Virginia Lawyers Weekly

The design for shelving that holds boxes of documents in warehouses hardly seems like an issue that would set off a big legal battle.

But the wrangling involved a patent law dispute in state court in Virginia Beach, inconsistent decisions by a judge and a jury on a breach of contract claim, e-mails recovered from the computer of the wife of a defendant, and the liability of a son and his company for the alleged misconduct of his father.

The dispute started when David Cross, a director and large minority stockholder of Portsmouth-based Design Assistance Constructions Systems Inc. (DACS), insisted that the company buy his stock. The company paid Cross $2 million in 2003 under a stock purchase agreement that included a noncompete clause and a requirement that he turn over any intellectual property related to corrugated metal shelving that he had developed while a director of the company.

In 2005, Cross’s son, Jordan Cross, formed Sierra Shelving Inc. and began marketing a “Snap Shelf” system that competed directly with DACS’ “Punch Deck” system.

The key feature of both systems is a design that permits the storage of boxes of documents on shelving without the requirement that each shelf have a separate sprinkler system. To avoid that requirement, each shelf is 50 percent open to allow water from an overhead sprinkler system to drain to the shelves below it.

The names of the systems are descriptive. Punch Deck involves a corrugated metal shelf with holes punched in it, while Snap Shelf is essentially metal slats that resemble 2×4 pieces of wood that snap into a frame.

DACS discovered that David Cross had filed for a patent on the Snap Shelf design a few months before he signed the stock purchase agreement.

The company filed suit against Cross, his son and the son’s company alleging breach of the agreement, breach of fiduciary duty and other counts.

The defendants contended that the case should not be tried in state court because it was based on a patent dispute. They also argued that the Snap Shelf design did not involve corrugated metal, and they asserted that Jordan Cross was competing against DACS without any assistance from his father.

DACS countered by arguing that the real legal issues were based more on contract and breach of fiduciary duty than on patent law and by developing testimony from experts that the Snap Shelf design involved corrugated metal.

Its attorneys, Bob Tata and Wendy McGraw of Norfolk, sought access to computers used by the defendants to refute the contention that David Cross was not involved in Sierra Shelving. Jordan Cross said the computer he was using at the pertinent times had been stolen, and David Cross said that he only occasionally used a computer owned by his wife.

Among the e-mails on the “wife’s” computer was one from Jordan Cross stating that father “deserves a big piece of the profits because he invented the idea and filed for the patent.”

Tata said, “The value of evidence recovered from non-traditional sources – such as David Cross’s wife’s restored hard drive – cannot be overstated. Despite the continued denials, these e-mails laid bare David Cross’s conspiracy and breach.”

The case was tried in February 2008 before Virginia Beach Circuit Judge H. Thomas Padrick Jr. and a jury.

At the end of the evidence, Padrick entered summary judgment for DACS on its claim that David Cross had breached the stock purchase agreement and sent the case to the jury on DACS’s claim for $1.6 million in damages and other counts involving the son and his company.

The jury found against DACS on damages and on all the remaining counts.

DACS nevertheless pressed its equitable arguments before Padrick. They contended that the original Snap Shelf patent and related patents should be assigned to it because the concept was developed while David Cross was a director of DACS.

The defendants countered that no such relief should be available because of the jury’s finding of a lack of liability by Jordan Cross and Sierra Shelving.

Padrick sided with DACS and concluded that the father’s violation of the stock purchase agreement required the equitable relief requested by DACS. The judge also awarded $450,000 in attorneys’ fees and costs under the agreement.

The parties appealed to the Supreme Court of Virginia. The defendants contended that Padrick erred in entering summary judgment and in granting the equitable relief, especially as it affected the son and his company.

DACS argued that Padrick should have awarded damages on the breach of contract count despite the refusal of the jury to do so.
The equitable relief was stayed while the case was on appeal, and Padrick ordered the defendants to post a $1.8 million bond to support the stay. The bond was never posted, however.

The Supreme Court refused to review the case, finally denying a petition for a rehearing in February.

DACS then filed motions before Padrick seeking additional attorneys’ fees and damages for Sierra Shelving’s continued competition while the case was on appeal.

On May 28, Padrick entered an order reflecting a settlement of the dispute. Under the order, DACS received “all right, title and interest in the ‘Snap Shelf’ product and all related products,” the $450,000 in attorneys’ fees and an agreement by the defendants not to compete with it for five years.

The agreement also requires the defendants to pay a confidential settlement plus $140,000 that will be returned to the defendants after five years upon compliance with the agreement not to compete.

The settlement limits comment by the defendants substantially to: “The litigation between the parties is over, DACS won all rights to Snap Shelf and related products, an award of attorneys’ fees against David Cross, and Sierra Shelving and Jordan Cross are no longer in the shelving business.”

Tata said, “We felt that David Cross’s behavior in taking his portion of a $3 million buyout, then conspiring with his son to steal DACS’s technology and compete against his former benefactor, was outrageous, and were gratified that Judge Padrick apparently agreed.”

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