony to which the attorney-client privilege would attach.   Mr. White simply alleges that the privilege applies to drafts of the bankruptcy petition and to interview notes used to prepare these drafts.   The district court found that Mr. White made an insufficient blanket assertion of the privilege.   He continues to do so in this court.   We find no error in the district court's determination that Mr. White did not carry his burden of proving that any specified information in the documents was privileged.

21
Mr. White also pursues the claim that the government was an accomplice in a violation of his attorney-client privilege.   Although we find no error in the district court's determination that Mr. White did not sustain his burden of proving that the documents were privileged, even if we did, we would agree with the district court that the government was not complicit in any violation.   There is no evidence of any discussion or agreement between the government and Mr. Center to photocopy documents upon Mr. Center's visit to the law firm.3  In fact, the evidence is to the contrary, including Mr. Bowman's statement that Mr. Center was going to review the files and AUSA Bennett's surprise when he was given the documents.   The government did not induce Mr. Center to violate Mr. White's attorney-client privilege.

22
Also, Mr. White asserts that the documents were stolen from the law firm and therefore they could not be used by the government to obtain a conviction.   Because we do not believe that the documents were stolen, we find no merit in this claim.   The firm has not raised any allegations of theft.   The evidence is that a partner of the firm knew that Mr. Center was at the firm to review documents, Mr. Center openly reviewed the files in the firm's library and did not remove the original documents from the premises, and a firm employee photocopied the files during office hours while Mr. Center chatted with firm members.   Therefore, we agree with the district court's finding that Mr. Center had implicit permission from the firm to copy documents.

23
Finally, Mr. White alleges that outrageous conduct by the government justifies reversal of his conviction.   We have previously noted that there is doubt as to the validity of the outrageous governmental conduct doctrine.  United States v. D'Antoni, 874 F.2d 1214, 1219 (7th Cir.1989);  United States v. Bontkowski, 865 F.2d 129, 131 (7th Cir.1989);  but see United States v. Miller, 891 F.2d 1265, 1267 n. 2 (7th Cir.1989).   In any event we have never reversed a conviction on this ground.  United States v. Duncan, 896 F.2d 271, 275 (7th Cir.1990);  United States v. Sababu, 891 F.2d 1308, 1326 (7th Cir.1989).

24
In the initial opinion in this case, we suggested that:

25
[i]f, however, the government, having the kind of hold over an attorney that it had over Center--for when it approached him he had been convicted but not yet sentenced--extracts from him client secrets that it then uses in a criminal trial of the client to the latter's substantial prejudice, this might be the kind of serious governmental misconduct that would violate a criminal defendant's rights under the due process clause of the Fifth Amendment.

26
879 F.2d at 1513.   Of course, based on our earlier conclusions in this case, there were no actions which could be claimed to constitute outrageous conduct.   The government solicited Mr. Center's cooperation to confirm the information it had already obtained through its investigation of the Whites.   As the district court found, when the government initially contacted Mr. Center it had completed the bulk of its investigation and was aware of the existence of the undisclosed assets on which the Whites' criminal charges were premised.

27
Mr. White has not alleged that any of the information was used at trial, and in fact the district court found that it was not.   In addition, the district court found that the information was not client secrets, and that Mr. White has not shown any substantial prejudice he has suffered by the disclosure of the information.   We find no error in the district court's conclusion that there was no infringement of Mr. White's constitutional rights under these facts.

28
For the foregoing reasons, the conviction of Richard White is AFFIRMED.

1
 Mr. Bowman's independent assessment of the documents with regard to Mr. White's attorney-client privilege was that the documents contained information that was or would have been included in the bankruptcy schedule or was not confidential or even a communication from a client;  thus, they were not privileged

2
 Mr. Center told AUSA Bennett that no one disclosed any information that was not contained in the bankruptcy schedule (i.e., information about the assets not included in the Whites' personal bankruptcy petition).   The district court found that this information was not a client communications, but "lack of communication."

3
 We note that Mr. Bowman asked Mr. Center to obtain a copy of the Ray Hart mortgage release that was notarized in blank


Filed 3/11/14
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                     DIVISION FIVE

DENNIS K. HAUCK,                                   B247351

        Appellant,                                 (Los Angeles County
                                                   Super. Ct. No. BF030864)
        v.

MICHAEL L. RIEHL,

        Respondent.

        APPEAL from an order of the Superior Court of Los Angeles County, David S.
Cunningham, Judge. Reversed and remanded with instructions.
        Dennis K. Hauck, in pro. per., for Appellant.
        Michael L. Riehl, in pro. per., for Respondent.
       A five-year-old child lives with her mother, Brook Bennett-Hauck, and her
stepfather, Dennis Hauck (“stepfather”). Her father, Michael Riehl (“father”), has
visitation rights. After a confrontation between the two men while father was picking up
the child for a visit, father sought an injunction against stepfather pursuant to the
provisions of the California Domestic Violence Prevention Act, Family Code1 section
6200 et seq. (“DVPA”).
       Stepfather maintained that the superior court had no jurisdiction to issue the
requested injunction, since he and father did not have one of the relationships specified
by the DVPA. The court agreed that the two men alone did not share a specified
relationship, but found that stepfather’s inclusion of the child in the petition as a person to
be protected provided the necessary nexus to confer jurisdiction on the court. We
disagree, and so reverse the order.

                       FACTUAL AND PROCEDURAL HISTORY
       Initially, an action was filed to determine the paternity of the minor child. Father
was the petitioner in that case, and mother the respondent. Stepfather, who was married
to mother, was involuntarily joined in the paternity case as a “Claimant.”
       On August 8, 2012, father filed a “Request for Domestic Violence Restraining
Order.” In it he requested a “stay away” order, pursuant to which stepfather would be
ordered to stay away from father, his home, job, vehicle and “the children’s school or
child care.” It also included a request that stepfather stay away from the minor child’s
home2 and that he be ordered not to do any of the following to father or to the minor
child: “Harass, attack, strike, threaten, assault (sexually or otherwise), hit, stalk, molest,
destroy personal property, disturb the peace, keep under surveillance or block

1
       All further statutory references are to the Family Code unless otherwise indicated.
2
       The court later removed, with the concurrence of father, the stay away order and
harassment provisions of the temporary restraining order (“TRO”) in regard to the minor
child. It was admitted by father that the minor child lived with mother and stepfather,
and that there were no allegations that father ever abused the minor child.
                                              2
movements.” Furthermore, he sought an order that stepfather not “contact [him] either
directly or indirectly, in any way, including, but not limited to, by telephone, mail or e-
mail or other electronic means.” The court issued a TRO against stepfather.
       On August 30, 2012, the court denied stepfather’s motion to dissolve the TRO and
to dismiss the case, which request was brought on the grounds that the court had no
jurisdiction under the DVPA to hear the case, since father was not a protected person
under section 6211.
       On September 20, 2012, the court conducted a hearing on the merits.
Stepfather argued that because he and father were never spouses, cohabitants, in a dating
relationship, children of a party subject to the Uniform Parentage Act, or related by
consanguinity or affinity, father does not qualify for a restraining order under the DVPA.
Father contended that he and stepfather were related by consanguinity and affinity, as
they were in-laws, of a sort. The trial court rejected the contention. The court noted,
however, that father had sought protection for his minor child in his application for the
restraining order, and the child is a person described by section 6211. The court reasoned
that, “under the law revision commission comments, the genesis of the domestic violence
protection act was expanded to include protection of a child, and it was unequivocal that
that would include protection of the child. [¶] And once we get into an allegation that is
seeking protection of the child, I think it then does create the relationship . . . .” The
court acknowledged that the circumstance of the instant case “doesn’t fit neatly into the
express provisions,” but stated, “when I look at the law revision commission comments
and the notion that seeking protection for the child was certainly an intent behind this
statute, there is an allegation in the declaration that seeks to also include the child. . . . [¶]
There is clearly a relationship to that child by virtue of marriage with the [mother]. I
think this is one of those instances where the legislative intent would have allowed the
court based on judicial economy because it would be elevating form over substance. . . .

                                                3
[¶] So I do think that this type of action is intended under the law revision commission
comments, and that will be the court’s ruling. . . .”3
       Consequently, the court granted father’s request and issued a permanent injunction
against stepfather, which was to remain in effect for five years. That order provides as
follows:
       (1) Stepfather is prohibited from engaging in any kind of personal contact with
the person of father;
       (2) Stepfather must stay at least 100 yards away from father’s person, home,
office, school, and vehicle;
       (3) Stepfather must not harass, strike, threaten, assault, hit, follow, stalk, molest,
destroy personal property, disturb the peace, keep under surveillance, or block father’s
movements;
       (4) Stepfather must stay at least 100 yards away from the minor child’s school or
day care;
       (5) Stepfather is prohibited from owning a gun or other firearm, or ammunition;
and
       (6) Father is allowed to make a recording of any incidents that may incur in the
future for use in enforcing the injunction.
       Stepfather timely filed his Notice of Appeal.

                                STANDARD OF REVIEW
       The sole issue on appeal concerns the interpretation of the statutory language of
the DVPA. The construction and application of a statute is a matter of law which this
court reviews de novo. (Burden v. Snowden (1992) 2 Cal.4th 556, 562.) “The rules
governing statutory construction are well settled. We begin with the fundamental

3
        Contrary to the court’s statement, there were no allegations in the petition of any
act of abuse as defined in section 6203 against the minor child. The only order sought
which referenced the child was a “stay-away” from the child’s school, where custody
exchanges for visitation purposes occurred.
                                              4
premise that the objective of statutory interpretation is to ascertain and effectuate
legislative intent. [Citations.] ‘In determining intent, we look first to the language of the
statute, giving effect to its “plain meaning.’” [Citations.] Although we may properly rely
on extrinsic aids, we should first turn to the words of the statute to determine the intent of
the Legislature. [Citation.] Where the words of the statute are clear, we may not add to
or alter them to accomplish a purpose that does not appear on the face of the statute or
from its legislative history.” (Ibid.)

                                         DISCUSSION4
       Section 6301 provides that a protective order may be granted under the DVPA “to
any person described in Section 6211, including a minor . . . .” The persons described in
section 6211 include:
       “(a) A spouse or former spouse.
       “(b) A cohabitant or former cohabitant as defined in Section 6209.
       “(c) A person with whom the respondent is having or has had a dating or
engagement relationship.
       “(d) A person with whom the respondent has had a child, where the presumption
applies that the male parent is the father of the child of the female parent under the
Uniform Parentage Act.
       “(e) A child of a party or a child who is the subject of an action under the
Uniform Parentage Act, where the presumption applies that the male parent is the father
of the child to be protected.
       “(f) Any other person related by consanguinity or affinity, within the second
degree.” (§ 6211.)

4
      Father asserts that stepfather is in contempt of court and that, pursuant to
Knackstedt v. Superior Court (1947) 79 Cal.App.2d 727, this appeal should be dismissed.
The record reflects that while a contempt citation was issued on September 21, 2012, it
was recalled on February 22, 2013, the same day stepfather filed his Notice of Appeal.
We therefore deny father’s dismissal request.
                                              5
       The trial court properly found that father is not a “person” listed in section 6211.
While father contended in the trial court that there is “affinity” between himself and
stepfather as “they are akin to in-laws,” the statutory definition of affinity does not permit
father’s creative expansion of the concept.5 Indeed, father abandons this argument on
appeal.
       Instead, father points to section 6211, subdivision (e) which, he posits, “states that
domestic violence is abuse perpetrated against a child of a party. [Father] alleged in his
moving papers and in open court that he was not just requesting protection under the
DVPA for himself, but also for his child.” The trial court grounded its decision to issue
the restraining order on this notion of protection of the child from abuse, even though no
evidence of stepfather’s abuse of the child was presented to the court.
       The court correctly noted that if a minor child is “abused” as defined in section
6203, he or she is a protected person pursuant to section 6211, subdivision (e), and
therefore authorized to bring an action under the DVPA. A petition can be brought by a
parent as the natural guardian of a minor child, by a guardian ad litem appointed by the
court, or perhaps in conjunction with the parent’s own claim, if the petitioning party were
himself a protected person under section 6211. But, in the present case father did not
bring the action on behalf of the minor child, was not a protected person under section
6211 and did not make any allegations in his petition of any “abuse” which stepfather
committed against the minor child. The only abuse alleged and testified to by father was
abuse directed at him by stepfather while the child was not present.6 Moreover, even if

5
       Section 6205 defines affinity as follows: “‘Affinity.’ When applied to the
marriage relation, signifies the connection existing in consequence of marriage between
each of the married persons and the blood relatives of the other.”
6
       In his declaration in support of a protective order, father described as “previous
abuse” a single instance when the minor child was present: “Late last year, . . . [d]uring
[a] custody transition, . . . . [stepfather] sarcastically stated to me that he wanted to thank
me for joining him as a party to this litigation because that means ‘I now have one-third
custody rights to [the minor].’ He clapped his hands together in mock applause and again
                                                  6
father had brought the petition on behalf of the child, the court would be authorized to
issue an order restraining stepfather’s interactions with the child, not with father. In
short, because father was not a protected person under the DVPA, the trial court was not
authorized to grant him the protective order here at issue.
       Father maintains that even if the trial court had no jurisdiction to issue the
protective order, the error was harmless because stepfather presented no evidence to
counter the allegations of father’s application. We must disagree. If the court lacked
jurisdiction under the DVPA, it did not have the power to issue any DVPA orders, no
matter what evidence was or was not presented by the parties to the action. (See Valenta
v. Regents of University of California (1991) 231 Cal.App.3rd 1465, 1470, fn. 2 [“It is
axiomatic that a judgment entered by a court which lacked jurisdiction is void and must
be reversed”].) Father’s obvious remedy is to file a civil harassment action under Civil
Code section 527.6.

said, ‘Thank you.’ Though his statement was absurd, it is insight into what I believe is
[his] deluded and irrational thinking.” This conduct does not constitute abuse against the
child as that term is defined in section 6203, which provides: “For purposes of this act,
‘abuse’ means any of the following: [¶] (a) Intentionally or recklessly to cause or
attempt to cause bodily injury. [¶] (b) Sexual assault. [¶] (c) To place a person in
reasonable apprehension of imminent serious bodily injury to that person or to another.
[¶] (d) To engage in any behavior that has been or could be enjoined pursuant to Section
6320.”

                                              7
                                      DISPOSITION
       The order is reversed and the case is remanded to the trial court, which is directed
to dissolve the injunction and dismiss the case.
       CERTIFIED FOR PUBLICATION IN THE OFFICIAL REPORTS

                                                   MINK, J.*

       We concur:

              MOSK, ACTING P. J.

              KRIEGLER, J.

*
      Retired Judge of the Los Angeles Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
                                               8


                                                                                Opinions of the United
2002 Decisions                                                                                States Court of Appeals
                                                                                for the Third Circuit

6-13-2002

Johns v. Love
Precedential or Non-Precedential: Non-Precedential

Docket No. 00-1266

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Recommended Citation
"Johns v. Love" (2002). 2002 Decisions. Paper 359.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/359

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                                                 NOT PRECEDENTIAL

               THE UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                          No. 00-1266

                          WARREN JOHNS

                                    Appellant,

                               v.

               WILLIAM J. LOVE, SUPERINTENDENT;
       THE ATTORNEY GENERAL OF THE STATE OF PENNSYLVANIA;
         THE DISTRICT ATTORNEY FOR PHILADELPHIA COUNTY

                          ___________

        ON APPEAL FROM THE UNITED STATES DISTRICT COURT
            FOR THE EASTERN DISTRICT OF PENNSYLVANIA

                  (D.C. Civil No. 92-cv-05169)
       District Judge: The Honorable Eduardo C. Robreno

                          ___________

           Submitted Under Third Circuit LAR 34.1(a)
                         March 22, 2002

       BEFORE: NYGAARD, ROTH, and AMBRO, Circuit Judges.

                     (Filed: June 13, 2002)

                          ___________

                      OPINION OF THE COURT
                          ___________

NYGAARD, Circuit Judge.
         Appellant, Warren Johns, appeals from the magistrate judge’s report and
recommendation dated September 24, 1993, which was adopted by the District Court in
its order entered on June 24, 1994, denying his petition for habeas corpus relief. He
appeals raising one issue: that the District Court erred when it decided that the evidence
of guilt was sufficient to prove his guilt beyond a reasonable doubt. We will affirm.
                               I.
         The facts and procedural history of this case are well known to the parties
and the court, and it is not necessary that we restate them here. The reasons why we
write an opinion of the court are threefold: to instruct the District Court, to educate and
inform the attorneys and parties, and to explain our decision. None of these reasons are
presented here. We use a non-precedential opinion in cases such as this, in which a
precedential opinion is rendered unnecessary because it has no institutional or
precedential value. See United States Court of Appeals for the Third Circuit, Internal
Operating Procedure (I.O.P.) 5.2. Under the usual circumstances when we affirm by not-
precedential opinion and judgment, we "briefly set[] forth the reasons supporting the
court’s decision . . ." I.O.P. 5.4. In this case, however, we have concluded that neither a
full memorandum explanation nor a precedential opinion is indicated because of the very
extensive and thorough report and recommendation prepared by the magistrate judge,
which was adopted and filed by Judge Robreno of the District Court. The Report and
Recommendation adequately explains and fully supports its order and refutes the
appellant’s allegation of error. Hence, we believe it wholly unnecessary to further opine,
or offer additional explanations and reasons to those given by the District Court, why we
will affirm. It is a sufficient explanation to say that, essentially for the reasons given by
the magistrate judge in its report and recommendation dated September 24, 1993, and
adopted by the District Court in its order entered on June 24, 1994, denying habeas
corpus relief to appellant, we will affirm.
                              II.
         In sum, for the foregoing reasons, we will affirm the order of the District
Court entered on June 24, 1994.

_________________________

TO THE CLERK:

         Please file the foregoing opinion.

                                     /s/ Richard L. Nygaard
                                Circuit Judge

                THE UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT

                            ___________

                            No. 00-1266
                            ___________

                            WARREN JOHNS

                                      Appellant,

                                 v.

                WILLIAM J. LOVE, SUPERINTENDENT;
        THE ATTORNEY GENERAL OF THE STATE OF PENNSYLVANIA;
          THE DISTRICT ATTORNEY FOR PHILADELPHIA COUNTY

                            ___________
         ON APPEAL FROM THE UNITED STATES DISTRICT COURT
             FOR THE EASTERN DISTRICT OF PENNSYLVANIA

                   (D.C. Civil No. 92-cv-05169)
        District Judge: The Honorable Eduardo C. Robreno

                           ___________

            Submitted Under Third Circuit LAR 34.1(a)
                          March 22, 2002

        BEFORE: NYGAARD, ROTH, and AMBRO, Circuit Judges.

                           ___________

                             JUDGMENT
                           ___________

         This cause came to be considered on the record from the United States
District Court for the Eastern District of Pennsylvania and was submitted pursuant to
Third Circuit LAR 34.1(a) on March 22, 2002.
  On consideration whereof, it is now here ORDERED AND ADJUDGED
by this Court that the order of the said District Court entered on June 24, 1994, be, and
the same is hereby affirmed.
  All of the above in accordance with the opinion of this Court.

                        ATTEST:

                        _________________________________
                        Clerk

Dated: 13 June 2002


335 B.R. 570 (2005)
In re LEXINGTON HEALTHCARE GROUP, INC. and Lexington Highgreen Holding, Inc., Debtors.
Elaine Chao, Secretary of Labor, Plaintiff,
v.
Lexington Healthcare Group, Inc.; Lexington Highgreen Holding, Inc.; Alfred Thomas Giuliano, Chapter 7 Trustee; Heller Healthcare Finance, Inc., and Healthcare Service Group, Inc., Defendants.
Bankruptcy No. 03-11007 MFW. Adversary No. 04-53348 (MFW).
United States Bankruptcy Court, D. Delaware.
December 15, 2005.
*571 *572 Ivelisse J. Berio LeBeau, Esquire, U.S. Dept. of Labor, Office of the Regional Solicitor, Boston, MA, for the Secretary of Labor.
Kenneth E. Aaron, Esquire, Jeffery S. Cianciulli, Weir & Partners LLP, Wilmington, DE, for the trustee.
Mark Felger, Esquire, Cozen & O'Connor, Wilmington, DE, for Healthcare Service Group, Inc.
Bonnie G. Fatell, Esquire, Blank, Rome, Comisky & McCauley, LLP, Wilmington, DE, Robert P. Harris, Esquire, Quarles, Brady, Streich & Lang, LLP, Phoenix, AZ, for Heller Healthcare Finance, Inc.
Joanne B. Wills, Esquire, Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, Wilmington, DE, for the Creditors' Committee.

MEMORANDUM OPINION[1]
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the Motion of the Plaintiff for Summary Judgment on its complaint seeking turnover of 401(k) contributions that the Debtors withheld from employee paychecks but never sent to the 401(k) plan administrator (the "Motion"). The Motion is opposed by the chapter 7 trustee and the secured creditors who assert security interests in the Debtors' assets. For the reasons stated below, the Court will deny the Motion.
*573 I. BACKGROUND
On April 2, 2003, Lexington Healthcare Group, Inc. ("Healthcare") and several of its affiliates filed petitions under chapter 11 of the Bankruptcy Code. The cases were converted to chapter 7 on May 19, 2004, and Alfred Guiliano ("the Trustee") was appointed trustee.
On April 21, 2004, the Secretary of Labor filed a complaint against Healthcare and Lexington Highgreen Holding, Inc. (collectively the "Debtors") seeking turnover of certain employee 401(k) contributions. An amended complaint was subsequently filed on November 19, 2004, to add Heller Healthcare Finance, Inc. ("Heller") and Healthcare Service Group, Inc. ("HSG") (collectively the "Secured Creditors") and the Trustee as defendants.
On November 12, 2004, the Plaintiff filed the Motion for summary judgment. The Motion attached several affidavits in support. The Trustee filed a response to the Motion, which is joined by the Secured Creditors, with an affidavit in support. Briefs have been filed and the matter is ripe for decision.
II. JURISDICTION
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) & 157(b)(2)(A), (K) & (O).
III. DISCUSSION
A. Standard for Summary Judgment
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure, the court may grant summary judgment if the moving party establishes that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Issues of material fact are those "that might affect the outcome of the suit under governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir.1995). An issue is genuine when it is "triable," that is, when reasonable minds could disagree on the result. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Once the moving party establishes the absence of a genuine issue of material fact, however, the burden shifts to the nonmoving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that "would be admissible in evidence," establishing the existence of a genuine issue of material fact for trial. Fed.R.Civ.P. 56(e). Fireman's Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982) ("Rule 56(e) does not allow a party resisting the motion to rely merely upon bare assertions, conclusory allegations or suspicions"); Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir.1972) ("Conclusory statements, general denials, and factual allegations not based on personal knowledge would be insufficient to avoid summary judgment"); Tripoli Co., Inc. v. Wella Corp., 425 F.2d 932, 935 (3d Cir.1970) (holding that to defeat summary judgment motion, "a party must now come forward with affidavits setting forth specific facts showing that there is a genuine issue for trial"). Unsworn statements of counsel in memoranda submitted to the court are insufficient to repel summary judgment. *574 Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir.1990).
B. Affidavits Submitted in Support
In this case, the Plaintiff presented several affidavits in support of its Motion. Specifically, it submitted the affidavits of Philip B. Hale and Frederick J. Dalicandro, Jr., which state that they reviewed various documents of the Debtors and the 401(k) plan investment advisor, from which they calculated the sums that had been withheld but not remitted to the plan administrator. The Trustee asserts that the Court should not consider these affidavits because they rely on unauthenticated records and, therefore, contain inadmissible hearsay. See Fed.R.Evid. 803(6), 902(11). The Trustee did not present any affidavits in response to establish what the amount of the unremitted withholdings were.
Mr. Dalicandro is the Chief Financial Officer of the receiver which took over six of Healthcare's facilities on May 15, 2003. The receiver took custody and control of Healthcare's business records, which include the records maintained by Healthcare relating to the 401(k) plan and the payroll company's records for all Healthcare's facilities. From these records, Dalicandro stated he was able to determine the amount of contributions deducted from the employees' wages for the 401(k) plan during the relevant period.
Mr. Hale is a Senior Vice President with Devlin & Hale Associates, Inc. ("D & H"), which acted as the third party administrator of the 401(k) plan. He stated that D & H invested the 401(k) plan assets with Nationwide Life Insurance Co. ("Nationwide"), which maintained the records of the contributions received and invested. Nationwide provided information to Hale, who provided it to Dalicandro, from which Dalicandro determined the amounts that had been withheld from employees' wages but not delivered to the plan administrator for investment.
The Court will sustain the Trustee's objections to these affidavits. While the receiver is the custodian of the Debtors' records, it is not the custodian of the records of the Debtors' payroll company or Nationwide. Those records have not been authenticated. See Fed.R.Evid. 902(11). The affiants' testimony about the contents of those records is, therefore, inadmissible hearsay. See Fed.R.Evid. 802, 803(6).
In addition, the Trustee objects to the Court's consideration of the affidavit of Michael D. Logan, who stated that in January 2004 the Debtors had created an escrow account with their attorney and transferred $134,300 to that account to pay obligations of, inter alia, the 401(k) plan. The Trustee argues that the affidavit is contradicted by the letter attached to it, which evidences that only $74,000 was transferred to that escrow fund. The Plaintiff responds, however, that Logan's testimony is corroborated by the affidavit of the Trustee himself, wherein he states that his attorneys had demanded, and received, from the Debtors' attorney the $134,300 which had been held in the escrow account.
The Court agrees that it can consider the Logan affidavit. There is no contradiction between the affidavit and its attachment; the attachment only references one of the transfers. The Trustee's affidavit concedes that the entire sum of $134,300 was in the escrow fund. The Court will, therefore, overrule the Trustee's objections to the Logan affidavit.
C. Relevant Facts
Several of the factual allegations in the complaint are not disputed or are supported by the uncontested portions of the affidavits submitted by the Plaintiff in support *575 of the Motion. As a result, the Court finds the following.
The Debtors sponsored or participated in a 401(k) plan for their employees. The 401(k) plan was an employee benefit plan subject to the Employee Retirement Income Security Act ("ERISA"). It allowed participants to have amounts withheld from their wages and contributed to the plan on their behalf. The Debtors were responsible for withholding the employees' contributions, segregating them from the Debtors' general assets, and transferring them to the plan administrator.
Between January and June of 2003, contributions were withheld from employee paychecks but were never transferred to the 401(k) plan administrator. This occurred both pre and post-petition.[2]
The Secured Creditors have liens on the Debtors' assets that arose before the contributions at issue were withheld. Heller has a lien on all the Debtors' assets and HSG has a lien on certain of the Debtors' assets, which is junior to Heller's liens.
In January 2004, nine months after the Debtors had filed their petition and six to twelve months after the contributions had been withheld from the employees, the Debtors' accounting manager, Logan, established an escrow account with the Debtors' attorney into which the Debtors deposited $134,300. The escrow funds were to be used only for payments to employee benefits plans, including the 401(k) plan.
D. Imposition of Trust
The Plaintiff asserts that a trust is imposed on the general assets of the Debtors for the benefit of the 401(k) plan. ERISA provides that "all assets of an employee benefit plan shall be held in trust. . . ." 29 U.S.C. § 1103(a).
The Trustee asserts that ERISA merely establishes that the sums held by the 401(k) plan administrator are held in trust. The Trustee argues that since the Debtors are not in possession of those funds, no trust may be imposed on any other assets of the Debtors.

1. Trust on All Assets of Debtors

The Plaintiff disagrees and argues that all the Debtors' assets are subject to the trust. ERISA does not define the term "assets of an employee benefit plan." Instead, the Plaintiff relies on the regulations promulgated by the Department of Labor to implement ERISA, which provide that "the assets of the plan include amounts . . . that a participant has withheld from his wages by an employer, for contribution to the plan as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets." 29 C.F.R. § 2510.3-102(a) (the "Regulation"). Thus, the Plaintiff asserts that, in addition to the assets held by the plan administrator, a trust was imposed on the contributions withheld by the Debtors from the employees' wages notwithstanding the fact that they were never remitted to the plan administrator. Further, the Plaintiff contends that because the contributed funds were to be segregated from the Debtors' "general assets," a trust must be imposed on all the Debtors' assets for the benefit of the 401(k) plan beneficiaries.
The Trustee argues that ERISA simply imposes a trust on the funds once they are deposited into the plan. The Trustee contends that the Regulation cannot expand the scope of the trust imposed by ERISA and certainly cannot expand it to cover all the Debtors' assets. Because *576 there is no evidence that the contributions were withheld and delivered to the plan administrator, the Trustee argues that no trust can be imposed. See, e.g., Golden v. wwwrrr, Inc. (In re wwwrrr, Inc.), No. Civ. 01-346, 2002 WL 264947, at *5 (D.Minn. Feb. 22, 2002) (concluding that no trust could be imposed because only net payroll was paid to the employees).
The Court rejects the analysis in Golden. If the employer does not pay the gross wages to the employees (or to the plan as directed by the employees), then clearly some portion of the employees' wages have been "withheld."
The Trustee's argument also fails because, under his theory, no trust would arise unless the funds were in fact paid to the 401(k) plan. If that were the case, however, no trust would be necessary! A trust is necessary (and every Circuit Court to consider the issue has imposed one) when the employer withholds the contributions but fails to remit them to the plan. See, e.g., Navarre v. Luna (In re Luna), 406 F.3d 1192, 1199 (10th Cir.2005) (concluding that unremitted contributions are plan assets under ERISA because "[p]ursuant to ordinary notions of property rights, the plan holds a future interest in the collection of the contractually-owed contributions."); Bannistor v. Ullman, 287 F.3d 394, 402 (5th Cir.2002) (defining ERISA plan assets to "include employee contributions to benefit plans which are withheld from employees' paychecks and for deposit into their benefit plans, even though the contributions have not actually been delivered to the benefit plan"); United States v. Grizzle, 933 F.2d 943, 947 (11th Cir.1991) (holding that employee contributions are plan assets even if they have not been delivered to the plan).
The concurring opinion in Bannistor, in reliance on the Regulation, concluded that the sums withheld from employees' wages become plan assets (and trust funds) immediately upon being withheld rather than at the time the employer is required to segregate and transfer them to the plan. 287 F.3d at 410 n. 1 (Garza, J., specially concurring). Judge Garza reasoned that:
When companies deduct contributions from employee paychecks, those amounts are not loans to the company that it can use for any purpose until the loan becomes due. Those contributions are monies that have already been paid to the employees as compensation. The company is acting merely as a steward; holding the plan participants' property until the assets can be segregated into a separate fund. The company may not dip into the plan assets to use for its own purposes any more than it could dip into the private bank accounts of its employees to fund its shortfalls; once the contributions are withheld, the money no longer belongs to the company.
Id. See also In re College Bound, Inc., 172 B.R. 399, 404 (Bankr.S.D.Fla.1994) (holding that "once employee wages are withheld for purposes of contribution to an ERISA qualified plan, the wages become plan assets held in trust by the employer. This is true even if the monies were not segregated, provided that the monies were available in the Debtor's general funds.")
The Court agrees with the above authority and the Plaintiff that the employee contributions became plan assets when they were withheld. However, it is one thing to conclude that withheld employee contributions become trust funds at the time they are withheld; it is quite another to conclude that the trust is imposed on all the assets of the employer. The cases cited by the Plaintiff support the first conclusion, but not the second. In fact, those cases did not deal with the issue that this Court faces: whether the trust imposed by ERISA extends to all assets of *577 the employer.[3] The Court concludes that neither ERISA nor the Regulation impose a trust on all assets of the employer. Rather, a trust is imposed only on the contributions that were withheld from the employees' wages.
2. Trust on Funds Withheld, Not Remitted
The Plaintiff asserts nonetheless that the trust imposed by ERISA and the Regulation attached to the general assets of the Debtors, because it is from those general assets that the Debtors were required to segregate the funds.
The Trustee disagrees. He asserts that the trust is imposed, if at all, only on the funds withheld by the Debtors, which he argues have now been dissipated. The Trustee contends that, in order to enforce the trust, the Plaintiff must trace the funds withheld to funds currently held by the Trustee. Because the Plaintiff failed to present any such evidence, the Trustee argues the Motion must be denied.
The Plaintiff responds that the tracing concept is one used only with common law trusts and not with statutory trusts. See, e.g., Begier v. IRS, 496 U.S. 53, 62-63, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990) (holding that tracing rules applicable to common law trusts, where no trust is created until the res is identified, are not helpful in analyzing trusts created by statute in amounts rather than in specific property).
The Plaintiff argues that the statute considered by the Court in Begier[4] is similar to the provision of ERISA at issue here, because they both create a trust in an amount of funds, not in any specific property. Compare 26 U.S.C. § 7501 with 29 C.F.R. § 2510.3-102(a). Therefore, the Plaintiff asserts that it is not required to trace the trust funds and that the trust must be imposed on all property of the Debtors.
The Court disagrees with this reading of Begier. While concluding that tracing is not required for a statutory trust, the Supreme Court in Begier specifically held that, based on the legislative history, the proponent of a statutory trust must nonetheless show "some connection between the . . . trust and the assets sought to be applied" to the debtor's trust obligations. 496 U.S. at 65-66, 110 S.Ct. 2258 (emphasis added). Thus, the Court rejects the Plaintiff's argument that the trust is imposed automatically on all assets of the Debtors and concludes that the Plaintiff must show some nexus between the withheld funds and the funds on which it seeks to impose a trust.
*578 3. Nexus to Funds Withheld
The Plaintiff argues nonetheless that there is a nexus between the funds withheld and the Debtors' general assets, because under the Regulation the Debtors were required to segregate the withheld funds from their general assets. This, the Plaintiff asserts, creates a nexus between the Debtors' general assets and the withheld funds sufficient to satisfy Begier.
The Court rejects this argument because it suggests that the act of commingling the withheld funds with the Debtors' general assets itself creates the necessary nexus. Such an argument is inconsistent with Begier, which concluded that it is the commingling itself that creates the need to show a nexus. Id. at 64-66, 110 S.Ct. 2258.
The facts in Begier suggest what may qualify as a nexus. In that case, the funds had actually been paid to the IRS to satisfy the debtor's trust fund obligation. Id. at 56, 110 S.Ct. 2258. The Court concluded that the voluntary payment was "sufficient to establish the required nexus between the `amount' held in trust and the funds paid." Id.
As in Begier, there was an actual payment in this case. In January 2004 the Debtors did segregate funds for, inter alia, the 401k plan. Therefore, some nexus has been shown. Id. at 67, 110 S.Ct. 2258.
The Trustee argues, however, that, unlike section 7501 of the Internal Revenue Code, ERISA does not actually require that any funds be withheld at the time the wages are paid. The Trustee notes that the payment into the escrow account was made six to twelve months after the Debtors withheld the contributions. He argues that there is no evidence that the funds placed into the escrow account were in fact the sums withheld. Nor is there any evidence, the Trustee asserts, that the Debtors expressly authorized the escrow. Instead, the Trustee suggests that Logan placed the funds in escrow to avoid personal liability for the Debtors' failure to remit the withheld contributions.
The Court disagrees with the Trustee's argument. There is no requirement that the funds placed in escrow be the actual funds withheld from the employees. As the Court stated in Begier: "Under a literal reading of [the legislative history], the bankruptcy trustee could not avoid any voluntary prepetition payment of trust-fund taxes, regardless of the source of the funds. . . . The debtor's act of voluntarily paying its trust-fund tax obligation therefore is sufficient to establish the required nexus between the `amount' held in trust and the funds paid." 496 U.S. at 66-67, 110 S.Ct. 2258. This is further supported by the Regulation, which requires that the employer segregate the withheld contributions from the employer's general assets but allows up to 45 days to do so. 29 C.F.R. § 2510.3-102(a). Therefore, the Court concludes that the Plaintiff has established a nexus between the funds placed in the escrow account in January 2004 and the funds withheld from the employees.
The Trustee argues, however, that because the funds have now been removed from the escrow account and commingled with the estate's general assets, the nexus that existed has been destroyed. The Plaintiff may, however, be able to establish a nexus between the escrowed funds and the funds currently being held by the Trustee.
To identify common law trust assets, some Courts have applied a tracing formula, such as the lowest intermediate balance test ("LIBT").
The LIBT is a judicial construct that some federal courts have applied to ease *579 a beneficiary's tracing burden when "a trustee commingles trust funds with other monies in a single account." . . . The LIBT "allows trust beneficiaries to assume that trust funds are withdrawn last from a commingled account. Once trust money is removed, however, it is not replenished by subsequent deposits. Therefore, the lowest intermediate balance in a commingled account represents trust funds that have never been dissipated and which are reasonably identifiable."
City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 102 (3d Cir.1994) (quoting In re Columbia Gas Sys., Inc., 997 F.2d 1039, 1063 (3d Cir.1993)). The Court disagrees with the Plaintiff's contention that tracing may never be used in the context of statutory trusts. Because the nexus requirement is less exacting than tracing, a nexus would be shown if the Plaintiff were able to trace the escrowed funds to the funds currently being held by the Trustee.
At this juncture, however, the Plaintiff has provided insufficient evidence for the Court to trace or otherwise to find a nexus between the funds withheld from the employees and the funds held by the Trustee. Because material issues of fact remain open with respect to the identification of the trust funds, the Court cannot grant the Plaintiff's Motion for summary judgment.
E. Effect of Security Interests
The Trustee argues that, even if a trust was imposed, it is primed by the security interests of the Secured Creditors which attached to the Debtors' general assets before the funds were withheld.
The Plaintiff disagrees. Because the funds in question are held in trust, the Plaintiff asserts they are not property of the estate pursuant to section 541(d). 11 U.S.C. § 541(d) ("Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest . . . becomes property of the estate . . . only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold."). See also Sharon Steel, 41 F.3d at 95 (holding that property which the debtor holds in trust for another is not property of the estate).
The Court agrees with the Plaintiff. In addition, under Article 9 of the Uniform Commercial Code, a security interest is enforceable only if, among other things, "the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party." Del.Code Ann. tit. 6, § 9-203(b)(2). The withheld funds belong to the Debtors' employees, not to the Debtors. The Debtors are "acting merely as a steward; holding the plan participants' property until the assets can be segregated into a separate fund." Bannistor, 287 F.3d at 410 n. 1 (Garza, J., specially concurring). See also In re Benefit Mgmt. Corp., No. MM7-87-03292, 1988 WL 384076, at * 10-11 (Bankr.W.D.Wis. November 21, 1988) (concluding that security interest in deposit account that included plan assets was void because employer had no rights in the plan assets to which a security interest might attach).
Even if the Bankruptcy Code and Article 9 did not prevent security interests from being enforced, ERISA itself prohibits the imposition of a security interest on the plan assets. Section 1103(c)(1) expressly provides that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administrating the plan." 29 U.S.C. § 1103(c)(1).
*580 The Trustee argues that permitting the Plaintiff to prime the Secured Creditors' liens on the general assets of the Debtors is unsupportable. See, e.g., In re Riverside Elec. Co., 211 B.R. 685, 688 (Bankr.E.D.Mo.1997) (precluding 401(k) plan trustees from recovering unsegregated employee contributions from the debtor's account receivables which were subject to a security interest). The Riverside decision is distinguishable. In that case, the debtor had severe financial difficulties resulting in negative balances in its accounts at several times between the withholding and the request for payment of the withheld funds. Id. at 686. Therefore, under tracing principles, the plan trustees could not prevail. Id. at 688. Further, the trustees could establish no nexus between the withheld funds and the accounts receivable on which the secured creditor had a lien. Id.
In this case, to the extent the Plaintiff can establish a nexus between the assets currently held by the Trustee and the withheld employee contributions to the 401(k) plan, a trust must be imposed. See Begier, 496 U.S. at 66, 110 S.Ct. 2258. If a trust is imposed, the trust funds are not property of the estate and the security interests cannot attach to them. 11 U.S.C. § 541(d). Because a material issue remains in dispute (namely whether there is any nexus between the withheld funds and the funds in the hands of the Trustee), the Plaintiff's Motion for summary judgment must be denied.
IV. CONCLUSION
For the foregoing reasons, the Court will deny the Plaintiff's Motion for summary judgment.
An appropriate order is attached.

ORDER
AND NOW this 15th day of DECEMBER, 2005, upon consideration of the Motion of the Plaintiff for Summary Judgment and the responses thereto and for the reasons set forth in the accompanying Memorandum Opinion, it is hereby
ORDERED that the Motion is DENIED.
NOTES
[1]  This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
[2]  The Plaintiff alleges that the unremitted withholdings total in excess of $50,000 (approximately $48,000 of which was withheld pre-petition).
[3]  In Luna, the Court addressed whether the debtors were ERISA fiduciaries. 406 F.3d at 1196.

In Grizzle, the Court addressed and rejected the argument of an employer's president that funds he embezzled were not trust funds because he had never delivered them to the plan administrators. 933 F.2d at 946.
In Bannistor, the Court found an employer who failed to deposit employee 401(k) contributions to the plan prior to filing a chapter 11 case violated its fiduciary duty under ERISA. 287 F.3d at 397-98.
The College Bound Court found that employee withholdings were ERISA trust funds because there were sufficient funds available in the debtor's general funds. 172 B.R. at 404.
[4]  The Begier case involved section 7501 of the Internal Revenue Code. 496 U.S. at 62-63, 110 S.Ct. 2258. Section 7501 provides: "Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States." 26 U.S.C. § 7501.


578 F.Supp. 1081 (1984)
INTERVALE STEEL CORPORATION, formerly Barry Steel Corporation, Plaintiff,
v.
BORG & BECK DIVISION, BORGWARNER CORPORATION, Defendant.
Civ. A. No. 81-71079.
United States District Court, E.D. Michigan, S.D.
January 9, 1984.
*1082 *1083 *1084 Jeffrey G. Heuer, Detroit, Mich., for plaintiff.
Timothy D. Wittlinger, Detroit, Mich., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW
PHILIP PRATT, District Judge.
This case involves the application of the Uniform Commercial Code, adopted by Michigan, M.C.L.A. § 440.1101 et seq., to the sale of steel by plaintiff to the defendant.[1] The plaintiff, Intervale Steel Corporation (Intervale) is the successor to Barry Steel Corporation (Barry) and sold 22 coils of steel to the defendant Borg & Beck (Borg), a division of Borg-Warner Corporation. The latter has refused to remit the purchase price and this suit ensued.

I. FACTS
Barry had sold steel to Borg for over 15 years. During most if not all of that period, the defendant's sales representative on the Borg account was Peter Adzema, a metallurgist who was also associated with Barry's quality control department. Adzema visited the Borg plant frequently and was fully aware of Borg's manufacturing processes and procedures. More particularly, Adzema testified he was familiar with Borg's practice regarding the partial fabrication of the parts in question here and the storage of the partially completed parts until customers placed an order, after which the parts would be completed. He was also aware that Borg did not conduct microscopic examinations of ordered steel and did not cut sample pieces from ordered steel and run those samples completely through the fabrication process.
Borg is engaged in the manufacturing or fabrication of parts and components for the automotive industry. In August, 1980, it ordered 98,195 pounds of high carbon cold rolled steel for use in the fabrication of the "Belleville Spring", a component of automobile clutch assemblies. The purchase order set forth the specifications for this steel, which were of critical importance due to the demanding requirements of the "Belleville Spring" and its function in clutch assemblies. The acceptance by plaintiff of the purchase order, of course, resulted in the plaintiff's grant of express and implied warranties of merchantability and fitness for the purpose intended.[2]
Barry obtained the steel originally from Jones and Laughlin Steel in coils. Barry then unrolled the coils, treated the steel, rerolled the coils and on August 26 and 28 of 1980 delivered 22 coils to defendant at the agreed upon price.
Borg, in accordance with its usual practice, checked the steel for dimensional accuracy and chemical content. In August or early September, 1980, Borg began its fabrication process by stamping out "blanks" from strips of the coils and deburring (smoothing) the pieces. It then stored these blanks prior to any further processing pending the receipt of orders from its automotive customers. In late September, Borg removed the pieces from storage and resumed its fabrication process which involved forming by presses, heat treatment, "wheelabrating" (similar to sandblasting), "stroking" (a stress-removal process) and "load-testing" (a quality control measure). During the course of these latter steps, however, it was observed that the springs were cracking and evidencing other failures. Notice was immediately given to Barry and Borg halted production and began extensive testing of the steel. Borg tested for several weeks and communicated to Barry regularly with regard to the testing. Eventually, it was determined that the steel was indeed defective and that the *1085 cause was associated with the fact that, contrary to the specifications of that type of steel, it had been annealed[3] once, rather than twice.
Barry admitted the steel was defective and not fit for its intended use and conceded the same at trial. Upon discovering that the entire order had been stamped, after providing for some samples for its own testing and demonstrative purposes, Barry authorized Borg to scrap the steel.
The evidence also established that Borg did not conduct metallurgical or microscopic examinations of Barry steel and that Barry was aware of this. It was further established that it is not an industry practice to do so. Moreover, it was also established that "samples" of coil steel are not run through the complete fabrication process due to the high cost of, for example, unrolling the coil, taking samples from representative parts of the coil and tying up the production line for testing purposes.
Intervale, as a successor to Barry,[4] then instituted this suit for $41,612.47, that figure representing the invoice price less credit for the scrap value realized by Borg.[5] It is the position of plaintiff that Borg accepted the steel, is not entitled to revoke that acceptance and is precluded from maintaining an action or asserting the defense of breach of warranty.

II. ACCEPTANCE AND REVOCATION
Borg argued that it did not "accept" the goods and should not be held obligated to pay the purchase price of the contract. See M.C.L.A. § 440.2607(1). Borg reasoned that it properly rejected the goods as required under Sections 2-601, 2-602 and 2-606.[6] According to defendant, although it blanked out all the steel, it could reject the steel because defendant acted reasonably and rejected the goods as soon as the breach of warranty could be discovered. Borg supports this position by citing several cases which have found effective rejections by buyers despite their changing or using the goods. It is true that Borg acted reasonably, nonetheless, under the circumstances Borg's action can only be viewed to constitute acceptance of the steel.
First, under the Uniform Commercial Code, Borg's rejection after the steel was entirely stamped out was not effective.[7] Borg did not attempt to reject the steel until after it had received shipment, blanked all the steel, and stored the partially completed parts for over a month. In total, Borg retained the steel for over three months before it notified plaintiff of the problems with the steel. The determination of whether goods have been accepted is governed by Section 2-606. That Section states:
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or
(b) fails to make an effective rejection (sub-section (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is *1086 wrongful as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
M.C.L.A. § 440.2606. Subsection (1)(b) appears to most appropriately apply in the instant case[8] and would require that Borg's rejection must be both seasonably given and within a reasonable time pursuant to 2-602.[9]
Borg clearly did not reject the steel within a reasonable time. Not only is three months an over-long period to retain the goods before rejecting them,[10] but Borg's stamping out of all the steel certainly makes its rejection untimely and ineffective.[11] The Code requires that rejection will occur when the goods are tendered and inspected or after the buyer has had a reasonable time for inspection.[12] Timely rejection ensures the goods can be easily restored to the seller so that he can either make them conforming and tender them back to the buyer or simply sell the goods to another. In this way damages will be mitigated and commercial loss curtailed. Rejection is generally not effective after the goods have been manufactured into parts.[13]
Defendant might argue that it did not have "a reasonable opportunity to inspect" the goods as subsection (1)(b) requires, since the defect could not have been reasonably discovered until the steel was processed into parts. This argument is likewise unavailing. The "reasonable opportunity to inspect" provision is to ensure that a buyer's silence, without more, does not automatically impute acceptance until he has had adequate time[14] to inspect the goods. It does not imply that goods which have been drastically changed and used by the buyer can later be rejected and not viewed as accepted, despite the presence of a latent defect. Buyers who receive non-conforming goods with defects that are not easily detected are provided adequate remedies under the Code even though they *1087 have accepted the goods.[15] They do not lose the right to recover damages for the seller's breach of warranty by simply having accepted the goods.
This conclusion that Borg's attempt to reject is ineffective is further supported by the relationship the Code establishes between rejection and revocation. The Code provides two methods by which a buyer may act upon nonconforming goods: he may reject them before ever accepting the goods or he may revoke the goods once he has accepted them. The pertinent Code section governing revocation provides:
(1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or
(b) without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.
M.C.L.A. § 440.2608. As the Code suggests, a buyer may more readily reject goods then revoke acceptance since the standard for rejection is more relaxed.[16] A buyer is presented with greater obstacles in order properly to revoke acceptance. For instance, a buyer may reject goods for relatively minor defects.[17] He may not, however, revoke his acceptance unless the "nonconformity substantially impairs" the value of the goods.[18] The difference in standards reflects the degree of prejudice the seller is exposed to in regard to the goods. A buyer's acceptance of the goods will most likely make the seller's ability to cure the nonconformity or resell the goods much more difficult.[19]
Defendant could not avail itself of revocation because a "substantial change in the condition of the goods" was caused by Borg (the steel was stamped into parts) and "not caused by [the goods'] own defect." M.C.L.A. § 440.2608(2).[20] Therefore, it would be a misapplication of the Code to allow defendant's rejection to be effective when it would not be permitted to revoke its acceptance.
*1088 Second, the cases defendant cites in support of its argument that it rightfully rejected the steel are not applicable.[21] In each of those cases the contract expressly provided that rejection could occur even after the buyer had changed or used the material. Of course, parties to a contract are free to determine in their agreement when effective rejection can occur.[22] The instant contract, however, cannot be viewed as modifying the Code provisions in regard to the time of rejection and acceptance. It is true that Adzema, Barry's sales representative who was a metallurgist and associated with Barry's quality control department, was familiar with Borg's fabrication schedulethat Borg did not sample test or examine microscopically the steel, and that it stamped, deburred and stored the steel pending customer orders. It is further true that despite his awareness of those procedures he did not object to them, nor suggest any alternatives or modifications. Yet, it is difficult to conclude that Adzema's knowledge of Borg's procedures can be said to imply that the parties' agreement modified the Code to allow Borg to reject the steel even after it had been stamped into parts. Although defendants do not make this contention, Borg could have more reasonably argued that the 2-608(2) requirement that revocation is not effective if a substantial change in the condition of the goods had occurred was somehow modified by the parties' agreement. But it would be equally difficult to determine that the instant contract intended that modification of the Code also. Thus, Borg's rejection after the steel had been stamped out must be seen as ineffective. Moreover, Borg was likewise not permitted to revoke its acceptance once it had processed all the steel into parts. Defendant is thereby deemed to have accepted and retained the goods.

II. DEFENDANT'S RIGHT TO SET OFF DAMAGES FROM ITS OBLIGATION TO PAY PURCHASE PRICE
Since defendant accepted the goods under 2-607(2) defendant became obligated for the purchase price of the steel minus the scrap value of the material which was already turned over to the plaintiff.[23] However, since Borg notified Barry Steel of the breach within a reasonable time,[24] defendant may withhold payment of the purchase price to the extent that it has suffered damages from the seller's breach. See M.C.L.A. § 440.2717.[25] The Code specifically delineates the damages a buyer is entitled to when he accepts nonconforming goods. Section 2-714 states:
(1) Where the buyer has accepted goods and given notification (subsection (3) of section 2607) he may recover as *1089 damages for any nonconformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.
(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.
(3) In a proper case any incidental and consequential damages under the next section may also be recovered.
Although subsection (2) is not the exclusive measure of damages under this section, it would appear that Michigan courts would look first to this normal measure of damages for breach of warranty. See S.C. Gray, Inc. v. Ford Motor Co., 92 Mich.App. 789, 286 N.W.2d 34 (1979). Thus, the defendant is entitled to the difference between the "value" of the goods as accepted and their "value" had they been as warranted. The evidence at trial established that the value of the steel had it been as warranted was the contract price. No other evidence was offered as to the value of the steel as accepted and the only evidence relating to value was the price obtained in the scrap sale after Borg had processed the steel. Relying upon the case of S.C. Gray, Inc. v. Ford Motor Co., supra, plaintiff argues that evidence of only purchase price and salvage price is inadequate to support an award for breach of warranty since it provides no evidence of the actual value of the goods at the time and place of acceptance. Plaintiff would have this Court deem that S.C. Gray announced an absolute rule; however, the Michigan court stated that its ruling was based on the circumstances of the case before it.[26] The instant case is significantly different than S.C. Gray because of the nature of the nonconforming goods' defects. In S.C. Gray the accepted nonconforming goods were machines which had more than scrap value when accepted and had appreciable value throughout the period the buyer operated the machines. Moreover, the buyer knew of the nonconformity shortly after acceptance. Although the steel in question had other than scrap value when delivered to the defendant, that value was hidden to any reasonable buyer and the steel became nearly valueless during the buyer's reasonable processing of the material. This difference affects the buyer's measure of damages under the Code.[27]
Section 2-714 establishes a formula for damages based upon the "value" of the goods at their acceptance and if they had been as warranted. The use of the word "value" instead of price makes this provision unique in the Code.[28] "Value" is only defined in the Code in 1-201(44), but that definition is not relevant to the present issue.[29] Thus, the question of "value" has been largely left for the courts to resolve.
*1090 The value of goods "as warranted" has been interpreted to encompass two different standards. The primary standard is the fair market value of the goods at the time of acceptance.[30] In using the fair market value, the courts ensure that the buyer is only recovering his actual damages and does not gain a windfall from a fluctuating market.[31] When the fair market value cannot be easily determined, or the parties do not raise it as a measure of "value", courts have generally relied on the contract's purchase price as strong evidence of the value of the nonconforming goods as warranted.[32] The parties did not present any evidence of the fair market value of the material had it been tendered as warranted. Plaintiff complains of this lack of proof on the part of Borg, however it does not assert nor does it appear that Borg will gain a windfall if the purchase price is used. Further, there was no evidence that the contract price was at all unusual for this high carbon steel. Therefore, the contract's purchase price can properly serve as the "value" of the goods had they been as warranted under these circumstances.
A difficulty arises because the Code requires that the value of the nonconforming goods (i.e., goods which failed to meet the warranty) be determined as of the time Barry Steel tendered the steel and Borg accepted it. A narrow reading of 2-714(2) would look to the value of the steel if Borg had not processed it and simply attempted to sell the steel on the market. Although the steel was concededly defective and unfit for the buyer's purposes and not of the quality the buyer contracted for, the nonconforming steel could have been used to make a variety of other products. Thus, at the moment defendant accepted the steel it had a value in excess of mere scrap value.[33] Since Borg in acting reasonably could not have discovered the defect in the steel until the steel was blanked out, this objective calculation of the "value" of the steel would be unfair and contrary to the purpose of the Code, which is to place the buyer in the same position had the plaintiff rightfully performed. See M.C.L.A. § 440.1106.[34] Subsection 2-714(2) does not require this strict interpretation and inequitable result. Rather, subsection (2) qualifies its formula with the phrase "unless special circumstances show proximate damages of a different amount". The effect of the relation of the "special circumstances" clause to the measure of the "value" of the goods as accepted has been the subject of considerable discussion.[35] A logical interpretation suggests that the drafters intended "special circumstances" to allow a shifting of *1091 the time-frame for assessing the perimeters of the 2-714(2) formula.[36] Thus interpreted, the "special circumstances" clause permits this Court to look to some later point to determine the goods' value rather than the time of acceptance. Such "special circumstances" exist in the instant case.
In the course of reasonable conduct, Borg could not and did not find the defect in the steel until all the steel had been stamped out. The steel was substantially worth more than scrap value before Borg stamped it out, but Borg could not have benefited from that value nor could Borg have reasonably known of the material's defective condition until the steel was processed. To measure the "value" of the nonconforming goods at the time they were tendered and accepted does not conform with the realities of the parties' transaction.[37] The instant case involves material which was contemplated by the parties to be transformed into parts. This is not the situation before the S.C. Gray court where the goods were machines which were intended to fabricate parts. In the latter situation, the nonconformity of the goods was known to the buyer shortly after acceptance when the machines did not perform as warranted. Therefore, it was sensible to measure the "value" of the nonconforming goods when accepted and before the buyer made efforts to repair the defect. This case presents a wholly different factual setting, one involving goods and conduct of a significantly different nature. Hence, the proper time to measure the value of the steel was when the nonconformity was reasonably discovered, which was after all the coils had been stamped out. Therefore, the proper measure of damages pursuant to 2-714 is the difference between the price of the steel, representing "the value ... had [it] been as warranted," and the scrap value of the steel after it had been blanked out into parts, which is the "value of the goods accepted."
In conclusion, defendant is entitled to set off the amount of the purchase price it owes plaintiff with its damages, which is the difference between the scrap value of the steel and the contract price of the material. Thus, plaintiff is not entitled to the $41,612.47 for which it brought this action.
NOTES
[1]  Specifically, Article Two of the Code applies since this case involves a transaction in goods. M.C.L.A. § 440.2102 & .2105(1).
[2]  See e.g., Fargo Machine & Tool Co. v. Kearney & Trecker Corp., 428 F.Supp. 364 (E.D.Mich. 1977).
[3]  Annealization is the process of heating and slow cooling in order to toughen the steel and reduce brittleness.
[4]  Barry was actually divided into two separate successor corporations. Intervale was assigned the claim against Borg.
[5]  Plaintiff presumably brings this action pursuant to M.C.L.A. §§ 440.2607(1) & .2709.
[6]  For the sake of brevity and clarity, M.C.L.A. sections will be referred to as the sections are labeled in the Uniform Commercial Code. For example, M.C.L.A. § 440.2607 will be referred to as 2-607. Citation forms, however, will remain the same.
[7]  A rejection of goods which is wrongful under the Code is deemed ineffective and the items are viewed as accepted. E.g. Blue Sky Forest Products, Inc. v. New Hampshire Doors Co., 63 Or. App. 307, 663 P.2d 813, 36 U.C.C.Rep. 1179 (1983).
[8]  Plaintiff argues that 2-606(1)(c) applies to the instant case so that Borg's stamping out of the steel is an act inconsistent with the seller's ownership and means acceptance has occurred. A proper reading of 2-606 suggests that subsection (1)(c) should only apply when the buyer acts with knowledge of the defect. Once the buyer discovers the defect and acts inconsistently with the seller's rights, then (1)(c) will deem the buyer to have accepted the goods. See M.C.L.A. § 440.2606, comments 3 and 4. In J. White & R. Summers, Uniform Commercial Code § 8-2, at 298-99 (2d Ed.1980) the authors correctly state:

We would argue that acts done in ignorance of the defects which buyer could not have discovered are never covered by 2-606(1)(c). The use of the goods and passage of time might constitute an acceptance under 2-606(1)(a) or 2-606(1)(b). But if any use (and all use is theoretically inconsistent with seller's ownership) constitutes an inconsistent act as that term is used in 2-606(1)(c), then there will always be acceptance the minute the buyer uses the goods notwithstanding the fact he has not yet had a "reasonable opportunity to inspect" under 2-606(1)(a) and still has a "reasonable time" to reject under 2-602 (and therefore has not accepted under 2-606(1)(b)). The only reading of 2-606(1)(c) which is consistent with the Code policy and which leaves elbow room for the other provisions of 2-606 is to find that use of goods in ignorance of the defective nature of the goods is not "inconsistent" under 2-606(1)(c).
(Emphasis supplied.) It should be noted that the "any use" language of subsection (1)(c) requires this interpretation in order for the other subsections to have meaning. This does not mean a buyer use, particularly substantial use, could not deem goods as accepted under (1)(a) or (b).
[9]  M.C.L.A. § 440.2602(1) states:

Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.
[10]  See e.g., Haken v. Scheffler, 24 Mich.App. 196, 180 N.W.2d 206 (1970); Jatco, Inc. v. Charter Air Center, Inc., 527 F.Supp. 314 (S.D.Ohio 1981).
[11]  See Trinkle v. Schumacker Co., 100 Wis.2d 13, 301 N.W.2d 255, 31 U.C.C.Rep. 39 (1980).
[12]  See generally J. White & R. Summers, supra, note 8, § 8-2, at 296-318.
[13]  See, supra, notes 10-13 & infra note 20.
[14]  The standard for "adequate" or "reasonable" time is dependent upon the particular circumstances of each case. M.C.L.A. § 440.1204(2) ("What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action.")
[15]  Section 2-714 provides that a buyer who accepts nonconforming goods can get damages basically for the reduction in value of the goods due to the nonconformity and any incidental or consequential damages the buyer incurs.
[16]  See J. White & R. Summers, supra, note 8, at 301.
[17]  See M.C.L.A. §§ 440.2601 & .2602.
[18]  See Colonial Dodge, Inc. v. Miller (on rehearing) 121 Mich.App. 466, 328 N.W.2d 678 (1982) (purpose of requirement of substantial impairment of value is to preclude revocation for trivial defects or defects which may be easily corrected); Fargo Machine & Tool Co. v. Kearney & Trecker Corp., 428 F.Supp. 364 (E.D.Mich. 1977).
[19]  See J. White & R. Summers, supra, note 8, § 8-3 at 301.
[20]  See e.g., Trinkle v. Schumacker Co., 100 Wis.2d 13, 301 N.W.2d 255, 31 U.C.C.Rep. 39 (1980) (defect in material not discoverable until fabric cut into roman shades, however, revocation ineffective since substantial change in goods occurred); see also Stroh v. American Recreation & Mobile Home Corp., 35 Colo.App. 196, 530 P.2d 989 (1975) (purpose behind not allowing change in goods other than from their own defect is to provide seller opportunity to repair and resell goods); Republic Corp. v. Procedyne Corp., 401 F.Supp. 1061 (S.D.N.Y.1975). The buyer must then turn toward Section 2-714 which provides for the buyer's remedies when he has accepted non-conforming goods. See Desilets Granite Co. v. Stone Equalizer Corp., 133 Vt. 372, 340 A.2d 65, 17 U.C.C.Rep. 769 (1975); Gawlick v. American Builders Supply, Inc., 86 N.M. 77, 519 P.2d 313, 13 U.C.C.Rep. 1031 (1974).
[21]  E.g. Bevel-fold, Inc. v. Bosc Corp., 28 U.C.C. Rep. 1333 (Mass.App.1980); Max Bauer Meat Packer, Inc. v. United States, 10 U.C.C.Rep. 1056 (Ct.Cl.1972). See also GNP Commodities, Inc. v. Walsh Heffermen, Co., 95 Ill.App.3d 966, 51 Ill. Dec. 245, 420 N.E.2d 659 (1981).
[22]  M.C.L.A. § 440.1102(3) provides that the effect of provisions of the Code can be altered by agreement, except those relating to good faith.
[23]  See Hellendall Distributors, Inc. v. S.P. Thomas, Inc., 559 F.Supp. 573, 36 U.C.C.Rep. 168 (E.D.Pa.1983).
[24]  Plaintiff argues that notice was not within a reasonable time because defendant acted unreasonably in stamping out all of the steel into parts. Presumably, plaintiff views reasonable notice to mean notice after a sample part had been run or a microscopic examination performed which would reveal the defect. However, as the Court has already found, the defendant did not act unreasonably and its notice to plaintiff when problems in the spring first occurred and when the defect was finally discovered constitutes notice within a reasonable time.
[25]  See Purofied Down Products Corp. v. Royal Down Products, Inc., 87 F.R.D. 685 (W.D.Mich. 1980) (set off under M.C.L.A. § 440.2717 is proper remedy for buyer for seller's breach); International Computer Group, Inc. v. Data General Corp., 159 Ga.App. 169, 283 S.E.2d 12 (1981) (buyer has choice of either withholding damages from purchase price or paying the purchase price and counterclaiming damages); Adam Metal Supply, Inc. v. Electrodex, Inc., 386 So.2d 1316, 30 U.C.C. 178 (Fla.App.1980); McGrady v. Chrysler Motors Corp., 46 Ill.App.3d 136, 4 Ill.Dec. 705, 360 N.E.2d 818 (1977); Creative Gemstones, Inc. v. Union Carbide Corp., 47 N.Y.2d 250, 391 N.E.2d 987, 417 N.Y.S.2d 905, 26 U.C.C. 712 (1979) (intent underlying 2-717 to allow deduction for valid counterclaim).
[26]  In S.C. Gray the court stated:

There was no evidence of the actual value of the equipment at the time of acceptance, although it may well have had some value since there was testimony that the test stands could be easily converted to manual operation and used as backups if automatic stands were being repaired. Evidence of only purchase price and salvage value is inadequate to support an award for breach of warranty under these circumstances. 92 Mich.App. at 806, 286 N.W.2d at 41.
[27]  In their briefs and at trial the parties continually argued as to whether defendant acted reasonably in stamping out all the steel in relation to the acceptance/rejection issue. But the reasonableness of defendant's actions, as will be discussed, is crucial to the question of damages.
[28]  See Peters, Remedies For Breach of Contracts Relating to the Sale of Goods Under the Uniform Commercial Code: A Roadmap For Article Two, 73 Yale L.J. 199, 269 (1963) ("This formula is stated in terms not otherwise employed in the Code, looking to a difference in value, and not in price.").
[29]  M.C.L.A. § 440.1201(44) provides:

"Value". Except as otherwise provided with respect to negotiable instruments and bank collections (sections 3303, 4208 and 4209) a person gives "value" for rights if he acquires them.
(a) in return for a binding commitment to extend credit or for the extension of immediately available credit whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection; or
(b) as security for or in total or partial satisfaction of a pre-existing claim; or
(c) by accepting delivery pursuant to a pre-existing contract for purchase; or
(d) generally, in return for any consideration sufficient to support a simple contract.
[30]  See Special Project, Article Two Warranties in Commercial Transactions, 64 Cornell L.Rev. 30, 112 (1978) [hereinafter "Special Project"]; see generally J. White & R. Summers, supra note 8, § 10-2 at 377-81.
[31]  See generally Special Project, supra note 30, at 112-17.
[32]  See e.g., Louis DeGidio Oil & Gas Burner Sales & Serv., Inc. v. Ace Eng'r. Co., 302 Minn 19, 28-29, 225 N.W.2d 217, 222-23, 15 U.C.C. Rep. 801, 809-10 (1974); Russo v. Hilltop Lincoln-Mercury, Inc., 479 S.W.2d 211, 213, 10 U.C. C.Rep. 768, 770 (Mo.App.1972). See generally Special Project, supra note 30, at 112; J. White & R. Summers, supra note 8, § 10-2 at 380.
[33]  For example, the steel does appear to have been adequate for the manufacture of 7 inch springs.
[34]  M.C.L.A. § 440.1106 states in pertinent part:

The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act ...
[35]  See J. White & R. Summers, supra note 8, § 10-3, at 382-83 Special Project, supra note 30, at 117-30. See generally Priest, Breach and Remedy For The Tender of Nonconforming Goods Under The Uniform Commercial Code: An Economic Approach, 91 Harv.L.Rev. 960 (1978).
[36]  See, Special Project, supra note 30, at 124-28.
[37]  This is not the normal situation where the buyer accepts the goods with knowledge of their nonconformity or should reasonably have known of the defect. Under those circumstances, the measure of "value" is rightly when the goods are tendered and accepted. In the instant case, the realities of the transaction and the reasonable actions of Borg must color the value of the defective goods.