Varnum Attorneys Win for Client in Jury Trial Over Business Dispute

A Varnum client received a favorable judgment in Macomb County Circuit Court recently following a jury trial in a dispute over unpaid commissions in a personal transportation company business.

The matter stemmed from the demise of an agreement in which the client agreed to transfer existing accounts to the defendant’s company for an eight percent commission per account. The client was also supposed to receive payments for completing drives for the company and be reimbursed for expenses he incurred as a driver. The defendant failed to pay and ultimately denied any agreement.

The Varnum trial team of Brad Defoe and Jailah Emerson alleged breach of contract, promissory estoppel and unjust enrichment.

Varnum filed suit in January 2020, seeking funds from 2010 to the date of the complaint for work performed. The trial lasted three days and following three hours of deliberation, the jury returned a verdict in the client’s favor for unjust enrichment. The jury award in excess of $255,000 was above the case evaluation award, making the defendant responsible for a significant amount of attorney’s fees.

Separate Property Basics Part III: It’s Yours, But Could Be Mine

This is the final installment in our three-part discussion of separate property in divorce. We previously covered common categories of marital and separate property. This week, we consider how one spouse’s separate property might be “invaded” in divorce.

Invasion of Separate Property

In general, each party will receive their own separate property, without any part going to the other party, and the Court will then seek to make an equitable division of all that remains in the marital estate. But there are two important exceptions wherein the Court may “invade” one spouse’s separate property and divide it up anyway: upon a showing of “substantial need,” or “contribution.”

The “substantial need” exception derives from Michigan statute MCL 552.23(1), which provides that separate property may be invaded if, after division of the marital assets “the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party….” As interpreted by Michigan courts, this means that invasion is allowed when one party demonstrates additional need, such that invading one party’s separate property is necessary to ensure that the other party has sufficient resources to support themselves.[1] 

The “contribution” exception derives from Michigan statute MCL 552.401, which provides that the court may invade separate property when the other spouse “contributed to the acquisition, improvement, or accumulation of the property.” Thus, “[w]hen one significantly assists in the acquisition or growth of a spouse’s separate asset, the court may consider the contribution as having a distinct value deserving of compensation.”[2] A common example of this is a home purchased prior to the marriage but which becomes the marital home after the couple marries. The longer the parties live in the home, the more marital the home becomes. There is no definitive rule as to timing but the theory is that the non-purchasing spouse is contributing to mortgage reduction and upkeep and maintenance.

Another example is closely held company stock that increases in value as a result of both parties’ efforts during in the marriage. In a recent case, the trial court found that certain private stock the husband acquired before marriage was the husband’s separate property and that his efforts working for the company during the marriage contributed to the increase in the value of the stock. The court noted that while the husband worked long hours for the company (as much as seven days a week and 12-hour days), the wife also worked for the company and was fully responsible for the children while the husband worked long hours. The trial court ruled (and the Court of Appeals affirmed) that the wife was entitled to 1/3 of the value of the stock because she contributed to its appreciation not only as an employee of the company, but also by managing “the household and childcare for the couple’s children.”[3]

Separating Expectations from Reality

Anyone contemplating divorce should resist the urge to rely on their gut instinct for determining what property may or may not be subject to division. While the law in this area is relatively clear and often well-reasoned, it may not coincide exactly with what seems fair on a surface level. Things like separate bank accounts or each spouse’s respective earnings may seem like they should be separate, but they are not. In addition, the application of the law will always depend on a judge’s view of the facts: how extensively were funds commingled? Is there substantial need for invasion? How significant was one spouse’s contribution to the other’s separate property? What did the parties really intend to keep separate? Understanding the analysis courts go through is certainly necessary for arguing your case to a judge, but it is also helpful in negotiating a property settlement outside of court. By knowing your legal rights, you know when it makes sense to concede and when it makes sense to push for a better deal.

[1] See Reeves, 226 Mich. App. at 494.
[2] Id.
[3] Sutariya v. Sutariya, No. 345115, 2021 WL 5019330, at *3 (Mich. Ct. App. Oct. 28, 2021)

Registration for H-1B Cap-Subject Petitions Opens in March

The electronic registration process for H-1B cap-subject petitions will open on March 1, 2022 and end on March 20, 2022. U.S. Citizenship and Immigration Services (USCIS) will utilize a random lottery process to select 85,000 petitions for the H-1B cap (65,000 for the general category and 20,000 for the U.S. advanced degree category). Applicants selected in the random lottery will be notified by March 31 and will have until June 30 to submit the H-1B petition for the beneficiary named in the registration. In previous years, USCIS has conducted second and third rounds of the lottery to meet the H-1B cap.

Varnum immigration attorneys have begun to collect information to be prepared for the March registration period. Employers with employees on F-1 Optional Practical Training (OPT) or candidates needing cap-subject H-1Bs should contact us by mid-February for assistance with registration.

Varnum Assists Medical Device Company in Acquisition of Thermal Scalpel

Kalamazoo-based medical device company C2Dx recently announced expansion of the company through its acquisition of Hemostatix, a thermal scalpel blade that seals blood vessels as they are incised. Formerly known as the Shaw Scalpel, the thermal scalpel features a five-layer laminate composition of copper and stainless steel.

Varnum represented C2Dx in all aspects of the transaction, including negotiating the asset purchase agreement and all other legal documents. Pete Roth and Chris George led the M&A team which included John Sturgis (real estate), Staci DeRegnaucourt (intellectual property) and Shawn Strand (tax).

Founded in early 2019 by industry experts, C2Dx invests in and refines the delivery of valuable, niche products to propel their growth and accessibility worldwide. Varnum previously worked with the company in its acquisition of the TPump product line from Stryker Corporation.

US Supreme Court Halts Federal Vaccination Mandate for Employers, but Permits CMS Rule to Take Effect

Today, January 13, 2022 the U.S. Supreme Court issued two significant rulings regarding two of the federal COVID-19 vaccine mandates. First, the Supreme Court stayed the Federal Occupational Safety and Health Administration’s (OSHA) Emergency Temporary Standard (ETS) on COVID-19 for employers with 100 or more employees. This means the ETS is no longer in effect at this time, and employers are not under an obligation to comply with its requirements.

Second, the Court granted the federal government’s request that the preliminary injunctions blocking the Healthcare Centers for Medicare & Medicaid Services (CMS) Interim Final Rule (the “CMS Rule”) in certain states be lifted. This means CMS is allowed to move forward with its rule for healthcare workers nationwide, and that covered employers must comply with the CMS Rule.

The following is an update on the impact of the Supreme Court’s rulings for each rule.


As previously reported, the Supreme Court held an emergency hearing on January 7, 2022 regarding a judicial stay of OSHA’s ETS on COVID-19 for employers with 100 or more employees. Today, the Supreme Court ruled in favor of petitioners granting the judicial stay by a 6 –3 vote, with Justices Roberts, Thomas, Alito, Gorsuch, Kavanaugh, and Barrett voting in favor and Justices Breyer, Sotomayor, and Kagan dissenting.[1]

As a result, enforcement of OSHA’s ETS has been halted pending the disposition of the case in the United States Court of Appeals for the Sixth Circuit.

According to the Supreme Court’s ruling, the petitioners “are likely to prevail” on the merits of their case in front of the Sixth Circuit because COVID-19 impacts all areas of life and not just the workplace. The Supreme Court stated that “[p]ermitting OSHA to regulate the hazards of daily life – simply because most Americans have jobs and face those same risks while on the clock – would significantly expand OSHA’s regulatory authority without clear congressional authorization.”

While the Supreme Court acknowledged that OSHA has some authority to regulate occupation-specific risks related to COVID-19, it does not have such authority when OSHA takes an “indiscriminate approach” and “fails to account for” the crucial distinction between occupational risk and risk more generally.

The Supreme Court’s ruling today means that the ETS is stayed nationwide and that the vaccine and testing requirements for employers with 100 or more employees are blocked from taking effect. While this ruling is not the final decision of the case, such rulings are an indication of how the Supreme Court may ultimately decide should the case appear again in front of the Court. We will continue to monitor whether OSHA continues its efforts to defend the ETS after today’s ruling.

Healthcare Employers: CMS Interim Final Rule

As previously reported, the Supreme Court also held an emergency hearing on January 7, 2022 regarding the U.S. government’s request to issue a stay of the preliminary injunctions that are currently preventing the CMS Rule from taking effect in 25 states.

Today, the Supreme Court ruled in favor of the U.S. government, granting the judicial stay by a 5 – 4 vote, with Justices Roberts, Breyer, Sotomayor, Kagan, and Kavanaugh voting in favor and Justices Thomas, Alito, Gorsuch, and Barrett dissenting.[2]

According to the Supreme Court, the “challenges posed by a global pandemic do not allow a federal agency to exercise power that Congress has not conferred upon it.” However, “[a]t the same time, such unprecedented circumstances provide no grounds for limiting the exercise of authorities [an] agency has long been recognized to have.”

Here, the Supreme Court found that the CMS Rule fell within the authority that Congress had conferred on the Secretary of the Health and Human Services agency. Specifically, the Court stated that Congress has authorized the Secretary of Health and Human Services to “impose conditions on the receipt of Medicaid and Medicare funds” which are “necessary in the interest of the health and safety of individuals who are furnished services.” The Court noted that “COVID-19 is a highly contagious, dangerous, and – especially for Medicare and Medicaid patients – deadly disease.”

The Supreme Court’s ruling today means that the injunctions by the lower federal courts are lifted and the CMS Rule is in effect nationwide. We will have to wait and see if CMS issues any guidance for its compliance dates following the Court’s ruling.

Please contact your Varnum attorney, or any member of the firm’s labor and employment practice team, with questions about how this change will affect your workforce.

[1] National Federation of Independent Business, et al., v. Dep’t of Labor and OSHA, et al. and Ohio, et al. v. Dep’t of Labor and OSHA, et al.
[2] Joseph R. Biden, Jr., President of the United States, et al. v. Missouri, et al. and Xavier Becerra, Secretary of Health and Human Services, et al., v. Louisiana, et al.

Real Estate Transactions Attorney Joseph Bare Joins Varnum’s Naples Office

Varnum is pleased to announce that Joseph Bare has joined the firm’s real estate team in the Naples office.

Bare focuses his practice on real estate transactions from contract though post-closing matters. He frequently works with homeowners’ associations on a variety of issues and disputes. He additionally has a background as a litigator and has handled a variety of civil matters from discovery through trial.

Prior to law school, Bare served in the U.S. Army for more than 20 years, attaining the rank of First Sergeant. He received numerous honors including the Bronze Star (2), the Meritorious Service Medal (2) and the Army Air Medal. He served combat tours in Operation Desert Storm and Operation Iraqi Freedom.

Bare received his law degree from Ave Maria School of Law graduating magna cum laude, and graduated summa cum laude from Hodges University for his undergraduate degree.

To (b) Or Not to (b): Thinking Through a Potential Section 83(b) Election

Recently you came across an exciting startup company that is developing an app for business that could revolutionize an industry. After extensive discussions with its founder and the recognition that your skills could substantially benefit the company, the parties agree that you will soon receive restricted stock that will vest over a period of time in exchange for the valuable services you will provide over a multi-year period. After telling friends at a cocktail party about your exciting opportunity, they mention that you may want to make a section 83(b) election. Until this point you had successfully avoided anything to do with the IRS or tax, but after hearing of potentially “huge tax savings” from friends by simply making this election, you realize that you need to get a better understanding of this election and whether it’s right for you. Fear not, this article is here to help with your decision.

Receipt of Stock for Services

To understand a section 83(b) election, our service provider must first understand the default rule under section 83(a). Under section 83(a), when a service provider receives property in exchange for services, the service provider must recognize income computed as follows:

Fair market value (FMV) of the property received (more on this below) at the earlier of:

(1) the first time the property is transferrable, or

(2) the time the property is not subject to a “substantial risk of forfeiture” (SRF)

LESS: the amount paid for such property. 

An SRF exists if the service provider’s rights to the property (stock in our example) are conditioned on future events, such as future performance of services. For example, if a service provider receives restricted stock that vests 25 percent after one year of service with the remaining 75 percent vesting equally over 36 months, but the unvested stock is forfeited if they no longer provide services as required in the Restricted Stock Agreement, a SRF is in play. Thus, if our service provider above receives unrestricted stock of the company (i.e. can transfer immediately and the stock is not subject to an SRF) in exchange for services, there is no decision to make – they will have taxable income to the extent of the formula above. However, if our service provider receives stock that cannot be transferred and has an SRF, under section 83(a) they will not recognize income until the first tax year in which the stock is either transferrable or no longer has an SRF. That is, unless they make a section 83(b) election.

The Section 83(b) Election

Under section 83(b), a service provider can essentially elect out of the deferral of income under section 83(a) and include it in their gross income in the year the property is transferred. Instead of recognizing income as the stock vests, the service provider recognizes income in the year the stock is transferred to them to the extent, and in the amount, that the fair market value of the stock at the time of transfer exceeds the amount paid for it.

How do I decide whether to make a section 83(b) election?

If you’re asking yourself “why in the world would I trigger tax early that I could pay later?”, that’s certainly an understandable response. They answer lies in what you expect the value of the stock to be when it vests. Let’s return back to our example where vesting occurs 25 percent after one year of service and 75 percent equally over the next three years provided services are still being provided. If the app is currently at the development stage with no revenue and little established value, but you expect development to be completed in the following year with an immediate substantial revenue stream, you have a prime situation where a section 83(b) election may be desirable. By making the election in the year the stock is received and picking up income at that point, the tax burden could be substantially less because it is based off a much lower FMV. On the other hand, if you wait until the stock vests to recognize the income and at that point the value of the company is substantially larger because the app is completed, there is substantial investment in the company, and there is a solid revenue stream, the burden could be substantially larger.

Are there downsides of making the section 83(b) election?  

Unfortunately, the section 83(b) election does not come without risk. As noted before, section 83(b) is only implicated where there is a SRF. Suppose that our service provider made a section 83(b) election because they felt the company had great potential and paid tax based on the current value, but decides to leave the company before it vests. Under that scenario, the service provider cannot take a deduction to offset the income picked up and tax paid in the year they received the stock, even though they never received the unrestricted stock.

When and how do I make a Section 83(b) election?

The timing of the section 83(b) election is crucial – it must be made within 30 days of the transfer of the stock. Thus, the company and the service provider should work together to ensure that this timeline is met. The section 83(b) election must be sent to the same IRS address to which the service provider sends their yearly tax return, and should include all of the following:

  1. Name, address and taxpayer identification number;
  2. A description of the property
  3. The date on which the property was transferred and the tax year for which the election is being made;
  4. Nature of the restrictions the property is subject to;
  5. The fair market value at the time of transfer;
  6. The amount paid for such property, if applicable; and
  7. A statement that any required notices have been furnished by the taxpayer. (For instance, the service provider must provide notice to the company that the section 83(b) election has been filed).

What are the tax implications to the company that issues the restricted stock?

The company that issued the restricted stock can take a deduction to the extent of the income recognized by the service provider in that same year.

Valuation Issues Pertaining to Section 83

Under section 83, whether income is recognized as the stock vests or done up front via a section 83(b) election, the FMV of the property must be computed without regard to any restriction other than a restriction on the property that never lapses. Thus, the service provider cannot reduce FMV for discounts and other items that reduce value.

Additionally, startups often issue restricted stock at a stage when it’s very difficult to determine the fair market value of the company, such as when the underlying IP is still in development or where there are little to no sales yet. The IRS standard for valuation is provided in Revenue Ruling 59-60, which states that FMV is “(t)he amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” Absent a buyer who comes forward to buy the company at a set price or other financial information (e.g, revenue numbers, etc.) that can establish a value that will satisfy Rev. Rul. 59-60, the service provider will have to work with the company to determine a proper value for the restricted stock. This could be satisfied, for instance, if the company is in the process of issuing securities or just completed a round to investors by using the valuations done in conjunction with those securities to determine FMV. It is important to note that if the service provider uses a value for determining their income from the section 83(b) election that differs from amounts used by the company for its activities, the IRS could use such documentation to support an income adjustment to the service provider.

Ultimately, if a section 83(b) election is made in the proper circumstances, it can generate substantial tax savings to the service provider, and an earlier tax deduction for the service recipient. It is important to note that there are additional nuances and restrictions in section 83 and the underlying authority that must be understood to reach the proper conclusion of whether to pursue such an election.

Varnum LLP advises businesses at all stage of development on issues including taxation, corporate, regulatory, employee benefits, mergers and acquisitions, and succession planning. Please contact us to set up a consultation.

Federal Vaccine/Testing Mandates Take Effect While Supreme Court Stays Silent

UPDATE: US Supreme Court Halts Federal Vaccination Mandate for Employers, but Permits CMS Rule to Take Effect

Today, January 10, 2022, the Federal Occupational Safety and Health Administration’s (OSHA) Emergency Temporary Standard (ETS) on COVID-19 for employers with 100 or more employees takes effect. Although many had anticipated that the U.S. Supreme Court might rule on the legality of the OSHA ETS prior to today, the Court’s failure to do so means that covered employers should be prepared to comply. A full discussion of the ETS’s requirements is available in our previous advisory: Here We Go Again: Sixth Circuit Lifts Stay of OSHA COVID-19 ETS for Employers With 100 or More Employees. Additional guidance from MIOSHA late last week suggests that covered employers in Michigan may have an additional two-week period, until January 24, 2022, to come into full compliance.


On Friday, January 7, 2022 the Supreme Court heard expedited oral arguments regarding judicial stays facing two federal vaccine mandates concerning COVID-19: OSHA’s ETS on COVID-19 for employers with 100 or more employees and the Healthcare Centers for Medicare & Medicaid Services (CMS) Interim Final Rule (the “CMS Rule”) covering certain health care providers.

While many had anticipated some sort of preliminary ruling or even a stay of one or both mandates by today, as of the time this advisory was published there had been no ruling on either issue from the Supreme Court.

OSHA ETS and Recent MIOSHA Action

As previously reported, the U.S. Court of Appeals for the Sixth Circuit recently lifted a judicial stay that had previously prevented the implementation of OSHA’s ETS for employers with 100 or more employees. OSHA responded to this ruling by issuing new compliance dates for the ETS: Covered employers were given until today, January 10, 2022, to comply with all provisions, except for the testing requirement for unvaccinated employees. The testing requirement was rescheduled to take effect on February 9, 2022.

Several petitioners filed immediate emergency appeals to the Supreme Court asking the Court to reinstitute the judicial stay, pending a full hearing and decision on the matter. The Supreme Court granted the request and held an emergency hearing this past Friday, January 7, 2022 regarding a judicial stay of the ETS.

However, as of today, January 10, the Supreme Court has not yet issued a ruling. That means the federal ETS is in effect and will proceed according to the new compliance dates announced by OSHA, pending the Supreme Court’s disposition of the case. You can find a full discussion of those requirements in our previous advisory.

In the meantime, late last week the Michigan Occupational Safety & Health Administration (MIOSHA) issued a statement indicating that OSHA was not requiring states with state plans like Michigan to adopt the ETS or an equivalent until January 24, 2022. MIOSHA stated it is closely monitoring the status of legal challenges to the OSHA ETS while preparing for its deadline to adopt. You can read MIOSHA’s full announcement on the website: Labor and Economic Opportunity – COVID-19 Workplace Safety. This suggests that in Michigan at least, MIOSHA may not start enforcing the requirements of the OSHA ETS until January 24. Due to the lack of clarity, however, employers are urged to come into compliance with the OSHA ETS as soon as possible.

Healthcare Employers: CMS Interim Final Rule

As previously reported, on November 30, 2021 a federal judge in Louisiana issued a preliminary injunction to block the start of the CMS Rule, which applies to certain healthcare entities. The injunction from the Louisiana federal district court applied nationwide except for the ten states that were already under a preliminary injunction order issued on November 29 in Missouri.

On December 15, 2021 a three-judge panel for the U.S. Court of Appeals for the Fifth Circuit ruled that the lower Louisiana federal court only had the authority to block the mandate in the 14 states that had actually filed suit. The following day, a federal court in Texas granted a preliminary injunction to enjoin CMS from enforcing is vaccine mandate in Texas. Thus, the CMS mandate has been blocked from enforcement in 25 states but remains in effect in the remaining 25 states, including Michigan. On December 28, 2021, the CMS updated its FAQs indicating it is moving forward with implementation of the CMS in the 25 states not subject to the Stay and modified its compliance timeline to January 27, 2022 for phase one and February 28, 2022 for phase two. See External FAQ IFC-6 Guidance Memo 12 28 21 226 (508 Compliant).

The U.S. government applied to the Supreme Court asking for a nationwide stay of the injunctions issued by the lower federal courts, pending full review by the lower Circuit courts. The Supreme Court granted the request and also held an emergency hearing on the CMS Rule this past Friday, January 7, 2022.

Again, however, we have heard nothing further from the Supreme Court. Thus, the CMS Rule remains blocked in 25 states as of today, but continues on in the other 25 states.

Please contact your Varnum attorney, or any member of the firm’s labor and employment practice team, with questions about how these legal developments will affect your workforce and advice for bringing your organization into compliance with these mandates.

Varnum Represents Detroit Beverage Manufacturer in Business Dispute Win

Varnum recently defended a Detroit-based beverage manufacturer in a breach of contract dispute, resulting in a big win when $650,000 of alleged claims were dismissed by the Oakland County Circuit Court following Varnum’s Motion for Summary Disposition. Varnum also successfully settled the client’s countersuit.

The Varnum team was led by Sarah Wixson and included Jordan Giles. Varnum client Ellis Isle, which produces and distributes Ellis Isle teas and other beverages, is the largest black, female-owned beverage distributor in the U.S.

Varnum Partner Gabriel Edelson Selected for Leadership Detroit Class XLII

Varnum attorney Gabriel Edelson has been selected to participate in the Detroit Regional Chamber’s Leadership Detroit program, a transformational leadership course designed to challenge emerging and existing community leaders from Southeast Michigan.

Edelson is a member of Varnum’s Business and Corporate Services Practice Team. Based in the firm’s Birmingham office, he represents private equity firms, portfolio companies and a wide variety of other businesses in cross-border and domestic mergers and acquisitions, divestitures, corporate governance and general corporate matters.

Within the community, Edelson serves as Chief Protocol Officer on the Board of Directors for the Founders Junior Council at the Detroit Institute of Arts. He is also active in the Michigan Region of ORT America, serving on the organizing committee for the annual Rub-a-Dub fundraiser.

Leadership Detroit is a community leadership program for executives in Southeast Michigan. Launched in 1979, the program aims to create awareness of key issues that affect the Detroit region and to challenge emerging and existing community leaders to bring about positive change in the community through informed leadership.

The 2022 program will include nine in-person sessions featuring relationship-building activities and discussions by local experts and leaders as well as eight virtual sessions to cultivate leadership development.