Arbitration vs. Mediation in Family Law Cases

Bailey Contributes to Institute of Continuing Legal Education

Originally published by the Institute of Continuing Legal Education Partnership; republished with permission.

In the realm of family law, arbitration and mediation offer alternative pathways to resolving disputes outside the courtroom. However, key distinctions exist between these two processes. This advisory will delve deeper into the legal nuances of each option.

View a printer friendly version of the comparison chart.

Controlling law

ArbitrationMCL 600.5071
Parties to an action for divorce, annulment, separate maintenance, child support, custody, or parenting time, or to a post-judgment proceeding related to such an action, may stipulate to binding arbitration by a signed agreement that specifically provides for an award with respect to one or more of the following issues:
  • real and personal property child custody child support, subject to the restrictions and requirements in other law and court rule as provided in this act parenting time spousal support costs, expenses, and attorney fees enforce ability of prenuptial and postnuptial agreements allocation of the parties’ responsibility for debt as between the parties other contested domestic relations matters
MediationMCR 2.410
All civil cases are subject to alternative dispute resolution (ADR) processes unless otherwise provided by statute or court rule. MCR 2.410(C) states that, at any time, after consultation with the parties, the court may order that a case be submitted to an appropriate ADR process.
MCR 2.411
This rule applies to cases that the court refers to mediation as provided in MCR 2.410.

What is it?

ArbitrationArbitration is a process in which a dispute is submitted, by agreement of the parties, to one or more arbitrators, who make a binding decision on the dispute.
MediationMediation is a process in which a neutral third party facilitates communication between parties, assists in identifying issues, and helps explore solutions to promote a mutually acceptable settlement. A mediator has no authoritative decision-making power. MCR 2.411(A)(2).

Who can participate?

ArbitrationArbitration may be heard by a single arbitrator or by a panel of three arbitrators. The court must appoint an arbitrator agreed to by the parties if the arbitrator is qualified under MCL 600.5070 (2) and consents to the appointment.
The court may not appoint an arbitrator under MCL 600.5070 et seq. unless the individual meets all the following qualifications:
  • is an attorney in good standing with the State Bar of Michigan
  • has practiced as an attorney for not less than five years before the appointment and has demonstrated expertise in the area of domestic relations law
  • has received training in the dynamics of domestic violence and in handling domestic relations matters that have a history of domestic violence. MCL 600.5073(2).
MediationThe parties may stipulate to the selection of a mediator. A mediator selected by agreement of the parties need not meet the qualifications in MCR 2.411(F). MCR 2.411(B)(1).
If the order referring the case to mediator does not specify a mediator, the order must set the date by which the parties are to have conferred on the selection of a mediator. MCR 2.411 (B)(2). If the parties do not advise the ADR clerk of the mediator agreed on by that date, the court must appoint one as provided in MCR 2.411(B)(3).

What is the procedure?

ArbitrationAs soon as practicable after the appointment of the arbitrator, the parties and attorneys must meet with the arbitrator to consider all of the following:
  • scope of the issues submitteddate, time, and place of the hearing witnessesschedule for exchange of expert reports or summary of expert testimonyexhibits, documents, or other information each party considers applicable and material to the case and a schedule for production or exchange of that information.
MCL 600.5076.
The arbitrator must issue the written award on each issue within 60 days after either the end of the hearing or, if requested by the arbitrator, after receipt of proposed findings of fact and conclusions of law.
An arbitrator under this chapter retains jurisdiction to correct errors or omissions in an award until the court confirms the award. Within 14 days after the award is issued, a party to the arbitration may file a motion to correct errors or omissions. The other party may respond within 14 days after the motion is filed. The arbitrator must issue a decision on the motion within 14 days after receipt of a response or, if a response is not filed, within 14 days after the response period expires. MCL 600.5078.
MediationAlthough not required by authority, practitioners typically submit a brief that outlines their perspective on the issues at bar in advance of the mediation. This serves as a tool that allows the mediator to organize an effective approach to resolving the issues.
The mediator must meet with counsel and the parties, explain the mediation process, and then proceed with the process. The mediator must discuss with the parties and counsel, if any, the facts and issues involved. The mediation will continue until a settlement is reached, the mediator determines that a settlement is not likely to be reached, the end of the first mediation session, or a time agreed to by the parties. Additional sessions may be held as long as it appears that the process may result in settlement of a case. MCR 2.411(C)(2).
The mediator must advise the court of the completion of mediation within seven days after completion, stating only the date of completion, who participated, whether settlement was reached, and whether further ADR proceedings are contemplated. MCR 2.411(C)(3).

Is the procedure confidential?

ArbitrationExcept as provided by MCL 600.5077, court rule, or other arbitration agreement, a record may not be made of an arbitration hearing. An arbitrator may make a record to be used only by the arbitrator to aid in reaching the decision.
A record must be made of the portion of a hearing that concerns child support, custody, or parenting time in the same manner required by the Michigan Court Rules for the record of a witness’s testimony in a deposition. MCL 600.5077
MediationConfidentiality in the mediation process is governed by MCR 2.412.
Mediation communications are confidential. They are not subject to discovery, are not admissible in a proceeding, and may not be disclosed to anyone other than mediation participants except as provided in MCR 2.412(D). MCR 2.412(C).

Is the award enforceable?

ArbitrationThe circuit court must enforce an arbitrator’s award or other order issued under the Revised Judicature Act in the same manner as an order issued by the circuit court. A party may make a motion to the circuit court to enforce an arbitrator’s award or order. MCL 600.5079(1).
An appeal from an arbitration award that the circuit court confirms, vacated, modifies, or corrects must be taken in the same manner as from an order or judgment in other civil actions. MCL 600.5082.
MediationMediation agreements are binding and enforceable once executed by the parties involved.
If the case is settled through mediation, within 21 days the attorneys must prepare and submit to the court the appropriate documents to conclude the case. MCR 2.411(C)(4).

Bridge Collapses and Contractual Uncertainty: Navigating Force Majeure

Bridge Collapses and Contractual Uncertainty: Navigating Force Majeure

In the aftermath of a catastrophic event, such as the Francis Scott Key Bridge collapse, the immediate focus rightfully rests upon the human toll and the urgent need for rescue, recovery, and support. However, amidst these pressing humanitarian concerns, it is important to recognize the concurrent commercial implications that arise from such tragedies. The disruption to shipping and logistics triggered by this disaster requires careful attention, as businesses grapple with the practical challenges and legal complexities of navigating force majeure clauses.

Understanding Force Majeure Provisions

Force majeure clauses are designed to allocate responsibility for events beyond a party’s control, excusing performance when such events delay or prevent it. Whether a shortage of parts due to shipping delays resulting from a port closure warrant invoking a force majeure clause depends on contractual language and specific circumstances. In the absence of such a clause, jurisdictional laws or common law principles may offer similar remedies.

Force majeure clauses vary widely in content and scope. Some enumerate specific qualifying events, while others adopt a broader approach encompassing any uncontrollable event. Given this variability, it is crucial for suppliers to seek legal guidance to assess the language of specific force majeure provisions.

Legal Considerations in Michigan

In Michigan, the defense of impossibility is narrowly recognized, particularly under the Michigan Commercial Code (MCC), which acknowledges the defense of impracticability concerning the sale of goods. Impracticability may excuse delayed or non-delivery of goods due to compliance with regulations or unforeseeable events. However, suppliers may not always rely on this defense, especially if the contract imposes greater obligations on them.

Notice Requirements

Invoking force majeure typically requires providing notice to the unaffected party, with varying requirements across contracts. Some contracts mandate notice within a specified timeframe from the event’s occurrence, while others stipulate prompt notification without specific timelines. Notices may need to detail the expected consequences and duration of the force majeure event, and failure to adhere to notice requirements can jeopardize a party’s claim.

Given the unpredictable impact of events like the Francis Scott Key Bridge collapse in Baltimore on supply chains, some suppliers may choose to issue proactive force majeure notices, acknowledging evolving disruptions and their implications for contract performance.

Mitigation Obligations

Even when an event falls under a contract’s force majeure provision, the affected party must take reasonable steps to mitigate foreseeable consequences. Failure to do so may undermine a force majeure claim, particularly if alternative means of fulfilling obligations were available.

Conclusion

It seems unlikely that a court would reject a force majeure argument for a surprisingly shocking event such as a container ship running into the Francis Scott Key Bridge. However, one should be aware that the inclusion of a force majeure clause in a Supply Agreement does not automatically mean if a catastrophic event occurs that your performance is excused.

The details of the event and the language of the force majeure clause can greatly impact your performance as well as the required performance your vendor/customer. If a supplier finds itself in a position where it is difficult to meet contractual obligations due to lack of a required product, it may be time to review supply contracts to understand its rights under a force majeure clause or other legal protections.

Tips to Avoid Common Retirement Plan Errors

Master Your Retirement Plan: Avoid Common Errors

Being on the wrong side of ERISA and Internal Revenue Code requirements creates one headache after another. To prevent common errors, you need to make sure your plan document satisfies these requirements, but you also need to make sure you are following the terms of your plan document. Here are some common errors and helpful tips for avoiding them.

1. Plan Documents: A simple error with a big impact.

Make sure your plan has the required documentation. This seems simple and it can be, but it is also one of the most common errors. Your plan documents must comply with ERISA and Internal Revenue Code requirements. For example, you must sign and date the plan document, sign and date any amendments, adopt amendments in the way your plan requires, and disclose your Summary Plan Description (SPD) to participants and beneficiaries as required by law.

2. Eligibility: Wait, was Jim eligible to participate last year?

Errors about who is eligible to participate, and when they begin participation, are also common. Your plan document defines eligibility, so refer to it often and avoid late enrollment of eligible participants. Plan documents often also exclude certain employees, either because they are covered by another plan or because they simply are not eligible. For instance, seasonal and temporary employees are often excluded from retirement plans, and union employees sometimes have separate plans to reflect the terms of their collective bargaining agreement. You need to correctly and consistently apply these exclusions.

3. Timing is Everything: Making contributions.

Plan documents usually set forth the deadlines by which contributions must be made. These deadlines may vary depending on the type of contribution (for instance, employee elective deferrals must be deposited as soon as reasonably possible, whereas employer contributions may have a later deadline). Contributions deposited after the deadline are deemed to be late. Making late contributions, or otherwise failing to make consistently timely contributions, may require corrections that include government filings, self-correction and additional contributions for lost earnings. To avoid errors, determine with your payroll provider how early you can reasonably make contributions and set procedures to help ensure deposits are consistently made by that date.

4. Loans: Write down the rules and follow them.

401(k) plans may allow participants to take loans but aren’t required to offer loans. If they do, the loan procedures must be in writing. The plan administrator (or the loan administrator, if separate) should always follow the written procedures, especially with regard to repayment terms, the maximum number of loans, and the terms and process for taking loans. Failure to follow the loan procedures or other failures involving loan payments may often require correction.

5. Fiduciary Duties: Document, document, document.

The importance of documentation cannot be overstated. Fiduciaries for retirement plans are entrusted with certain responsibilities for plan participants and beneficiaries, and with great fiduciary duties come great potential liabilities! Fulfilling these responsibilities is only part of the obligation. How fiduciaries meet these responsibilities matters, as does documenting compliance with the fiduciary duties. Documentation provides a clear picture of how decisions are made and why—it provides rationale at the time of the decision and can help prevent later speculation by those not part of the process. It also helps avoid the risk that a fiduciary will comply with fiduciary duties in the moment but will be unable to prove it when a claim is made.

These are only some common errors we see in retirement plans. Often, preventing these errors is simple, and preventative measures are easier to take than corrective steps. If you have any questions about compliance, how to correct these errors and others, or other employee benefits matters, please contact your Varnum Employee Benefits team.

Federal Court Strikes Down the Corporate Transparency Act as Unconstitutional

Federal Court Strikes Down the Corporate Transparency Act as Unconstitutional
Visit Our CTA Resource Center

On March 1, 2024, the federal judge presiding over the lone case testing the validity of the Corporate Transparency Act (CTA) struck down the CTA as unconstitutional. As we have explained, through the CTA, Congress imposed mandatory reporting obligations on certain companies operating in the United States, in an effort to enhance corporate transparency and combat financial crime. Specifically, the CTA, which took effect on January 1, 2024, requires a wide range of companies to provide personal information about their beneficial owners and company applicants to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). More than 32.5 million existing entities are expected to be subject to the CTA, and approximately 5 million new entities are expected to join that number each year. By mid-February, approximately a half million reports had been filed under the CTA according to FinCEN.

The CTA’s enforceability is now in doubt. In National Small Business United d/b/a National Small Business Association v. Yellen, the Honorable Liles C. Burke of the United States District Court for the Northern District of Alabama held that the CTA exceeded Congress’s authority to regulate interstate commerce, and that the CTA was not necessary to the proper exercise of Congress’ power to regulate foreign affairs or its taxing power. The Court issued a declaratory judgment—stating that the CTA is unconstitutional—and enjoined the federal government from enforcing the CTA’s reporting requirements against the plaintiffs in that litigation. A nationwide injunction, which would have raised its own enforceability concerns, was not included in the Court’s ruling.

The Court focused on three aspects of the CTA. First, the Court highlighted that the CTA imposes requirements on corporate formation, which is traditionally left to state governments as matters of internal state law. Second, the Court observed that the CTA applies to corporate entities even if the entity conducts purely intrastate commercial activities or no commercial activities at all. Third, the Court concluded that the CTA’s disclosure requirements could not be justified as a data-collection tool for tax officials as that would raise the specter of “unfettered legislative power.”

What the Decision Means for Entities Subject to the CTA

The Court’s decision creates uncertainty on entities’ ongoing obligations under the CTA.  Although the Court purported to limit its injunction to the parties in the litigation before it, the lead plaintiff in the suit is the National Small Business Association (NSBA). In its opinion, the Court held that the NSBA had associational standing to sue on behalf of its members. Based on precedent, this means the Court’s injunction likely benefits all of the NSBA’s over 65,000 members. If so, the government is prevented from enforcing the CTA’s reporting requirements against any entity that is a member of the NSBA.

Regardless of membership in the NSBA, however, the Court’s declaratory judgment that the CTA is unconstitutional also raises serious doubts about the government’s ability to enforce the CTA’s reporting requirements. This could amount to a de facto moratorium on CTA enforcement, depending on the government’s view of the decision.

What Happens Next

The government will likely appeal this decision, but the Court’s injunction and declaration will remain in effect unless a stay is granted. To receive a stay, the government will first likely need to file a motion in the district court, which will consider (1) how likely it is that the government will succeed on appeal; (2) whether the government will be irreparably harmed without a stay; (3) whether a stay will injure other parties interested in the litigation; and (4) whether a stay would benefit the public interest. If the district court denies a stay, the government will be able to seek a stay from the Atlanta-based United States Court of Appeals for the Eleventh Circuit.

The government has 60 days to appeal, though it will likely file its appeal sooner given the grant of an injunction and decision’s far-reaching consequences. The grant or denial of stay should be resolved in the coming weeks, but the timing of any final decision from the Court of Appeals is uncertain. In 2023, the median time for the Eleventh Circuit to resolve a case was over 9 months. However, the key deadline by which tens of millions of companies otherwise must file their initial report under the CTA is January 1, 2025.

Varnum’s Corporate Transparency Act Task Force will monitor all developments in National Small Business United.  Contact any member of Varnum’s CTA Taskforce, or your Varnum attorney to learn more.

Navigating Health Care Data Management: Proposed Changes to HIPAA’s Privacy Rule

Proposed Changes to HIPAA's Privacy Rule

The Health Insurance Portability and Accountability Act (HIPAA) contains Standards for the Privacy of Individually Identifiable Health Information (Privacy Rule). The Privacy Rule applies to covered entities (i.e., (i) a health plan; (ii) a health care clearinghouse; and (iii) a health care provider who transmits any health information in electronic form in connection with a transaction for which DHHS has adopted standards). More specifically, the Privacy Rule broadly establishes national standards to protect individuals’ protected health information (PHI), by requiring certain safeguards, setting limits and conditions on the uses and disclosures of PHI, as well as giving individuals rights over their PHI.

PHI is defined as individually identifiable health information (IIHI) that is:

    • (i) transmitted by electronic media;
    • (ii) maintained by electronic media; or
    • (iii) transmitted or maintained in any other form or medium.

    In January 2021, the Department of Health and Human Services (DHHS) issued a Notice of Proposed Rulemaking (NPRM) which proposes to modify the Privacy Rule. According to DHHS, the NPRM sought to modify HIPAA’s Privacy Rule to support individuals’ engagement in their health care, remove barriers to coordinated care, and decrease regulatory burdens on the health care industry. The NPRM estimated that the total savings from the proposed reform would be roughly $3.2 billion over five years.

    NPRM Spotlight: Proposed Changes to the Right of Individuals to Access Their PHI

    Of the nine different sections contained in the NPRM, the most extensive proposed changes involve changes to an individual’s right to access their PHI. These proposed changes include:

      1. Adding definitions for electronic health record (EHR) and personal health application

      The NPRM defines an EHR as “an electronic record of health-related information on an individual that is created, gathered, managed, and consulted by authorized health care clinicians and staff.” Further, the NPRM proposes to define personal health application as “an electronic application used by an individual to access health information about that individual in electronic form, which can be drawn from multiple sources, provided that such information is managed, shared, and controlled by or primarily for the individual, and not by or primarily for a covered entity or another party such as the application developer.” As stated in the NPRM, these proposed definitions would clarify the proposed modifications to the right of access.

        2. Strengthening the access right to inspect and obtain copies of PHI

        DHHS proposes to enable individuals to use personal resources, such as taking notes, videos, and photographs, to view and capture PHI in a designated record set. These proposed changes are seen as a way to eliminate “persistent barriers” that individuals face when trying to inspect and/or obtain copies of their PHI.

          3. Modifying the implementation requirements for requests for access and timely action in response to requests for access

          • Requests for access: The NPRM prohibits a covered entity from imposing unreasonable measures on an individual exercising the right of access that create a barrier to or unreasonably delay the individual from obtaining access.
          • Timeliness: The NPRM requires that access be provided “as soon as practicable,” but in no case later than 15 calendar days after receipt of the request, with the possibility of one 15 calendar-day extension. 

          4. Addressing the form of access

          When a covered entity offers a summary in lieu of access, the covered entity must inform the individual that they retain the right to obtain a copy of the requested PHI if they do not agree to receive the summary.

          5. Addressing the individual access right to direct copies of PHI to third parties

          The NPRM creates a separate set of provisions for the right to direct copies of PHI to a third party.

          6. Adjusting permitted fees for access to PHI and ePHI

          DHHS plans to change the access fee provisions of the Privacy Rules to establish a fee structure with elements based on the type of access request.

          7. Notice of access and authorization fees

          DHHS proposes to add additional regulations requiring covered entities to provide advance notice of approximate fees for copies of PHI requested under the access right and with an individual’s valid authorization.

          Impact of HIPAA Privacy Rule Update: Covered Entities

          A final rule implementing these proposed changes to the Privacy Rule has not yet been announced. However, the final rule is expected to be posted in 2024. Although the proposed HIPAA Privacy Rule updates aim to relieve the administrative burden imposed on covered entities, in the short term, it undoubtedly will cause significant work for covered entities seeking to comply with these updates. To comply, covered entities will likely incur costs, update various policies and procedures, and also update workforce member training.

          Interested parties are encouraged to contact Varnum’s Health Care Team for assistance navigating and complying with the evolving HIPAA Privacy Rules.

          Tennessee and Virginia State Attorneys General Sue the NCAA

          Tennessee and Virginia State Attorneys General Sue the NCAA

          State Attorneys General Allege NCAA’s NIL Regulations Violate Federal Antitrust Law

          The Tennessee and Virginia attorneys general (AGs) filed a joint lawsuit alleging the NCAA’s NIL regulations violate federal antitrust law. In a press release published by Virginia’s attorney general, he stated that both Virginia and Tennessee “allege that the NCAA’s restrictions on the ability of current and future student-athletes to negotiate and benefit from their…[NIL] rights violate federal antitrust law and is harmful to current and future student-athletes.” The lawsuit comes just one day after it was reported that the University of Tennessee is under NCAA investigation for potential NIL violations.

          The current lawsuit also comes roughly three years after the Supreme Court’s Alston decision, which held that the NCAA could no longer prohibit college athletes from earning compensation from their NIL. Following this decision, the NCAA announced interim NIL policies (which remain in effect), in addition to various states and universities that have also enacted their own NIL regulations. Both Tennessee and Virginia’s state legislature enacted their own respective NIL regulations, and both generally provide that the states have an interest in protecting prospective and current college athletes’ NIL opportunities. The states’ NIL statutes also expressly prohibit athletic associations, including the NCAA, from “interfering with athletes’ ability to earn NIL compensation.”

          The lawsuit alleges “the NCAA is thumbing its nose at the law. After allowing NIL licensing to emerge nationwide, the NCAA is trying to stop that market from functioning.” The lawsuit also points to a recent NCAA proposal which permits current athletes to pursue NIL compensation, but bans prospective college athletes from discussing potential NIL opportunities until they enroll at the university. The AGs claim that by “prohibiting such interactions, the NCAA’s current approach restricts competition among schools and third parties (often NIL ‘collectives’) to arrange the best NIL opportunities for prospective athletes.”

          As laid out in the complaint, the AGs assert that the “NCAA has started enforcing rules that unfairly restrict how athletes can commercially use their [NIL]…at a critical juncture in the recruiting calendar.” Currently, Florida State University, the University of Florida, and the University of Tennessee are all under NCAA investigation for potential NIL violations. The AGs assert that the NCAA’s NIL “anticompetitive restrictions violate the Sherman Act, harm the States and the welfare of their athletes, and should be declared unlawful and enjoined.” Importantly, the AGs asked the court for a temporary restraining order and preliminary injunction that would prohibit the NCAA from enforcing its NIL recruiting rules. A decision is expected in the coming days.

          The lawsuit also comes at a time when NCAA President Charlie Baker and other interested parties have pleaded with federal lawmakers to enact federal NIL legislation, which would provide an antitrust exemption allowing the NCAA to govern without being sued for alleged antitrust violations. However, Congress has yet to act.

          Interested parties should contact Varnum’s NIL Practice Team to ensure they are in compliance with applicable (and potentially changing) NCAA, state, and institutional regulations.

          Corporate Transparency Act: Reporting Challenges for Foreign-Owned Companies

          Corporate Transparency Act: Reporting Challenges for Foreign-Owned Companies
          Visit Our CTA Resource Center

          On January 1, 2024, the beneficial ownership information reporting rule (BOI Rule) issued under the Corporate Transparency Act (CTA) came into effect, ushering in new reporting requirements for companies formed in the U.S. or registered to do business in the U.S. (collectively, reporting companies). 

          The CTA and BOI Rule require the collection and disclosure of information identifying the individuals who beneficially own or exercise substantial control over reporting companies. While this task will be a burden for all types of reporting companies, the CTA and BOI Rule pose unique challenges for some foreign-owned companies, which often have complicated beneficial ownership structures, regular changes to management teams, a strong commitment to compliance measures, and a desire to avoid corporate liability and personal liability for members of their management team.

          New CTA Reporting Requirements

          As explained in a prior advisory, the new beneficial ownership information (BOI) reports will include: (a) for the reporting company, the name, trade name, address and employer identification number (EIN) or taxpayer identification number (TIN) of the reporting company; (b) for each individual who beneficially owns or controls 25% or more of the equity of the reporting company or exercises substantial control over the reporting company (each, a beneficial owner), his or her full legal name, date of birth, complete U.S. residential address, and information from (along with an image of) the individual’s unexpired U.S. passport, state driver’s license or other government-issued identification document; and (c) for certain individuals responsible for the formation of a reporting company on or after January 1, 2024, similar information to that required of beneficial owners.

          The CTA and BOI Rule require reporting companies formed or registered to do business in the U.S. on or after January 1, 2024 to file a BOI report with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury within 90 days of its formation or registration (or, if formed or registered to do business in the U.S. on or after January 1, 2025, within 30 days of its formation). Reporting companies formed or registered to do business in the U.S. prior to January 1, 2024 receive a slight reprieve – they need to file a BOI report on or before January 1, 2025.

          Once a reporting company has filed an initial BOI report, it must file an updated BOI report within 30 days of any change in the information required to be reported to FinCEN, including changes to reported BOI.

          Limited Exemptions for Foreign-Owned Companies

          The CTA includes 23 exemptions from the BOI reporting requirements; however, only a handful of them are likely to apply to foreign-owned companies, including the following:

          Large Operating Company

          Entities that directly employ more than 20 full time employees in the U.S., have an operating presence at a physical office in the U.S., and have filed a federal income tax return or information return demonstrating more than $5 million in gross receipts or sales from sources within the U.S. are classified as “large operating companies” and are exempt from BOI reporting. However, any failure to maintain employment or revenue figures will trigger filing requirements. Additionally, the company will need to be the owner or lessee of real property in the U.S., distinct from unaffiliated businesses, at which it conducts business to satisfy the “physical office” requirement—post office boxes and registered agent addresses will not suffice.

          Publicly-Traded Company

          Entities that have issued securities registered under Section 12 of the Securities Exchange Act of 1934 (1934 Act) or that are required to file supplementary and periodic information under Section 15(d) of the 1934 Act are exempt; however, this exemption will not cover entities that are listed only on a foreign exchange that do not have reporting obligations under the 1934 Act.

          Subsidiary of Exempt Company

          Entities whose ownership interests are entirely controlled or wholly owned, directly or indirectly, by certain enumerated exempt entities are themselves exempt, meaning that if a qualifying parent company is exempt, its subsidiaries may also avoid reporting requirements.

          Importantly, no “upward” exemption to BOI reporting requirements exists for holding companies.

          Reporting Challenges for Foreign-Owned Companies

          Foreign-owned reporting companies that are not eligible for an exemption should keep the following issues in mind as they work with advisors to build a compliance plan for CTA reporting:

          Analyzing all Members of Corporate Family

          Foreign companies often establish a U.S. corporate presence by creating a holding company organized under the laws of Delaware or another U.S. state, with operations conducted through one or more subsidiaries. A compliance plan will be necessary for each entity formed under the laws of a U.S. state or registered to do business in a U.S. state to ensure that it is either exempt or that proper measures have been taken to comply with reporting requirements. Because privately held holding companies do not qualify for an exemption, reporting may be required at that level even if operating entities lower in the family tree are exempt as a “large operating company” or (for lower-tier entities) a “subsidiary” of any large operating company.

          Monitoring Triggers for Updates

          1. Some foreign-owned companies rotate executives through director, officer and managerial roles with their U.S. subsidiaries after a limited period of time. These changes will trigger requirements to file updated BOI reports within 30 days of the change. Further, regular changes in U.S. leadership underline the importance of having a compliance plan in place for incoming executives to ensure that all necessary updates to BOI reports are timely filed.
          2. For purposes of filing BOI reports, beneficial ownership of equity is reported by looking through legal entities to identify individual owners or controllers of equity. Changes to a capitalization table of a parent entity organized and operating entirely outside of the U.S. may therefore trigger an obligation to file an updated BOI report in this country.

          Inactive Entities

          Foreign companies may own U.S. subsidiaries that were previously active but no longer conduct substantial business. While there is an exemption from reporting requirements for certain inactive entities, it is not available to companies owned by foreign persons. Owners of inactive entities should consider dissolving these entities prior to the deadline of any BOI report to avoid incurring reporting obligations or penalties for non-compliance.

          Data Protection and Confidentiality

          Reporting companies should consider how they will comply with data protection obligations and confidentiality requirements associated with the collection of personally identifiable information gathered pursuant to the CTA. It may be beneficial to designate a third-party provider to collect and store this information or direct persons to obtain a FinCEN identifier to mitigate risks associated with data protection, which can be costly. Companies may also need to consult local counsel in certain foreign jurisdictions to ensure that the collection and transmission of sensitive data from persons outside the U.S. is conducted in accordance with local law.

          Access to Information for Disclosure

          Foreign-owned reporting companies should consider including language in their formation and governance documents, employment agreements and employee handbooks that requires individuals to provide information necessary to facilitate CTA compliance. As changes to ownership of foreign parents may trigger update reporting obligations, similar measures may need to be considered with respect to parent companies. The reporting company should be prepared to take action to compel such disclosure, where possible, to avoid liability to the company and personal liability to senior officers.

          Penalties for Non-Compliance; Personal Liability for Senior Officers

          Those who disregard the CTA may be subject to civil and criminal penalties. A person who willfully fails to file a correct and complete initial BOI report or an updated BOI report required by law is subject to a fine of $500 per day (up to a maximum fine of $10,000) and is subject to imprisonment for up to two years.  FinCEN has stated that senior officers of entities that willfully violate the CTA and BOI Rule may be held liable under these penalty provisions.

          Varnum’s Corporate Transparency Act Taskforce of attorneys and other professionals can assist you. Contact Greg Wright of our Business and Corporate practice team, any member of Varnum’s CTA Taskforce, or your Varnum attorney to learn more.

           

           

          Under the Regulatory Microscope: Private Investment in Health Care-Related Entities

          Trends and Developments Impacting Health Care Investing

          Although ownership and control of health care providers engaged in the practice of medicine has traditionally been limited to either non-profit enterprises or licensed medical professionals (and their regulated, professional enterprises), the industry in recent decades has seen an escalating infusion of capital from enterprises including private equity firms, and business structures have been created to accommodate funding from non-licensed, for-profit entities. Given the continued for-profit commercialization of health care and its $4 trillion plus market share, it is unlikely such private investment in the health care ecosystem will voluntarily slow in the foreseeable future.

          Recent calls for greater regulatory scrutiny of such investments in certain health care-related entities, such as medical practices and health care systems, further complicate the already complex regulatory landscape for for-profit health care enterprises, their owners and medical professionals.

          Michigan Medical Group Asks Michigan Attorney General to Investigate Ownership of For-Profit Health Care Organizations

          The Michigan State Medical Society, which represents thousands of Michigan physicians, recently sent a letter to Michigan Attorney General Dana Nessel asking her to investigate what it argues are “widespread violations” of Michigan’s Corporate Practice of Medicine doctrine. The Attorney General’s office stated that it is reviewing the allegations and determining if and how to proceed. Whether the Attorney General initiates a widespread investigation of certain health care organizations’ compliance with the Michigan Corporate Practice of Medicine doctrine remains to be seen.

          Michigan Corporate Practice of Medicine Doctrine: The Basics

          Michigan’s Corporate Practice of Medicine doctrine, as explained in more detail in this advisory, prohibits unlicensed individuals from owning entities that engage in the practice of medicine in Michigan. Put differently, most entities intending to operate a medical practice must generally be owned by individuals who hold a license to practice medicine. While there is a recognized doctrinal exception enabling non-profit health care entities, such as certain health care systems, to employ licensed individuals providing medical care, there is no such exception permitting private equity firms and other for-profit entities that are owned by non-licensed persons from owning Michigan medical practices. The basic policy rationale animating this legal principle, which the Michigan State Medical Society highlighted in its letter to the Attorney General, is that patients are best served when medical decisions are made by licensed medical professionals.

          Sophisticated Structuring: The Use of Management Service Organizations

          The Michigan State Medical Society argues in its letter that in part through their unique use of management service organizations (MSOs), private equity firms circumvent Michigan’s Corporate Practice of Medicine doctrine. MSOs, a separately established entity from the medical practice, are a common structuring device that are established to contract with the medical practice to provide non-medical administrative and management services. Frequently, in private equity acquisitions of businesses involved in medical practices, the private equity firm establishes an MSO that it wholly owns. In recognition of the requirements of the Michigan Corporate Practice of Medicine doctrine, the licensed individuals retain ownership of the professional entity that functions as the operating medical practice engaged in the practice of medicine while the MSO manages the business aspects of the medical practice. In effect, the management contract vests MSOs with management rights over the business of the medical practice.

          Federal Regulator Challenges Private Equity Fund’s Health Care Roll-Ups

          Investments in certain health care-related entities by private equity firms and other unlicensed individual investors has also garnered recent attention from federal regulators. On September 1, 2023, the Federal Trade Commission (FTC) initiated a suit against U.S. Anesthesia Partners, the leading provider of anesthesiology services in Texas, and Welsh Carson, a private equity firm that founded U.S. Anesthesia Partners. The FTC alleges Welsh Carson’s roll-up acquisition strategy aimed at consolidating anesthesiology services in Texas to profit from various synergies violates The Clayton Antitrust Act of 1914 and Federal Trade Commission Act of 1914, both antitrust laws designed to halt anticompetitive practices. Lina Khan, the chair of the FTC, explained “[t]he FTC will continue to scrutinize and challenge serial acquisitions, roll-ups, and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.”

          Both licensed medical professionals considering selling their practice and unlicensed investors, including private equity firms, considering investing in the health care sector, should carefully review these latest regulatory developments.

          For assistance navigating the evolving regulatory landscape and ensuring your MSOs are compliant with applicable laws, contact a member of Varnum’s Health Care Team.