Ca s e Hi g h l i g h t

June 2009

Contacts Hunton & Williams’ Litigators Win Award of

Norfolk Office Competitor’s Product, Jackpot of IP, and Attorneys’ 500 East Main Street, Suite 1000 Fees in Hotly-Contested Shelving Case Norfolk, VA 23510-3889

Robert M. Tata Design Assistance Construction Shelving’s entire patent portfolio and highly (757) 640-5328 Systems, Inc. (“DACS”), a leader in profitable ‘Snap Shelf’ product. [email protected] the highly-specialized archival stor- Wendy C. McGraw age industry, sued former Director DACS, the Punch Deck Product and the Buy-Out (757) 640-5336 David Cross; his son, Jordan Cross; [email protected] and Sierra Shelving, Inc. The suit was Portsmouth, Virginia-based DACS was Georgianna G. Ramsey related to David Cross’ acceptance of founded in 1987 by Jack Henning and (757) 640-5329 an approximate $2 million buyout at David Cross. DACS manufactures and [email protected] DACS, and his subsequent partnership sells steel products including the “Punch with his son to compete against DACS. Deck,” a specialized-shelving product that Washington Office has become the archival storage industry 1900 K Street, NW DACS won summary judgment on its Washington, DC 20006-1109 leader. The revolutionary Punch Deck breach of contract claim but the defen- product was co-invented by Mr. Henning Brian M. Buroker dants defeated DACS’s other claims. As a and Mr. Cross in 2002. Among the Punch (202) 955-1894 remedy for the breach of contract, DACS [email protected] Deck’s benefits, the open design of the was awarded substantial equitable relief, shelving provides fire protection and including an award of the defendants’ allows users to forgo installing additional patents, patent applications and Sierra expensive fire sprinkler systems. The Shelving’s competitive product the “Snap Punch Deck enables large-scale document Shelf.” DACS also won $450,000 in attor- storage facilities to safely and economi- neys’ fees and costs from David Cross. cally store warehouses of documents for After Cross and Sierra Shelving lost their the medical, legal and other industries. appeals, the trial court resolved all remain- Mr. Henning was the President of DACS ing issues between the parties on May 28, and managed the company’s day-to-day 2009 by ordering a five-year non-compete affairs. Mr. Cross was a Director and against the defendants and the transfer shareholder at DACS, but by 2002, of certain additional assets. Hunton & was living in semiretirement in Mexico. Williams is pleased that it was able to In 2003, Mr. Cross decided he wanted help our client preclude Sierra Shelving to be bought out of DACS. The parties and the Crosses from improperly compet- negotiated a stock purchase agreement ing with DACS. The wide-ranging relief (“SPA”), signed on October 7, 2003, Hunton & Williams was able to obtain whereby Mr. Henning agreed to buy for our client includes the rights to Sierra

Hunton & Williams LLP out Cross and Cross’s nephew for $3 When he left DACS, Cross accepted Sierra Shelving directly targeted million. In consideration for the buyout, his portion of the $3 million buyout DACS’s archival storage market share, Cross agreed to a noncompete and without advising the company or solicited DACS’s largest customers to turn over any intellectual property- company personnel of his secret and before long was making sales related materials that he might have. patent application. In addition, Cross worth millions of dollars to DACS’s did not turn over any intellectual Punch Deck customers. It was DACS’s The Defendants’ Breach of the Stock property to DACS, such as the patent position that the Snap Shelf was the Purchase Agreement application and associated drawings. product that David Cross invented Unknown to DACS and Henning, with other DACS employees while a During 2004, David Cross and his adult David Cross had secretly applied for a Director and shareholder of DACS. son, Jordan Cross, who had no back- patent on a “storage surface assembly” ground in the archival shelving industry, DACS’s Lawsuit Against David Cross, product on June 13, 2003, while still a prototyped and tested David Cross’s Jordan Cross and Sierra Shelving Director and shareholder of DACS. The DACS retained Bob Tata and Wendy McGraw of Hunton & Williams LLP to sue David Cross, Jordan Cross and Sierra Shelving, seeking appropriate relief. Associate Georgianna Ramsey also joined the Hunton & Williams trial team. The claims included breach of the SPA and related torts. DACS sought damages and equitable relief, including the patent application that David Cross had secreted away from DACS, all related patents or patent applications, and the Snap Shelf product itself.

The Cross’s and Sierra Shelving ada- mantly asserted that Jordan Cross was the sole owner of Sierra Shelving, and that David Cross had no involvement with Sierra Shelving or the Snap Shelf. In other words, the defense claimed that Jordan Cross, the former Capitol Hill policy analyst, had independently patent application related to an open- shelving system. In 2005, Jordan Cross invented the Snap Shelf to compete area shelf — originally conceived of with launched Sierra Shelving, Inc. The in the specialized-shelving industry. others at DACS, but tabled — that had company’s webpage advertised its been refined by David Cross. Cross’ “patent pending Snap Shelf technology” During the course of discovery, there ini- product was created to compete with product, developed by the company’s tially appeared to be few documents that DACS’s flagship Punch Deck product, “engineers.” Sierra Shelving’s Snap would illustrate David Cross’s participa- in DACS’s core market, the archival Shelf was priced more favorably than tion in his son’s new business, if any. storage industry. Cross’s invention DACS’s Punch Deck — in part because Jordan Cross claimed his computer had related to an innovative “cross bar it used less steel — a benefit that was been stolen, and David Cross claimed technology,” a series of steel cross touted on Sierra Shelving’s website. he did not have or frequently use a bars that make up the shelving units. computer. DACS eventually obtained an order requiring the production and

2 Client Alert restoration of the hard drive of what resolved to award significant damages … the rest of the jury relented and was supposedly David Cross’s wife’s to DACS, one juror “remained an agreed to award DACS no damages.” computer. The restored hard drive adamant holdout insisting that by virtue Following the trial, the court had to of the computer revealed numerous of the Judge’s rulings DACS had already determine the appropriate equitable emails between David and Jordan won enough money and relief because relief and attorneys’ fees that should Cross discussing their work, the it was going to be able to shut down be awarded to DACS. DACS argued Snap Shelf and Sierra Shelving.

Among the information found on the computer was an email written by Jordan Cross stating that his father “deserves a big piece of the profits because he invented the idea and filed for a patent.” Jordan Cross also wrote that he and his father “worked on the concept for a full year, including samples made in Mexico, testing down in Mexico, and a lot of time improving the product.” Still, Jordan and David Cross maintained the position that they were not working together in competition with DACS. The value of evidence recovered from non-traditional sources — such as David Cross’s wife’s restored hard drive — cannot be overstated. Despite the defendant’s continued denials, the electronic data recovered by Hunton & Williams clearly illustrated David Cross’s conspiracy and breach.

The Trial Court’s Rulings and the Jury’s Verdict

Following a two-week trial in Virginia Beach Circuit Court in February 2008, DACS moved for summary judgment on its breach of contract claim. Presiding Judge Thomas Padrick granted sum- mary judgment to DACS, finding that David Cross had breached the SPA. Judge Padrick reserved ruling on the requested equitable relief and made that it should be entitled to the original additional rulings on the matter. He then Sierra Shelving.” Then, based on the patent application filed by David Cross allowed the remaining counts to go to jurors’ understanding that DACS “was while he was at DACS — which by then the jury, which found against DACS. getting its attorneys’ fees” and “was had matured into a patent — and all going to get all the intellectual property The jury foreman later explained that related patent applications and patents, and Sierra would be out of business while the majority of the jury was initially of which by now there were several,

www.hunton.com 3 owned by David Cross and one or more property counsel was ordered to turn a result of Sierra Shelving’s competition partially owned by Jordan Cross. over “all files related to the foregoing during the pendency of the appeal and patent applications and patents to the defendants’ violations of the court’s In addition, DACS sought all products DACS … so that DACS may ensure various orders. DACS also sought related to the patents, including the the proper continued prosecution and an award of another approximately Snap Shelf, since they had a genesis at maintenance of its intellectual property.” $200,000 in attorneys’ fees and costs. DACS. David Cross argued against the At a hearing on May 28, 2009, the award of any equitable relief, taking the DACS also sought to recover attorneys’ parties presented and the court entered position that by ruling against DACS on fees and costs by virtue of prevailing an agreed “Order Affording DACS the other counts, the jury had vindicated on the breach of contract count. Post-Trial Relief” finally resolving all him. Jordan Cross and Sierra Shelving On the same day the Equity Order remaining issues between the parties. also argued against equitable relief, was entered, the court also ordered contending that since DACS had not David Cross to pay DACS $450,000 The Post Trial Relief Order provided prevailed against them on any count, in attorneys’ fees and costs. in part that the defendants shall not the court could not reach the intellectual compete with DACS for five years; property and Snap Shelf that were in The Appellate Process, Post Appeal that DACS may market and sell Rulings and Final Resolution Jordan Cross’s or Sierra Shelving’s Sierra Shelving’s former product, the name. The defendants also argued Following the trial court proceedings, Snap Shelf; and that the defendants that the Virginia Circuit Court did not the parties appealed to the Supreme must assign assets to DACS, includ- have the jurisdiction to make certain Court of Virginia, with the defendants ing intellectual property; “all right, equitable rulings regarding patents. seeking and obtaining a stay of the title and interest in the ‘Snap Shelf’ equitable relief. On May 20, 2008, the product and all ‘related products,’” The court considered the parties’ trial court ordered that the defendants certain valuable equipment; and arguments but on April 8, 2008, entered post a $1.8 million bond to support the certain of the defendants’ legal files. its “Permanent Injunction and Other stay, which the defendants refused Equitable Relief” order. This Equity Accordingly, three years of litigation to do. Ultimately, all appeals were Order ruled that all patents, patent between the parties concluded, denied; on February 6, 2009, the applications and “related products” were with DACS winning the rights to motions for rehearing were denied DACS’s property. The Equity Order the defendants’ patents, patent and the stay was lifted. As a result, further ordered that the defendants must applications, Snap Shelf product, DACS’s substantial equitable relief “execute all appropriate documents to a five-year noncompete, $140,000 and the $450,000 award stood. assign and record DACS’s ownership which is to be escrowed and returned of the intellectual property with the Following the resolution of the appeals, to the defendants upon five years of United States Patent and Trademark DACS filed additional motions with the compliance with the noncompete and Office within ten (10) days of this trial court, seeking damages incurred as other court orders and an additional Order.” Also, the defendants’ intellectual confidential settlement amount.

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