By Sandra Feldman

This edition of the Quarterly State Compliance Review looks at some legislation of interest to corporate lawyers that went into effect between Aug. 1 and Oct. 1, including amendments to Dela-ware’s corporation and LLC laws. It also looks at some recent cases of interest, including decisions from the Delaware and Nevada Supreme courts on a corpora-tion’s attorney-client privilege.

IN THE STATE LEGISLATURESDE AmENDS ITS CoRpoRATIoN AND LLC LAwS

House Bill 329 amended the General Corporation Law. The amendments went into effect on Aug. 1 and include:

Secs. 103 and 108 were amend-ed to state that if an incorporator is unavailable to sign a document or take actions to organize the corporation, a person for whom or upon whose behalf the in-corporator was acting may sign or take the action. Sec. 141 was amended to allow a person, not yet a director, to consent to an ac-tion that will be effective for up to 60 days in the future, and have the consent be deemed effective as long as the person is a director on the future effective date. Sec. 228 makes a similar amendment regarding consents by stockhold-ers and other persons.

By Robert A. Naeve

Title III of the Americans with Disabilities Act, 42 U.S.C. §§ 12181-12189 (ADA or Title III) prohibits retailers and other businesses that transact business with the public from “discriminating” against individuals with

disabilities. The statute is broadly worded to prohibit a wide range of discrimina-tory practices, and has been the subject of literally thousands of individual and class action lawsuits seeking to change how the business community deals with individuals with disabilities. Congress enacted the ADA “to remedy widespread discrimination against disabled individuals.” PGA Tour, Inc. v. Martin, 532 U.S. 661, 674 (2001). The salutary effect of the ADA cannot be understated. However, many business owners and operators might, at the same time, rightly ask whether there are any limits to the Act’s reach. Jancik v. Redbox Automated Retail, LLC, 2014 U.S. Dist. LEXIS 67223 (May 14, 2014) explores one such limit — the so-called “special products exception.”

ovERvIEw of TITLE III of THE ADAWe begin with first principles. As is relevant here, Title III prohibits discrimina-

tion by public accommodations generally, by providing that “[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.” 42 U.S.C. § 12182(a). The term “public accommodation” is defined to include most retail and service establish-ments and other businesses that are open or provide services to the public. 42 U.S.C. § 12182(7)(A)-(L).

Congress also enacted “rules of construction” to provide guidance in inter-preting this catch-all rule. Among other things, Title III prohibits discrimina-tion in the provision of goods, services and facilities in general, and to provide unequal goods, services and facilities to individuals with disabilities in particular.

In This IssueJancik v. Redbox ...... 1

Quarterly State Compliance Review .. 1

Extraterritoriality And Whistleblowers .. 3

Compliance and the Workforce .............. 5

Dress Codes ........... 7

UK Fraud ................ 9

PERIODICALS

Volume 29, Number 7 • October 2014

Corporate Counselor®

The

continued on page 8

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Quarterly State Compliance Review

Jancik v. Redbox Automated RetailThe Scope of the ADA’s Special Products Exception

2 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

EDITOR-IN-CHIEF . . . . . . . . . . . . Adam J . SchlagmanEDITORIAL DIRECTOR . . . . . . . . Wendy Kaplan StavinohaMARKETING DIRECTOR . . . . . . . Jeannine KennedyGRAPHIC DESIGNER . . . . . . . . . . Evelyn Fernandez

BOARD OF EDITORSJONATHAN P . ARMSTRONG . . .Cordery London, UKSTEVEN M . BERNSTEIN . . . . . Fisher & Phillips, LLP Tampa, FLVICTOR H . BOYAJIAN . . . . . . .SNR Denton Short Hills, NJJONATHAN M . COHEN . . . . . Gilbert LLP Washington, DCELISE DIETERICH . . . . . . . . . .Kutak Rock LLP Washington, DCDAVID M . DOUBILET . . . . . . . . Fasken Martineau DuMoulin, LLP TorontoSANDRA FELDMAN . . . . . . . . CT Corporation New YorkWILLIAM L . FLOYD . . . . . . . . McKenna Long & Aldridge LLP AtlantaJONATHAN P . FRIEDLAND . . . Levenfeld Pearlstein LLP ChicagoAEGIS J . FRUMENTO . . . . . . . Stern Tannenbaum & Bell LLP New YorkBEVERLY W . GAROFALO . . . . Jackson Lewis LLP Hartford, CTROBERT J . GIUFFRA, JR . . . . . Sullivan & Cromwell LLP New YorkHOWARD W . GOLDSTEIN . . . Fried, Frank, Harris, Shriver & Jacobson New YorkROBERT B . LAMM . . . . . . . . .Attorney Boca Raton, FLJOHN H . MATHIAS, JR . . . . . . Jenner & Block ChicagoPAUL F . MICKEY JR . . . . . . . . . Steptoe & Johnson LLP Washington, DCELLIS R . MIRSKY . . . . . . . . . . Mirsky and Associates, PLLC Tarrytown, NYREES W . MORRISON . . . . . . . Altman Weil, Inc . Princeton, NJE . FREDRICK PREIS, JR . . . . . . Breazeale, Sachse & Wilson, L .L .P . New OrleansTODD PRESNELL . . . . . . . . . . Bradley Arant Boult Cummings LLP Nashville, TNSEAN T . PROSSER . . . . . . . . . Morrison & Foerster LLP San DiegoROBERT S . REDER . . . . . . . . . Milbank, Tweed, Hadley & McCloy LLP New YorkERIC RIEDER . . . . . . . . . . . . . Bryan Cave LLP New YorkDAVID B . RITTER . . . . . . . . . . Neal, Gerber & Eisenberg LLP ChicagoMICHAEL S . SIRKIN . . . . . . . . Proskauer Rose LLP New YorkLAWRENCE S . SPIEGEL . . . . . Skadden, Arps, Slate, Meagher & Flom LLP New YorkSTEWART M . WELTMAN . . . . . Fishbein Sedran & Berman Chicago

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See generally, 42 U.S.C. § 12182(b)(1)(A). In addition, Title III generally requires public accommodations to provide “auxiliary aids and services” “as may be necessary to ensure that individuals with disabilities are not treated differently than other individ-uals because of the absence of auxil-iary aids and services,” unless doing so would “fundamentally alter” the nature of the good, service or facility being offered, “or would result in an undue burden.” 42 U.S.C. § 12182(b)(2)(A)(iii).

How far do these rules extend? Is it possible to conclude that a re-tailer or other public accommoda-tion fails to provide “full and equal enjoyment” to its goods and services unless it takes steps to ensure that the goods it provides are themselves accessible to individuals with dis-abilities? When must a retailer pro-vide “auxiliary aids” to assist custom-ers and member of the public use its goods and services? The federal Dis-trict Court’s decision in Jancik v. Red-box Automated Retail, LLC, 2014 U.S. Dist. LEXIS 67223 (C.D. Cal. 2014) explores these important questions.

Jancik v. Redbox AND THE ‘SpECIAL GooDS ExCEpTIoN’

In Jancik, plaintiff Francis Jan-cik obtained movies in DVD for-mat from the ubiquitous “Redbox Retail Kiosks” — self-service au-tomated machines that allow cus-tomers to rent and return DVDs for home viewing. However, Mr. Jancik is deaf, and claimed that he could not fully enjoy Redbox DVDs be-cause too few of them were closed-captioned. He asked Redbox Retail, the owner and operator of the ki-osks, to accommodate his disability by providing a greater number of closed-captioned DVDs at its kiosks. Redbox Retail allegedly declined to do so. In response, Jancik filed a federal lawsuit against Redbox Re-tail and others, claiming in part that

the company violated Title III of the ADA, as well as a number of related state laws, by failing to sell DVDs with closed captioning.

Jancik argued in his lawsuit that, by failing to rent closed-captioned videos from its kiosks, Redbox Re-tail failed to provide “full and equal access” to its goods and services as required by Title III. He also claimed that “by mandating the provision of auxiliary aids and services, the ADA requires businesses to sell goods that carry auxiliary aids and services to ensure that the physical access is meaningful, and that closed caption-ing is an example of such an auxil-iary aid.” Id. 2014 U.S. Dist. LEXIS 67223 at *9.

The district court rejected most of Jancik’s claims. Invoking what is typically referred to as the “spe-cial goods exception” to Title III, the court emphasized the important distinction between a public accom-modation’s obligation to provide “access to” its goods and services, which is generally required by Title III, and the alleged obligation to make the goods themselves acces-sible, which is not. The court ex-plained that “The core meaning of Title III, plainly enough, is that the ADA requires equal access to places of public accommodation — not equally valuable goods and services available at the public accommoda-tion.” Id. at *9 (quoting Arizona Ex rel. Goddard v. Harkins Amusement Enters., Inc., 603 F.3d 666, 671 (9th Cir. 2010). The court generally rec-ognized that Title III does not obli-gate a covered public accommoda-tion to “alter its inventory to include accessible or special goods that are designed for, or facilitate use by, in-dividuals with disabilities,” id. at *12 (quoting 28 C.F.R. § 36.307(a)), and illustrated its holding as follows:

The common sense of the stat-ute is that the content of the goods … offered by a place of public accommodation is not regulated. A camera store may not refuse to sell cameras to a disabled person, but it is not re-quired to stock cameras special-ly designed for such persons. Had Congress purposed to

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Robert A. Naeve is a partner at Jones Day in the firm’s Irvine, CA, office. He can be reached at rnaeve@jonesday.com.

October 2014 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor 3

By R. Scott Oswald and Tom Harrington

Though whistleblower protec-tion statutes take many forms, the frameworks for determining liability are really quite similar. Generally speaking, an employee must first demonstrate that he or she engaged in protected conduct under an act. Next, the employee may be required to prove that the employer actually knew about the employee’s pro-tected conduct. Third, the employer must take some sort of adverse per-sonnel action against the employee. Finally, the employee must demon-strate that his or her protected con-duct was causally related to the ad-verse employment action.

In-house counsel for multina-tional corporations and counsel for foreign plaintiffs often must deal with an even more preliminary is-sue than any of those cited above. Specifically, can overseas whistle-blowers avail themselves of United States whistleblower protection laws? If so, under what circumstanc-es? How can corporations protect themselves against claims of retali-ation from company whistleblowers located outside the United States? An answer one way or the other may render meaningless arguments about, for example, whether an em-ployee’s conduct should be deemed protected or the appropriate causa-tion standard to be applied. Indeed, understanding the extraterritoriality issues in international whistleblow-er cases is absolutely critical inso-far as it may provide an avenue for defense counsel to seek a dismissal early in litigation.

MoRRison v. national austRalian bank, ltd.

In 2010, the Supreme Court de-cided the case of Morrison v. Na-tional Australia Bank. 130 S. Ct. 2869 (2010). Relying heavily upon a presumption against extraterritorial application, the Court established a two-part test to determine whether extraterritorial application is appro-priate. Setting the Stage

The Morrison case involved a lawsuit by shareholders in Australia against National Australian Bank, Ltd. (National), Australia’s largest bank at the time of the suit. Morri-son, 130 S. Ct. at 2875. In 1998, Na-tional purchased HomeSide Lending, Inc. (HomeSide), a mortgage servic-ing company in Florida. Id. Over the next several years, National, through its annual reports and public state-ments from company officers, dis-cussed the success of HomeSide’s business. Id. In mid-2001, however, National announced a more than $2 billion dollar write-down in the val-ue of HomeSide’s assets. Id. at 2876. Shareholders, upset about the write-down, accused National of intention-ally manipulating HomeSide’s finan-cial models to make the company’s assets to appear more valuable than they actually were. Id. The share-holders, again residents and citizens of Australia, filed a complaint in the Southern District of New York, alleg-ing violations of §§ 10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5. Id.

The district court dismissed the complaint for lack of jurisdiction, finding that the acts in the United States were, “at most, a link in the chain of an alleged overall securi-ties fraud scheme that culminated abroad.” In re National Australia Bank Securities Litigation, No. 03 Civ. 6537(BSJ), 2006 WL 3844465, *8 (S.D.N.Y., Oct.25, 2006). The Court of Appeals for the Second Circuit af-firmed the dismissal. 547 F.3d 167, 175 (2d Cir. 2008).

SCoTUS ESTAbLISHES A Two-pART INqUIRy

Justice Antonin Scalia began the majority opinion by noting the “long-standing principle of American law

‘that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial ju-risdiction of the United States.’” Id. at 2877 (quoting EEOC v. Arabian American Oil Co., 449 U.S. 244, 248 (1991)). He went on to state that, “un-less there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily con-cerned with domestic conditions.” Id. Scalia criticized the Second Circuit’s “effects” and “conduct” tests, finding that its framework disregarded the presumption against extraterritorial-ity and that the tests became overly cumbersome in their application. Id. at 288-80.

The Court went on to discuss what has essentially become a two-part inquiry. First, the relevant stat-ute should be examined for “a clear statement of extraterritorial effect.” Id. at 2883. Noting that a statute need not explicitly state, “this law applies abroad,” the Court endorsed look-ing to “whatever sources of statu-tory meaning one consults to give ‘the most faithful reading’ of the text.” Id. Such a framework, in the Court’s view, was more faithful to the presumption that federal law is not meant to have extraterritorial effect.

In a paragraph that could be writ-ten by no one but Justice Scalia, the Court acknowledged the fact that, in most cases, some contact with the United States is inevitable:

For it is a rare case of prohib-ited extraterritorial application that lacks all contact with the territory of the United States. But the presumption against ex-traterritorial application would be a craven watchdog indeed if it retreated to its kennel when-ever some domestic activity is involved in the case. The con-currence seems to imagine just such a timid sentinel, but our cases are to the contrary.Id. at 2884. (internal citations

omitted).The Court went on to discuss

“the focus” of the Exchange Act as regulating transactions in securities listed on domestic exchanges. Ulti-mately, it concluded that under “the

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Extraterritoriality And Whistleblower RetaliationCrossing the Line

Tom Harrington and R. Scott Oswald are principals of The Em-ployment Law Group, P.C., a law firm that represents employees who have experienced retaliation by their employers for whistleblowing activity.

4 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

transactional test we have adopted — whether the purchase or sale is made in the United States, or in-volves a security listed on a domes-tic exchange,” the statute did not al-low for extraterritorial application. Id. (emphasis added).

fALLoUT fRom MoRRison IN THE ARb

The next major decision in extra-territoriality application for whis-tleblowers came from the Admin-istrative Review Board (ARB) in Villanueva v. Core Laboratories NV, 2009 ARB CASE NO. 09-108, 2011 WL 6981989 (Dec. 22, 2011). William Villanueva is a Colombian national who, during the relevant period, was living and working in Bogota. Id. at *2. The company’s ownership structure is a bit complex. Villan-ueva worked for Saybolt Columbia, a Colombian company that is 95% owned by Saybolt Latin America B.V., a Netherlands company, and 5% owned by a Colombian national. Say-bolt Latin America is, in turn, owned by Saybolt International B.V., also a Netherlands company. Saybolt Inter-national is a wholly owned subsid-iary of defendant Core Laboratories, a United States company. Id.

In a complaint under Section 806 of the Sarbanes Oxley Act (SOX), Villanueva alleged that Core Labora-tories “orchestrated a ‘transfer price fixing scheme’” whereby Core Labo-ratories Sales, an offshore subsid-iary of defendant Core Laboratories, received a percentage of Saybolt Co-lombia’s generated revenues even though Core Laboratories Sales pro-vided no services on the contract. Villanueva alleged that this scheme led to an under-reporting of taxable revenue to the Colombian govern-ment. Id. Skeptical of the scheme, Villanueva, Saybolt Colombia’s Gen-eral Manager, reported his concerns to various individuals both within and external to Core Labs. Ultimate-ly, he refused to sign the tax returns that were due to the Colombian government. Id.

Villanueva claimed that, as a re-sult of his disclosures, Core Labs retaliated against him by failing to

provide him a pay raise and then terminating his employment. He as-serted that the Core Laboratories’ Regional Manager and Saybolt Latin America’s President, both located in Houston, TX, were the individuals responsible for the decision.

Villanueva required the ARB to decide whether Section 806 of SOX was to be given extraterritorial ap-plication. Turning the Morrison test around, the ARB first sought to de-termine Congress’s focus when enacting SOX, and found it to be “prevent[ing] and uncover[ing] finan-cial fraud, criminal conduct in corpo-rate activity, and violations of secu-rities and financial reporting laws.” Id. at 10-1. The ARB found that “the alleged fraud … involved Colombian laws with no stated violation or im-pact on U.S. securities or financial disclosure laws” and that, as a result, Villanueva’s complaint did not fall within the statute’s focus. Id. at 11. To prevail, Villanueva would need to demonstrate that § 806 “included extraterritorial laws within its defini-tion of protected activity.” Id.

The ARB then looked to the plain text of § 806 and found no clear in-dication that it embraced commu-nications about foreign securities and tax law as protected activity. Id. at 11. It next compared § 806’s language with that of other statutes already dealt with by federal courts in the determining extraterritoriality application. The ARB noted that in many other statutes that contained even stronger indications of extra-territoriality intent, the presumption against extraterritoriality could not be overcome. Id. at 11-12. Finally, the ARB noted that the Dodd-Frank act expressly extended coverage of some aspects of SOX to foreign transactions but remained silent as to the extraterritoriality of § 806’s anti-retaliation provision. Id. at 12.

In sum, Villanueva provides sev-eral key takeaways for practitioners. To begin, the second step of Morri-son (but the first in Villanueva) re-quires looking at the “primary focus” of the statute in general and then the “additional focus” of the anti-retaliation provision. Then, the ARB will look to the “labor elements” to determine whether the statute’s ter-ritorial scope implicates the subject

matter of the complaint (in Villan-ueva, the ARB noted that the labor elements were so obviously extra-territorial such that extensive treat-ment was not necessary).

Moreover, the ARB’s decision seems to advocate for more of a case-by-case assessment of the facts and labor factors as opposed to bright-line tests. It noted the follow-ing could be factors in determining whether a complainant’s claim would require extraterritorial application (at least under SOX): location of the protected activity, location of the job, location of the retaliatory act, and the nationality of the laws allegedly violated for which the complainant has been fired for reporting. Id. at FN 22. The ARB also noted that the fraudulently activity being reported was “the driving force of the case,” was “solely extraterritorial,” and therefore “[took] the events outside Section 806’s scope.” Id. Again, this factor-based approach and acknowl-edgement that, depending upon the circumstances of the case, some fac-tors may be more important than others steps away from the bright lines of Morrison.

CoNCLUSIoNExtraterritorial application in

whistleblower cases requires a unique inquiry into the statute at is-sue and the facts of a given case. After reviewing the explicit text of the governing statute and confirm-ing that there is no language stat-ing that “this law applies abroad,” counsel must be prepared to take a deep dive into the “focus” of the law’s anti-retaliation provisions and, under Villanueva, the broader pur-pose of the law, itself.

From a factual perspective, it be-hooves defense counsel to demon-strate the extent to which the facts of the case are removed from the United States and, at least in ad-ministrative proceedings within the Department of Labor (DOL), frame the dispute as being “driven” by some factor that occurred abroad. Conversely, plaintiff’s counsel could (and certainly should) try to put Justice Scalia’s “craven watchdog” back in its kennel. In a best-case sce-nario, the plaintiff will want to argue

Extraterritorialitycontinued from page 3

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October 2014 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor 5

By Daniel de Juan

A strong workplace compliance and ethics program offers many benefits for any organization. Such a program defines expectations for employee conduct, creates a safer workplace, improves employee re-tention, addresses risk in order to protect the company, and — per-haps most important — establishes a culture of compliance.

But there is a world of difference between creating a compliance and ethics program and effectively imple-menting one so that employees actu-ally engage with it and adhere to it. A scan of the business news headlines reveals no shortage of malfeasance that breaches regulatory and ethical standards. For example, violations of the U.S. Foreign Corrupt Practices Act (FCPA) create headlines based on the large sums companies pay in fines and disgorgements. FCPA viola-tions alone accounted for $4.63 bil-lion in settlement payments between 2007 and 2013 from enforcement ac-tions by the U.S. Department of Jus-tice (DOJ) and Securities Exchange Commission (SEC). See Koehler, Mike, A Foreign Corrupt Practices Act Narrative. Mich. State Int. Law Rev. 22.3 (2014): 961-1094. The FCPA is but one of the numerous laws and regulations that corporations are subject to and against which cor-porate infractions are reported on a seemingly weekly basis.

While the Ethics Resource Center, in its 2013 National Business Ethics Survey, reported that the percent-age of employees who said that they have “observed misconduct on the job” dropped to the lowest in the survey’s history: 41%, or two out of every five workers, this is still a sig-nificant number. And more than one of every three of these individuals did not report the observed miscon-

duct. Perhaps the most encouraging findings to support the impact that compliance and ethics programs can have are: In companies judged to have a “strong” ethics cultures, only one in five workers said they saw misconduct, while in companies with the weakest ethics cultures, close to nine in 10 employees observed mis-conduct. See National Business Eth-ics Survey of the U.S. Workforce. Eth-ics Resource Center (ERC), 2014.

With these things in mind, how can you be more successful in compelling employees at all levels of your orga-nization to get on board with your workplace compliance and ethics standards? This challenge becomes more complicated when you con-sider that you have employees from different age groups and generations, as well as diverse cultures. Both of these factors can have an impact on the way that different employees con-sume and retain information.

This article outlines two key tac-tics for effectively executing and nurturing a strong workplace com-pliance and ethics strategy. The first is fostering employee engagement. The second involves deploying the right technology tools to drive and support this.

CompLIANCE AND ETHICS: THE INCoNvENIENT TRUTH

Granted, many organizations al-ready have embraced strong work-place compliance and ethics ideals. These days, most companies not only have a code of conduct, but also some level of associated compliance and ethics programs in place. How-ever, the inconvenient truth is that many programs that are considered effective or look great on paper may not always compel employees to comply and act ethically.

Seemingly endless vulnerabilities and risks related to unethical or non-compliant employee or third-party activities can threaten today’s global businesses. Whether they are due to carelessness, lack of aware-ness or understanding, or willful disregard, employee and third-party actions that violate internal or exter-nal policies and rules can have seri-ous implications for the business. It is critical that employees and third parties understand and internalize

their compliance obligations. Failure to adhere to company standards of customer service, for example, can lead to customer dissatisfaction, and in extreme cases, loss of customers, negative publicity, or even legal ac-tion. Violations of industry and gov-ernmental rules and regulations can lead to fines as noted earlier, poten-tial criminal prosecution, damage to reputation and brand, diminished shareholder confidence, and other serious repercussions.

Needless to say, there is no short-age of these externally-imposed rules and regulations, including those under the FCPA, the Consum-er Financial Protection Bureau, the Environmental Protection Agency (EPA), HIPAA, and more. With regu-lators becoming more vigilant and aggressive than ever, it behooves companies to ensure that their em-ployees understand the importance of compliance.

But there is good news. A robust compliance and ethics program can provide real strategic benefits, not the least of which is that regulators suggest that such a program can be employed as a viable defense for one-off violations.

THE STATUS qUo IS NoT GooD ENoUGH

Michael Rasmussen, founder of GRC 20/20 Research and recog-nized authority on all things related to governance, risk, and compliance (GRC) management, asserts that in order to be effective, companies need to move away from a “check-the-box” mentality for compliance and ethics. Instead, they need to find ways to truly connect with em-ployees and show that compliance and ethics are an integral part of day-to-day operations of the busi-ness. See Rasmussen, Michael, Em-ployee Engagement in the Context of GRC: Bringing GRC to the Coal-Face. The GRC Pundit Blog, GRC 20/20 Research, 29 Oct. 2013.

Why haven’t traditional programs been effective enough? Rasmussen suggests that this is because compa-nies have neglected how front-line employees experience these pro-grams. The programs are too often

continued on page 6

Compliance, Ethics and the Multi-generational Workforce

Daniel de Juan is director of prod-uct management for Datacert’s, Passport GRC.

6 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

highly disorganized and lack coordi-nated communications. Rather than being engaged, employees tend to be confused and alienated, and view required compliance-related tasks as a waste of valuable time. In many companies, for example, there is no single source for policies or related training materials and surveys. Em-ployees may receive compliance-re-lated communications from multiple departments in the organization. In such an environment, how are em-ployees to know, for example, which policies are the most current, where to find a specific policy that they are looking for, or whether the policy-related notices and task requests that they receive truly apply to them?

How To ENAbLE ENGAGEmENT

How can organizations better fos-ter employee engagement in their compliance and ethics programs?

As has been widely recognized, this starts with the tone at the top. Se-nior leaders must make compliance and ethics important components of who they are, how they operate, and how they treat employees, busi-ness partners, and customers. Tone at the top is vital for empowering a culture of compliance and enabling the compliance function to act with enterprise-wide authority.

To support this culture, employ-ees need to be made aware of their compliance and ethics responsibili-ties as part of their overall job to make both themselves and the orga-nization successful. This idea can be woven into performance goals and evaluations to help make compli-ance and ethics more personal and meaningful to employees.

Companies should also create opportunities and offer technology tools that encourage employees to actively interact and participate with compliance and ethics programs. For example, employees need to go beyond simply reading policies, but must also understand them, be able to provide feedback, and know how to ask questions about policies to trusted sources.

In talking about employee en-gagement, Rasmussen emphasizes the importance of the user experi-ence with the tools that support ethics and compliance programs. He cites four elements as key for systems to engage employees: 1) In-tuitive interface design; 2) Socializa-tion and collaboration; 3) Gamifica-tion; and 4) Mobility.

As companies seek to more ef-fectively engage employees in their ethics and compliance programs, they must also consider the chang-ing workplace demographics. More Americans are retiring later in life. Today 18% of U.S. workers are over age 65, according to the U.S. Bu-reau of Labor Statistics. This means that many companies have to con-sider designing compliance and eth-ics programs to reach four different generations of employees, often la-beled as Traditionalists, Baby Boom-ers, Gen-X, and Gen-Y or Millenni-als. The latter, in particular, pose new challenges for ethics and compliance leaders who are seeking to educate, motivate — and engage — workers.

As “digital natives,” they are very tech-savvy and socially networked. They want work to be involving and meaningful, and are accustomed to sharing information through a va-riety of social media technologies. The compliance and ethics pro-grams that companies implement — and the technology solutions that they deploy to support them — must take all of this into account.

INNovATIvE GRC TECHNoLoGy AT THE TAbLE

To successfully support and en-able employee engagement, it’s im-portant to use technology tools that effectively deliver compliance and ethics content and that reflect the new reality of a socially connected workforce. So what should you look for when choosing this technology?

First, technology tools should min-imize complexity and be straight-forward and intuitive to use (with minimal training required) and graphically interesting. For example, a secure portal for compliance and ethics can serve as a central reposi-tory where employees and third par-ties can read and attest to applicable

company policies and respond to policy surveys. Look for a portal that provides a clear, personalized inter-face and user experience. It should enable employees to locate specific policies, access helpful resources, submit policy-related comments and questions, and access information on their progress.

Next, seek out tools that embed opportunities for social interactions and collaboration among users, and that include gamification elements. For example, some portals have so-cial features similar to those users are accustomed to in the apps and programs they use outside work. Some of these features include on-line profiles; opportunities to par-ticipate in fun and competitive ac-tivities (competing for prizes for the most required policy attestations completed on the team); and inter-action with the content and a com-munity of users. These features can further personalize the user experi-ence and stimulate involvement and engagement.

Third, ensure that the tools pro-vide mechanisms for effectively com-municating with employees and third parties about changing policies and requirements. Some systems offer automated management of your au-diences for different policies (which is particularly critical over time as people move into, out of, or around different parts of the organization) and can integrate with other systems (such as HR) to facilitate this. They can also provide capabilities for au-tomatically notifying audiences when policies are published or updated.

Many people access work content and activities via smartphones and tablets. It is important for technol-ogy tools to facilitate these users by enabling mobile access to poli-cies and allowing them to respond to required attestations, training, and questionnaires. This can further support employee engagement.

Beyond the facilities for delivery and interaction with content, it is important that a technology solu-tion provide capabilities that support both documentation and evaluation of ethics and compliance program efforts. For example, as employees

GRC Challengescontinued from page 5

continued on page 8

October 2014 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor 7

By Jen L. Cornell

While employers always need to keep in mind differing obligations under state and federal anti-discrim-ination statutes, the potential pitfalls for employers with regard to trans-gender employees are enormous. Courts have expressly held that Title VII and the Equal Protection Clause does not cover discrimination on the basis of sexual orientation. See, e.g., Simonton v. Runyon, 232 F.3d 33, 36 (2d Cir. 2000). However, most courts that have considered the question of transgender — or gender non-con-forming individuals, regardless of how they self-identify — have held that the gender-stereotyping theory of Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), extends Title VII protections to those individuals.

The extension of Title VII protec-tion to transgender or gender non-conforming individuals has been addressed by a number of courts, which employers should note. See, e.g., Glenn v. Brumby, 663 F.3d 1312, 1313-14 (11th Cir. 2011) (ac-cepting a claim bought by a trans-gender plaintiff who was fired be-cause her supervisor believed that her gender transition would be “inappropriate” and “disruptive” and would make fellow employees “uncomfortable”); Smith v. City of Salem, 378 F.3d 566 (6th Cir. 2004) (accepting a claim by a transgender woman who was told she was not masculine enough and was subject-ed to psychological testing and sus-pension); Schwenk v. Hartford, 204 F.3d 1187 (9th Cir. 2000) (accepting a claim under the Equal Protection Clause that a prison guard assaulted a transgender prisoner based on assumptions about gender); Rosa v. Park West Bank & Trust Co., 214 F.3d 213 (1st Cir. 2000) (accepting a claim from a bank patron who was refused service because his gender presentation did not match his iden-

tification); Schroer v. Billington, 577 F. Supp. 2d 293, 300, 305 (D.D.C. 2008) (accepting a claim brought by a transgender plaintiff whose super-visor recoiled when shown a picture of what the employee would look like after transitioning).

JURISpRUDENCE AND DRESS CoDES

At odds with this line of cases is a line of jurisprudence holding that Title VII does not prohibit gendered dress or grooming codes. In these cases, courts have typically held that as long as the burden of the dress codes is equal for both men and women, the dress code does not violate Title VII. See, e.g., Jespersen v. Harrah’s Operating Co., Inc., 444 F.3d 1104, 1109-10 (9th Cir. 2006); Knott v. Mo. Pac. Ry. Co., 527 F.2d 1249 (8th Cir. 1975); Willingham v. Macon Tel. Pub. Co., 507 F.2d 1084, 1088 (5th Cir. 1975). As a result, em-ployers may have been advised that they can maintain gendered dress codes, or grooming standards, with-out fear of violating federal anti-dis-crimination laws.

While the case has not yet been heard, the growing consensus that federal anti-discrimination laws pro-tect transgender employees is on a collision course with jurisprudence permitting gendered dress codes. Take, for example, an employer with different standards for men and wom-en regarding hair length. How would the employer determine which stan-dard applied to a transgender em-ployee? Would the transgender em-ployee have a claim of discrimination if the employer enforced the hair length provision based on the gen-der it believed applied, even if the employee disagreed? Furthermore, would a non-transgender employee who had been disciplined for violat-ing the hair length standard have a claim if transgender employees were allowed to choose which standard applied to them? Could a court find the mere existence of different gen-dered standards contributed to a pat-tern and practice of discrimination or a hostile work environment, even if rarely enforced?

All of these questions remain un-answered, since a court has yet to hear such claims. Given the evolv-

ing understanding that Title VII protects transgender employees, coupled with the increased pres-ence of openly transgender employ-ees in the workplace, it is inevitable that an employer with a gendered dress code will soon be facing one of these claims, or one similar.

GENDER STEREoTypESIndeed, even if an employer be-

lieves it has no transgender employ-ees, many of the cases that have led to the protection of transgender em-ployees under Title VII were brought by individuals who did not identify as transgender, but simply defied ste-reotypical gender expectations. Ann Hopkins, the employee at the heart of the Supreme Court case that first articulated the “sex stereotyping” theory of Title VII protection, for ex-ample, did not identify as transgen-der, but her supervisors commented that she should “walk more feminine-ly, talk more femininely, dress more femininely, wear make-up, have her hair styled, and wear jewelry.” Price Waterhouse, 490 U.S. at 235.

To avoid being the named de-fendant in the case that reconciles these two tracks of jurisprudence, the safer course for an employer is to draft a dress code or grooming standard that is equally applied to all employees, regardless of their gender expression. It is reasonable for an employer to require that em-ployees dress “professionally” and to give specific examples of what pro-fessional dress means in the setting of that workforce, such as suits, no jeans, or other examples that are not different for either gender. It is also reasonable for an employer to expect that employees keep their hair “neat and clean” or even place restrictions on overly ostentatious hair colors. Cf. Burchette v. Abercrombie & Fitch Stores, Inc., 2010 WL 1948322, at *(S.D.N.Y. May 10, 2010) (upholding a grooming standard that instructed both male and female employees to wear their hair in a “clean, natural, classic hairstyle” in a race discrimina-tion claim brought by an employee with dyed hair).

These policies should be linked to a legitimate business needs. For example, restrictions on certain hair

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Gendered Dress Codes

Jen L. Cornell is an attorney with Nilan Johnson Lewis in Minneapo-lis. She can be reached at jcornell@nilanjohnson.com or 612-305-7717.

8 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

styles are more likely to be upheld if there is a connection between the restriction and the employees’ duties, such as for safety reasons. Addition-ally, the dress code should be tai-lored for different positions if neces-sary. An employer can demonstrate more readily a business need for a

customer-facing employee to adhere to certain dress standards than for an employee who is in an office and not acting as the face of the company.

CoNCLUSIoNAgain, as long as these dress codes

are gender neutral, both on their face and in their application, they are likely to withstand challenges under federal anti-discrimination law. While these policies should be reviewed

with a different eye to ensure that a claim of religious discrimination does not follow — by an employee who wears a religious headdress, for example — gender-neutral policies that are linked to legitimate business needs will protect employers from become the test case for two lines of jurisprudence that will, at some point, need to be reconciled.

Transgender Dresscontinued from page 7

that all of the requisite elements of the protected conduct and retaliatory actions occurred within the United States and that extraterritorial ap-

plication of the statute is not an is-sue. In other words, the goal is to demonstrate that the plaintiff’s case merely requires an application of a U.S. whistleblower statute to retalia-tory acts committed within the U.S.

Perhaps most importantly, once these extraterritorial issues are de-

cided, all of the parties will either get to go on about their business or get back to arguing about protected conduct, causation standards, and everything else with which we are all much more comfortable debat-ing.

Extraterritorialitycontinued from page 4

Sec. 218 was amended to provide that stockholder voting trust agree-ments and amendments thereto may be delivered to either the corpora-tion’s registered office or a prin-cipal place of business. Sec. 242 was amended to allow the board of directors to enact certain minor housekeeping amendments with-out stockholder approval. And Sec. 251(h), which was enacted last year to eliminate the need for stock-holder approval of the back end of a two-step transaction involving a front-end tender or exchange, was

amended to expand, clarify, and confirm application of the provi-sion.

House Bill 327, effective Aug. 1, enacted various amendments to the Delaware Limited Liability Company Act, including the following:

Sec. 18-104 was amended to re-quire an LLC to provide its commu-nications contact with the name and address of a natural person with access to the record identifying the LLC’s members and managers. Secs. 18-302 and 18-404 were amended to allow a person, not then a member or manager, to consent to any mat-ter that will be effective in the future and have the consent be deemed effective as long as the person is a member or manager on the future date. Sec. 18-305 was amended to confirm that a member may inspect LLC books and records by an at-

torney or other agent, to require the demand to be accompanied by proof of the agent’s authorization, and to require an LLC to maintain a record identifying the name and ad-dress of each member and manager. And Sec. 18-806 was amended to provide additional means by which an LLC may revoke a dissolution.

AmENDmENTS To THE bUSINESS ENTITy LAwS of oTHER STATES

In Connecticut, House Bill 5597, effective Oct. 1, authorized new or existing business corporations to become benefit corporations. In Louisiana, House Bill 841, effective Aug. 1, amended the LLC law pro-visions regarding the definition of “person,” proxy voting by members and managers, and voting trusts.

Quarterly Reviewcontinued from page 1

Sandra Feldman is a publications and research attorney for CT Corpo-ration and a member of this news-letter’s Board of Editors. continued on page 10

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and third parties use a portal to read policies, complete surveys and attes-tations, submit questions, etc. some systems allow information on these activities to be collected, analyzed, and reported. Data of this type offers compliance professionals a valuable barometer of the level of employee engagement and can help gauge program effectiveness and inform fu-ture program improvements. Docu-

mentation of program activities also permits companies to build an audit trail, demonstrate program success, and defend compliance efforts.

fINAL THoUGHTSWith the best intentions, many

companies have developed compli-ance and ethics programs that, on the surface, appear to be effective in protecting the organization and supporting its standards and obli-gations. However, compliance inci-dents are still occurring, unethical behavior is still a serious problem,

and fines for regulatory violations are higher than ever. To improve the success of ethics and compliance programs requires heightened focus on effectively engaging front-line employees. In order to foster this engagement, companies can look to innovative technology solutions to help employees participate actively in compliance and ethics and un-derstand their role in ensuring the integrity of the organization.

GRC Challengescontinued from page 6

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October 2014 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor 9

By André Bywater and Jonathan Armstrong

In the UK, the Serious Fraud Office (SFO) acts as an independent govern-mental authority tasked with investi-gating and prosecuting the most seri-ous or complex fraud and domestic and overseas corruption. As readers might be aware, a few years ago the UK introduced a new legal regime to tackle corruption under the UK Brib-ery Act 2010, with some describing it as the toughest anti-corruption legis-lation in the world.

David Green, CB QC, the Director of the SFO, recently published his annual report (2013-2014), which gives the opportunity to reflect on the recent past and look to the fu-ture concerning the SFO’s activities, notably as regards corruption en-forcement.

THE ANNUAL REpoRTIn the areas of both fraud and cor-

ruption, the SFO ran a total of eight prosecutions of 18 defendants last year, with a conviction rate of 85%. It is relevant to note, however, that the numbers are quite small — 11 defendants were convicted, of whom four pleaded guilty with seven be-ing found guilty by a jury. The SFO also opened 12 investigations last year, and charged 35 defendants. Al-though from a U.S. perspective this might be considered to be minor, given the scale and complexity of the SFO’s work, it actually is a mod-est success, and it should be borne in mind that the SFO essentially only tackles serious and complex cases.

As for the outlook for the future, the Director states that the SFO is “undertaking fewer but much larger and more complex investigations” and that the SFO has “expanded [its] analytical and intelligence capabil-ity, and currently [has] significant pre-investigation projects in devel-opment.”

DEfERRED pRoSECUTIoN AGREEmENTS

What will be of particular inter-est to watch as a development is the use of Deferred Prosecution Agree-ments (DPAs) that came into opera-tion earlier this year with the SFO’s enforcement of the UK Bribery Act 2010. There have as yet been no public announcements of a DPA go-ing through the system. DPAs are a tool for the SFO (and other govern-ment crime authorities) to try and reach a form of plea bargain with corporate offenders and thereby shortcut trials, time and cost. This process is similar to the U.S. plea-bargaining system, but it has major differences, most notably the over-sight role of a judge who has to ap-prove any proposed deal (in open court). It will probably take some time for DPAs to bed down and so only time will tell whether DPAs are judged a success or not.

The SFO also appears to have had some regulatory woes of its own on a different front — including a data loss (in 2012), which led to an investigation resulting in a 98% re-covery of material. The incident was reported to the Information Com-missioner’s Office (ICO), which is the main UK data protection/pri-vacy regulator, as personal data had apparently been inadvertently sent to a third-party. The report states that the ICO undertook a site visit at the end of May 2014 and that the SFO have had a further 10 instances of data-handling issues, although no more details were given. Data losses are an all-too-frequent occurrence these days, to which even top regu-latory authorities are not immune.

Since the SFO’s report was pub-lished, other significant additional activity has included the following:•The settlement of the SFO’s

long-running civil actions with the Tchenguiz brothers;

•The sentencing of former Alba CEO Bruce Hall for conspiracy to corrupt, in relation to contracts for the supply of goods and ser-vices to a Bahraini Aluminium company. He was sentenced to 16 months in prison and or-dered to pay a confiscation or-der of GBP 3,070,106 (about $5.175 million) or face serving an additional prison term of 10 years (on top of significant sums of compensation he also paid to his former company where the corruption occurred, and a high contribution to prosecution costs that he has also paid);

•The laying of criminal charges against a UK subsidiary of Al-stom after a tip-off from the Of-fice of the Attorney General in Switzerland concerning large transport projects in India, Po-land and Tunisia; and,

•The sentencing of four men con-nected with Innospec in con-nection with their involvement in a bribery scheme in Indone-sia and Iraq. Mr. Green said of the prosecutions, “This success-ful conclusion to a long-running investigation demonstrates the SFO's ability and determination to bring corporate criminals to justice.” The SFO also secured a guilty plea from the company with fines being imposed in the UK and the U.S. after co-opera-tion between the SFO and au-thorities in the U.S., Indonesia, Switzerland and Singapore.

CoNCLUSIoNIt is clear from both the report

and the activity of the last few weeks that those who think the Bribery Act 2010 is dead have spo-ken too soon. The SFO is right to focus its resources on the most complicated cases, and, the Crown Prosecution Service, which is the principal prosecuting authority (in England and Wales) responsible for conducting most prosecutions of alleged criminal offences, has also used bribery legislation to bring less complex cases to court. Complex cases take longer to reach court, especially given the need for cooperation with foreign

continued on page 12

UK Serious Fraud Office Annual ReportRecent Cases Show Progress

André Bywater and Jonathan Armstrong, a member of this newsletter’s Board of Editors, are commercial lawyers with Cordery Compliance in London, where they focus on regulatory compliance, processes and investigations. Reach them at Jonathan.Armstrong@CorderyCompliance.com and Andre.Bywater@CorderyCompliance.com, respectively.

10 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

In Maryland, House Bill 916, ef-fective Oct. 1, amended provisions of the corporation law governing, among other things, a corpora-tion’s power to renounce business opportunities, qualifications for di-rector nominees, actions without a meeting, voting for directors, spe-cial meetings, proxies, voting agree-ments, mergers and share exchang-es, dissenters rights and REITs.

In Minnesota, House Bill 2190, ef-fective Aug. 1, authorized a prefiling review of business entity documents by the Secretary of State and amend-ed provisions of the corporation and LLC laws dealing with conversions and domestications, amendments by voting groups, delegation of powers, and contents of merger documents. In New York, Senate Bill 7762, effec-tive Aug.11, authorized certain cor-porations with both charitable and business purposes to elect to be a non-charitable corporation.

In New Hampshire, House Bill 1283, effective Sept. 9, amended the Voluntary Corporations & As-sociations code regarding domestic reinstatement. And in North Caro-lina, Senate Bill 853, effective Oct. 1, amended the Business Corpora-tion Law to establish a procedure for mergers to effect a holding com-pany reorganization.

IN THE STATE CoURTSDE RECoGNIzES GaRneR ExCEpTIoN To ATToRNEy-CLIENT pRIvILEGE

In Wal-Mart Stores, Inc. v. Indi-ana Electrical Workers Pension Trust Fund IBEW, No. 614, 2013, Delaware Supreme Court, decided July 23, 2014, a stockholder brought an ac-tion under Sec. 220 of the General Corporation Law to inspect corpo-rate books and records. The stock-holder’s purpose was to investigate possible breaches of fiduciary duty in connection with the board’s investi-gation of an alleged bribery scandal, and to determine whether making a pre-suit demand on the board would be futile. The corporation declined

to provide certain documents, invok-ing attorney-client privilege and the work-product doctrine.

In determining whether to en-force the corporation’s attorney-client privilege, the Chancery Court applied the Garner doctrine — an exception that allows a stockholder to invade a corporation’s attorney-client privilege to prove a breach of fiduciary duty upon a showing of good cause. The court found that under Garner, the stockholder was entitled to the documents sought. The corporation appealed.

The Delaware Supreme Court af-firmed, and in so doing, stated for the first time that Delaware recognizes the Garner exception for both plena-ry stockholder proceedings and Sec. 220 actions. However, the court went on to state that in a Sec. 220 proceed-ing, the court must first determine that the records sought are necessary and essential to the stockholder’s proper purpose. Then the stockholder must show good cause before the court can apply Garner and order production of the documents.

In this case, the Delaware Supreme Court agreed with the Chancery Court’s findings that the requested documents were necessary and es-sential to the stockholder’s purpose and that the stockholder demonstrat-ed good cause. Among other factors that demonstrated good cause were that a colorable claim existed, the information was not available from non-privileged sources, this was not a fishing expedition, no trade secrets were involved, and the stockholder, a pension fund, was a legitimate stock-holder.

Nv: A CoRpoRATIoN’S mANAGEmENT IS SoLE HoLDER of ITS ATToRNEy-CLIENT pRIvILEGE

In Las Vegas Sands Corp. v. Eighth Judicial District Court of the State of Nevada, No. 63444, Nevada Supreme Court, decided Aug. 7, 2014, a for-mer CEO filed a suit against his for-mer corporate employer for breach of employment contract. Before his termination, the CEO took certain corporate documents. The corpora-tion asserted that the documents may be subject to its attorney-client privilege. The trial court ordered the

CEO to give the documents to an independent vendor for review. The CEO moved to have the vendor re-turn the documents. The trial court granted the motion, finding that the CEO, as a former executive who was in possession and control of the doc-uments now and when he was the CEO, was in a class of persons al-lowed to use the documents to pros-ecute his claims. The corporation petitioned for a writ of prohibition, asking the Nevada Supreme Court to vacate the trial court’s order.

The Nevada Supreme Court granted the writ, holding that Ne-vada does not recognize the “class of persons” exception to attorney-client privilege applied by the trial court. The court reviewed precedent from other courts, and noted that the modern trend is to hold that the attorney-client privilege belongs to the corporation and not to former directors or officers. Furthermore, recognizing the “class of persons” ex-ception would have a chilling effect on candid communications between corporate management and counsel, which is inconsistent with the pur-poses of the attorney-client privilege.

CA AppELLATE CoURT RULES oN DAmAGES foR mARkET mANIpULATIoN

In Pricaspian Development Corpo-ration v. Ficeto, B239435, California Court of Appeals, Second District, decided Aug. 21, 2014, the plaintiff invested $12 million in three hedge funds. The defendants were alleged to have engaged in a fraudulent scheme in which the funds were devalued by trading performed in microcaps. The plaintiff lost nearly $7 million of its investment, and brought an action for fraud. The jury found for the plaintiff and awarded it $1.2 million in damages. The trial court granted the defendant’s mo-tion for JNOV on the basis that the evidence did not establish that the plaintiff suffered any damages due to their wrongdoing. The plaintiff appealed.

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Quarterly Reviewcontinued from page 8

The publisher of this newsletter is not engaged in rendering legal, accounting, financial, investment advisory or other professional services, and this publication is not meant to constitute legal, accounting, financial, investment advisory or other professional advice. If legal, financial, investment advisory or other professional assistance is required, the

services of a competent professional person should be sought.

October 2014 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor 11

impose so enormous a burden on the retail sector of the econ-omy and so vast a supervisory responsibility on the federal courts, we think it would have made its intention clearer and would at least have imposed some standards. It is hardly a feasible judicial function to de-cide whether shoe stores should sell single shoes to one-legged persons and if so at what price, or how many Braille books the Borders or Barnes and Noble bookstore chains should stock in each of their stores.Id. at *10-11 (quoting Doe v. Mu-

tual of Omaha Ins. Co., 179 F.3d 557, 560 (7th Cir. 1999)). Hence, the court held that “Title III does not apply to the goods in a retailer’s in-ventory,” id. at *12.

But that did not end the district court’s inquiry. The court went on to explain that a Department of Jus-tice (DOJ) regulation, which gener-ally recognizes the special goods exception, 28 C.F.R. § 36.307(a), also obligates public accommodations to “order accessible or special goods at the request of an individual with disabilities, if, in the normal course of its operation, it makes special orders on request for unstocked goods, and if the accessible or spe-cial goods can be obtained from a supplier with whom the public ac-commodation customarily does business.” 28 C.F. R. § 36.307(b). The court explained that:

For example, a clothing store would be required to order specially-sized clothing at the request of an individual with a disability, if it customarily makes special orders for clothing that it does not keep in stock, and if the clothing can be obtained from one of the store’s custom-ary suppliers. This does not mean that defendants can be li-able under this prong of the reg-ulation if they participate in any kind of special ordering. Rather, the Department of Justice in-tended for § 36.307(b) to require special orders only of those par-

ticular types of goods for which a place of public accommoda-tion normally makes special or-ders. For example, a book and recording store would not have to specially order Braille books if, in the normal course of its business, it only specially orders recordings and not books.Id. at *14-15 (citations and quota-

tions omitted). Applying this regulation to Mr.

Jancik’s case, the district court held that it could not “deny the ADA claim wholesale,” because it remained to be determined whether and to what extent “Redbox Retail normally takes special orders for DVDs and whether such goods can be obtained from its suppliers … .” Id. at *15.

CommENTSJancik is an interesting decision

in a number of respects. First and foremost, it properly applies the special goods exception by recog-nizing that the ADA’s broad and salutary mandates typically will not require retailers to provide “acces-sible or special goods that are de-signed for, or facilitate use by, indi-viduals with disabilities.” As the DOJ has recognized in the commentary accompanying its original Title III regulations in 1991, the goal of the Act is to ensure accessibility to the goods offered by a public accommo-dation, not to alter the nature or mix of goods that the public accommo-dation has typically provided. See 56 Fed. Reg. 35,544, 35,571 (1991). In this regard, Jancik’s holding is in accord with a number of federal circuit court decisions, e.g., Arizona ex rel. Goddard v. Harkins Amuse-ment, 603 F. 3d 666, 673 (9th Cir. 2010); Doe, 179 F.3d at 560; McNeil v. Time Ins. Co., 205 F.3d 179, 187 (5th Cir. 2000); Weyer v. Twentieth Century Fox Film Corp., 198 F.3d 1104, 1114 (9th Cir. 2000).

Second, Jancik recognizes that the special goods exception does not excuse public accommodations from complying with Title III’s gen-eral and specific prohibitions. As noted above, public accommoda-tions can violate the Act by provid-ing goods, services and facilities that are not equal to that afforded to other individuals. This rule finds

special application in the context of the special goods exception, at least to the extent that a retailer or other public accommodation accepts spe-cial orders, and accessible or special goods can be obtained from their traditional suppliers.

Third, Jancik does not fully ex-plore the relationship between the special goods exception and the obligation to provide auxiliary aids and services. The duty to provide auxiliary aids is grounded in the general obligation of public ac-commodations to “effectively com-municate” with disabled customers, clients, patients and participants, as well as with their companions. 28 C.F.R. § 36.303(c). Hence, covered public accommodations must pro-vide auxiliary aids and services so that individuals with disabilities are not “excluded, denied services, seg-regated or otherwise treated differ-ently than other individuals” unless doing so would “fundamentally alter the nature of the good, service, facil-ity, privilege, advantage, or accom-modation being offered, or would result in an undue burden.” 42 U.S.C. § 12182(b)(2)(A)(iii). The Act defines “auxiliary aids and services” to include “qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impair-ments;” “qualified readers, taped texts, or other effective methods of making visually delivered materials available to individuals with visual impairments;” “acquisition or modi-fication of equipment or devices”; and “other similar services and ac-tions.” 42 U.S.C. § 12103(1)(A)-(D).

How does the auxiliary aids and services standard apply, for ex-ample, to the written instructions printed on the packaging of prod-ucts sold in a grocery store? An in-dividual who is blind might argue that the store must provide an aux-iliary aid by providing the instruc-tions in Braille or in audio format, reasoning that he or she could not fully enjoy the packaged prod-uct unless the instructions are “ac-cessible.” Providing an individual with vision impairments a package without Braille instructions, so the

continued on page 12

Jancik and the ADAcontinued from page 2

12 The Corporate Counselor ❖ www.ljnonline.com/ljn_corpcounselor October 2014

The California Court of Appeals af-firmed. The court noted that where a plaintiff alleges it suffered dam-ages due to the defendant’s manipu-lation of a stock price, the plaintiff is entitled to damages measured by the difference in value between the price paid for the stock and its value

at the time of purchase. Here, the plaintiff did not provide evidence of the actual value of the hedge funds. Thus there was no evidence that the shares were not worth the $12 million paid. In addition, a suit for fraud that devalued the hedge funds had to be brought derivatively, and not by the plaintiff directly.

law enforcement agencies. It is likely that the next few months

will see more activity as announce-ments are made in some of the SFO’s ongoing investigations.

To order this newsletter, call:1-877-256-2472

On the Web at:www.ljnonline.com

argument goes, is equivalent to providing an individual without a vision impairment a package with a blank label. The grocery store, on the other hand, might invoke the special goods exception and argue that it is not required to alter or change the contents of the packages it sells.

Jancik provides some guidance on this important question by em-phasizing the distinction “between access to a good and the good it-self.” 2014 U.S. Dist. LEXIS 67223 at *10. Under Jancik, the auxiliary aids standard should not require a public accommodation to modify the con-tent of the goods it sells. Instead, the auxiliary aids standard might only require that public accommodations effectively communicate existing content so that it can be perceived by individuals with disabilities.

At least one federal appellate court has adopted this approach. In Arizona ex rel. Goddard v. Har-kins Amusement Enters., 603 F.3d 666 (9th Cir. 2010), the Ninth Circuit was asked to determine whether Ti-tle III required the Harkins theater chain to provide closed captioning for movies displayed in its theaters. Harkins argued that Title III only re-quired it to provide equal access to

its theaters, and relied on the special goods exception to argue that Title III did not require it to modify its services so that deaf patrons could more fully enjoy displayed movies. The Ninth Circuit rejected Harkins’ argument by noting that the Title III obligation to provide auxiliary aids and services “limits [the] general rule that public accommodations do not have to provide different servic-es for the disabled.” Id. at 671-72. The panel went on to explain that, “[b]y its very definition, an auxiliary aid or service is an additional and different service that establishments must offer the disabled.”

That being said, the distinction Jancik recognizes between the spe-cial goods exception and the auxil-iary aids standard is difficult to ap-ply in practice, and may fray badly at the edges. For example, it is one thing to suggest that a grocery store clerk might assist a customer with a vision disability by reading out loud the written instructions on the pack-aging of a product in which the cus-tomer is interested. That may very well be an effective auxiliary aid designed to “make visually deliv-ered materials available to individu-als with visual impairments.” How-ever, it is much less certain that the grocery store would have the same obligation to provide auxiliary aids once the customer leaves the store.

CoNCLUSIoNThe district court’s opinion in Jan-

cik is not the last word on the rela-tionship between the special goods exception and Title III’s auxiliary aids and services standard. Indeed, Jancik is on appeal to the Ninth Cir-cuit. Nonetheless, the district court’s opinion reminds retailers and other public accommodations that Title III applies not only to facilities, but to their sales practices and other deal-ings with the public.

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