Free Response - District Court of Colorado - Colorado

Case 1:04-cv-00665-RPM

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-cv-00665-RPM DAVID HELLER, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. QUOVADX, INC., LORINE R. SWEENEY and GARY T. SCHERPING, Defendants. PLAINTIFF'S RESPONSE TO COURT'S ORDER FOR CLARIFICATION

Case 1:04-cv-00665-RPM

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On September 6, 2006, the Court issued an order directing the parties to provide clarification of the proposed settlement of the above-captioned action which had been presented for preliminary approval on August 22, 2006, and specified 5 categories of information for the parties to address. The following is provided in response to the Court's September 6, 2006 Order for Clarification of Motion for Preliminary Approval of Settlement. RESPONSE TO QUESTIONS 1, 2 AND 3 In order to settle this case, defendants demanded a release of all potential §10(b) claims during the Class Period. Under the settlement, the Settlement Class would be compensated for any losses under §10(b) but would retain their right to pursue recovery for their §11 claims because the proposed settlement specifically excluded any claims arising under §§11 or 15 in the Henderson litigation (Henderson v. Quovadox, Inc., No. 04-CV-01006-RPM, D. Colo., filed May 17, 2004) ("Henderson"). Although this Court has previously certified a Class of open market purchasers only, the settlement of all of the 10(b) claims seemed to have certain advantages for plaintiffs. First, it was a prerequisite to any settlement. Second, because the settlement would result in a compromise of a greater number of claims than had been certified (i.e. the 10(b) claims of the Rogue Wave Software ("Rogue Wave") acquirers), any such settlement would have to be greater than that for settlement of the open market purchasers. Further, because the principal incentive in settling the case was to maximize the recovery for the class and avoid additional expenses that would diminish the recovery, Lead Plaintiff also insisted that the defendants agree that in the event that this Court did not approve the settlement involving all of the 10(b) claims, defendants would agree to settle the claims applicable to the open market purchasers only. -1-

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Accordingly, against this backdrop, the parties agreed to a settlement, with the "Settlement Class," defined to include the 10(b) claims of the Rogue Wave acquirers (and only those claims), of $10 million. Lead Plaintiff agreed to a settlement that included those §10(b) claims only and the parties specifically excluded the §§11 and 15 claims being pursued in Henderson. Finally, given the likely provable damages in the case, the settlement with the Rogue Wave 10(b) claimants represented a 57% recovery for 10(b) damages. These claims, as the cases were being prosecuted, were going to be lost since Henderson only involved §§11 and 15 claims. But, because the intent was to finally resolve the case, Lead Plaintiff insisted that the defendants agree to settle the "open market" class for $9 million if the Court decided not to approve the $10 million settlement for any reason. Lead Plaintiff also believed there was case authority supporting the Court's approving such a settlement. First, because §§11 and 10(b) "involve distinct causes of action and were intended to address different types of wrongdoing" Herman & Maclean v. Huddleston, 459 U.S. 375, 381 (1983), counsel believed that the recovery under the settlement would not impact any possible recovery in the Henderson case ­ in fact, defendants agreed that the §11 and 15 claims in the Henderson action were expressly excluded from the settlement. Further, courts had on occasion approved the compromise of more claims than were presented in the particular case before it. For example, in Matsushita v. Epstein, 516 U.S. 367 (1996), the Supreme Court affirmed a state court class action settlement, where the settlement expressly included state court and 10(b) claims, even though the 10(b) claims could not have been brought in state court. While here the facts differed from Matsushita (there the federal 10(b) class had not been certified), the overarching principle was

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the same. Given the proposed settlement here expressly excluded the §11 claims brought by the class in the Henderson case, it seemed that there would be no impact on the Henderson claim. Moreover, it is clear that this Court could redefine the Class if it concluded that such a change was warranted, as orders certifying a class may be altered or amended at any time prior to a decision on the merits. Coopers & Lybrand v. Livesay, 473 U.S. 463, 469 n.11 (1978). There is also authority for allowing an open market purchaser to represent a class that contained individuals who received their shares in an offering. Weinberger v. Thornton, 114 F.R.D. 599 (S.D. Cal. 1986); In re Victor Tech. Sec. Litig., 102 F.R.D. 53 (N.D. Cal. 1984); see also In re Surebeam Corp. Sec. Litig., No. 03-CV-1721-JM(POR), 2003 U.S. Dist. LEXIS 25022, at *20 (S.D. Cal. Jan. 5, 2004) (appointing an open-market purchaser as lead plaintiff for §§10 and 11 claims and recognizing that "on a number of occasion, courts have found a class representative typical even if the class representative is representing claims of both Securities Act and Exchange Act claimants"). Thus, the intent in proposing this settlement in exchange for $10 million was to provide compensation for all Quovadx shareholders who had suffered 10(b) damages from defendants' fraudulent conduct. As noted above, lead counsel was extremely cognizant that this Court had certified a class of open market purchasers only, and that even though there was case authority for allowing a certified class that encompassed all the 10(b) claims, the Court might not approve the proposed settlement. The proposed settlement and the motion for preliminary approval were set out to inform the Court of the nature and scope of the settlement: both the stipulation and the motion indicated that the settlement was intended to cover the 10(b) claims of the Rogue Wave acquirers and drew a distinction between the "Class" certified by this Court and the "Settlement Class" in the proposed settlement. The motion for preliminary approval stated: "On April 12, 2005, the Court certified a -3-

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Class consisting of open market purchasers of Quovadx stock during the proposed Class Period. However, during the Class Period, Quovadx acquired Rogue Wave Software and in doing so issued Quovadx stock to all eligible holders of Rogue Wave Software stock. Because this transaction is not technically an open market purchase, the parties have agreed for purposes of settlement to modify the Class to specifically include the persons who acquired Quovadx stock at an allegedly inflated price due to the acquisition of Rogue Wave Software by Quovadx." Lead Plaintiffs Unopposed Motion for Preliminary Approval of Settlement at 6-7. Since the Court issued its Order for Clarification, lead counsel has learned that counsel for the §11 class does not agree that the proposed $10 million settlement would effectively allow the §11 plaintiffs to recover all of their damages if they were to participate in the settlement regarding the 10(b) claims. Class counsel in Henderson, has indicated that there is a real risk that participation in the 10(b) settlement may be used by defendant to try to extinguish recovery under §11. Counsel has thus indicated that the §11 class would seek to opt out of the settlement even if it were approved. Furthermore, many of the members of the class in Henderson not only received shares in connection with the acquisition but also purchased shares in the open market. Counsel has also indicated that those individuals intend to object to the settlement on the grounds that by including the Rogue Wave acquirers, the settlement dilutes the recovery of the open market purchasers. As noted above, when the settlement included the 10(b) claims of the Rogue Wave acquirers the settlement fund was increased to compensate for the inclusion of those claims. If the Court is inclined not to approve the $10 million settlement, Lead Plaintiff will, pursuant to the understanding of the parties, revise the settlement to include only the open market purchasers and create a settlement fund of $9 million. As noted, defendants acknowledged that if the -4-

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Court did not approve the $10 million settlement, they would agree to settle the open marketpurchaser class for $9 million. Thus, while a $9 million settlement is 10% lower than the previously submitted settlement, it would exclude the Rogue Wave acquirers. This would result in a larger recovery for the open-market purchaser of approximately 80% of their losses. Because the settlement will be on essentially the same terms, Lead Plaintiff believes that modifications could be presented in a short time frame. In addition, the submission will include the changes that the Court directed in the notice as well as the under seal submission with respect to the confidential portion of the settlement, as detailed below. RESPONSE TO QUESTION 4 The language was drawn from the Federal Judicial Council model notice. The notice will be revised per the Court's order. RESPONSE TO QUESTION 5 The Supplemental Agreement is a document wherein the parties agreed that if a certain number of shares opt-out of the settlement, defendants have the option to withdraw from the settlement. The parties to the settlement agree to keep this number confidential, since the election to opt-out of a settlement is each class member's individual decision and is not a fact any individual class member should consider in deciding whether to opt-out of the class. Publicly disclosing the

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number of shares necessary to void a settlement allows unscrupulous persons to solicit opt-outs solely for the purpose of holding up a settlement for their own personal gain. The parties agreed that the document could be filed under seal and will file it under seal forthwith. DATED: October 5, 2006 Respectfully submitted, JEFFREY W. LAWRENCE DENNIS J. HERMAN EX KANO S. SAMS II LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP

s/ Jeffrey W. Lawrence JEFFREY W. LAWRENCE 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax) Email: [email protected] Email: [email protected] Email: [email protected] Lead Counsel for Plaintiffs
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Case 1:04-cv-00665-RPM

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CERTIFICATE OF SERVICE I hereby certify that on October 5, 2006, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF participants indicated on the attached Manual Notice List.

s/ Jeffrey W. Lawrence JEFFREY W. LAWRENCE LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax) Email: [email protected]

CM/ECF - U.S. District Court:cod Case 1:04-cv-00665-RPM

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Mailing Information for a Case 1:04-cv-00665-RPM
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case. Frederick J. Baumann [email protected],[email protected] Joy Ann Bull [email protected] Dennis Jeremy Herman [email protected] John Alonzo Hutchings [email protected],[email protected] Jeffrey W. Lawrence [email protected],[email protected],[email protected] Nina F. Locker [email protected],[email protected] Ex Kano S. Sams [email protected],[email protected] Kip Brian Shuman [email protected],[email protected] Adam Philip Stapen [email protected],[email protected] John Peter Stigi , III [email protected] Craig Richard Welling [email protected],[email protected]

Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.
(No manual recipients)

https://ecf.cod.uscourts.gov/cgi-bin/MailList.pl?103085889647389-L_390_0-1

10/5/2006

Case 1:04-cv-00665-RPM

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Filed 10/05/2006

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QUOVADX Manual Service List Charles E. Davidow Christopher Davies Michael A. Mugmon Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: 202/663-6000 202/663-6363 (fax) Nina F. Locker Kent W. Easter Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: 650/493-9300 650/493-6811 (fax) Guri Ademi Ademi & O'Reilly, LLP 3620 East Layton Avenue Cudahy, WI 53110 Telephone: 414/482-8000 414/482-8001 (fax)