Free Motion for Miscellaneous Relief - 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. LEAD PLAINTIFF'S UNOPPOSED MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT

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TABLE OF CONTENTS Page I. II. III. INTRODUCTION ...............................................................................................................1 SUMMARY OF THE ACTION..........................................................................................1 THE PROPOSED SETTLEMENT WARRANTS PRELIMINARY APPROVAL............2 A. B. IV. V. VI. The Settlement Is Within the Range of Possible Approval .....................................2 The Method of Notice Is Proper ..............................................................................5

CERTIFICATION OF THE SETTLEMENT CLASS IS PROPER....................................6 SCHEDULE OF EVENTS ..................................................................................................7 CONCLUSION....................................................................................................................8

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I.

INTRODUCTION Lead Plaintiff is pleased to report that he has reached an agreement to settle this class action

with Quovadx, Inc. ("Quovadx"), Lorine R. Sweeney and Gary T. Scherping ("Defendants") for payment of $10,000,000 in cash ("Settlement Fund"). The Settlement Fund was deposited on or before April 17, 2006 and has been earning interest for the benefit of the Settlement Class. The Settlement Fund will be distributed pursuant to the terms of the Stipulation of Settlement dated as of April 4, 2006 ("Stipulation"), submitted herewith. This unopposed motion1 is submitted in support of Lead Plaintiff's request for entry of an order wherein the Court will authorize the form and manner of the notice to be provided to Settlement Class Members, preliminarily approve the settlement, and schedule a hearing to consider final approval of the settlement. Submitted herewith is a [Proposed] Order Preliminarily Approving Settlement and Providing for Notice ["Notice Order"]. II. SUMMARY OF THE ACTION The Action was filed in this Court on April 5, 2004 as a class action on behalf of purchasers of Quovadx publicly traded securities between October 22, 2003 and March 15, 2004 ("Class Period"). Lead Plaintiff alleges that Defendants falsified Quovadx's financial results for the third quarter of 2003 and overstated Quovadx's third and fourth quarter software license revenues. Lead Plaintiff asserts that this conduct resulted in the artificial inflation of the price of Quovadx stock

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Pursuant to Local Rule 7.1, Lead Counsel have conferred with counsel for all parties, who support Lead Plaintiff's motion.

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during the Class Period in violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Pursuant to the Private Securities Litigation Reform Act of 1995, on September 8, 2004, the Court appointed David Heller Lead Plaintiff. Lead Plaintiff moved for class certification and on April 12, 2005, the Court certified a Class consisting of all persons who purchased Quovadx publicly traded securities on the open market during the period from October 22, 2003 to March 15, 2004. In order to facilitate the settlement of the Action, the Settling Parties agreed to settle on behalf of a Settlement Class consisting of all Persons who purchased or acquired Quovadx common stock between October 22, 2003 and March 15, 2004. As a result, those Persons who received Quovadx common stock when Quovadx acquired Rogue Wave Software during the Class Period will be included in the settlement. In addition, the Settling Parties have expressly excluded all claims arising under §§11 and 15 of the Securities Act of 1933, including the claims that are the subject of the Henderson v. Quovadx, Inc. case pending in this Court. III. THE PROPOSED SETTLEMENT WARRANTS PRELIMINARY APPROVAL A. The Settlement Is Within the Range of Possible Approval

Courts strongly favor settlement as a method for resolving disputes. See Amoco Prod. Co. v. Federal Power Comm'n, 465 F.2d 1350, 1354 (10th Cir. 1972); Grady v. DeVille Motor Hotel, Inc., 415 F.2d 449, 451 (10th Cir. 1969). This is especially true in complex class actions such as this. Big O Tires, Inc. v. Bigfoot 4x4, Inc., 167 F. Supp. 2d 1216, 1229 (D. Colo. 2001). Rule 23(e) of the Federal Rules of Civil Procedure requires judicial approval of the compromise of claims brought on a class basis. At the final approval hearing, the Court will have before it extensive papers submitted in support of the proposed settlement and will be asked to make -2-

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a determination as to whether the settlement is fair, reasonable and adequate, under all of the circumstances. At this juncture, however, the parties request only that the Court grant preliminary approval of the settlement. The procedure for review of a proposed class action settlement is well established: District court review of a class action settlement proposal is a two-step process. The first step is a preliminary, pre-notification hearing to determine whether the proposed settlement is "within the range of possible approval." This hearing is not a fairness hearing; its purpose, rather, is to ascertain whether there is any reason to notify the class members of the proposed settlement and to proceed with a fairness hearing. Manual for Complex Litigation §1.46, at 53-55 (West 1977). If the district court finds a settlement proposal "within the range of possible approval," it then proceeds to the second step in the review process, the fairness hearing. Class members are notified of the proposed settlement and of the fairness hearing at which they and all interested parties have an opportunity to be heard. The goal of the fairness hearing is "to adduce all information necessary to enable the judge intelligently to rule on whether the proposed settlement is `fair, reasonable, and adequate.'" Manual for Complex Litigation at 57. On the basis of all information available to him, the trial judge must decide whether or not to approve the proposed settlement. Armstrong v. Bd. of School Dirs., 616 F.2d 305, 314 (7th Cir. 1980) (emphasis added; footnote omitted). Lead Plaintiff is requesting the Court to take the first step in this process and grant preliminary approval of the proposed settlement. "The purpose of the preliminary approval process is to determine whether there is any reason not to notify the class members of the proposed settlement and to proceed with the fairness hearing." Lucas v. Kmart Corp., 234 F.R.D. 688, 693 (D. Colo. 2006). As the Manual for Complex Litigation explains, if the preliminary evaluation of the proposed settlement does not disclose grounds to doubt its fairness or other obvious deficiencies, such as unduly preferential treatment of the class representative or of segments of the class, or -3-

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excessive compensation for attorneys, and appears to fall within the range of possible approval, the Court should direct that notice under Rule 23(e) be given to class members of a formal fairness hearing, at which arguments and evidence may be presented in support of and in opposition to the settlement. Manual for Complex Litigation §30.41, at 237 (3d ed. 1995). The proposed settlement satisfies the standard for preliminary approval because it is "`within the range of possible approval.'" Armstrong, 616 F.2d at 314 (citation omitted). The settlement is very beneficial to the Settlement Class under the circumstances present here, providing the sum of $10 million to compensate Settlement Class Members for their allowed losses in Quovadx common stock. Given the complexities of this litigation and the continued risks if the parties were to proceed to trial, the settlement represents a reasonable resolution of this Action and eliminates the risk that the Settlement Class might otherwise recover nothing. Moreover, reference to factors considered by courts in granting final approval of class action settlements lend support to the proposition that the settlement is well within the range of possible approval. See Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002). First, the terms of the proposed settlement are the product of extensive arm's-length negotiations. Second, Lead Counsel have significant experience in securities and other complex class action litigation and have negotiated numerous other substantial class action settlements throughout the country. The Court may attribute significant weight to the belief of experienced counsel that the settlement is in the best interest of the Class. See In re King Res. Co. Sec. Litig., 420 F. Supp. 610, 624-25 (D. Colo. 1976). It is Lead Counsel's informed opinion that, given the uncertainty and further substantial expense of pursuing this Action through trial, the proposed settlement is fair, reasonable and adequate, and is in the best interests of the Settlement Class. -4-

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Finally, at the hearing to consider final approval of the settlement the Court must weigh the settlement against the risks of continued litigation. See id. at 624-25; Miller v. Woodmoor Corp., No. 74-F-988, 1978 U.S. Dist. LEXIS 17094 (D. Colo. June 20, 1978). Here Lead Plaintiff faced significant challenges that placed ultimate success in doubt. Defendants contend that Lead Plaintiff would not be able to prove to the satisfaction of this Court or a jury that their actions during the Class Period violated the securities laws or that the Settlement Class had compensable injuries resulting from the conduct of Defendants. At this juncture, however, the Court need not answer the ultimate question: Whether the settlement is fair, reasonable and adequate. At this stage, the Court is being asked only to permit notice of the terms of the settlement to be sent to the Settlement Class and schedule a hearing, pursuant to Federal Rule of Civil Procedure 23(e), to consider any expressed views by Settlement Class Members as to the fairness of the settlement, the Plan of Allocation, and Lead Counsel's request for an award of fees and expenses. 5 James Wm. Moore, Moore's Federal Practice §23.85[3], at 23-353 through 23-354 (3d ed. 2002). B. The Method of Notice Is Proper

As part of the preliminary approval process, the Court also must approve the method of providing notice to the Settlement Class. The proposed preliminary approval order submitted herewith provides that Lead Counsel will cause the Notice of Pendency and Proposed Settlement of Class Action ("Notice") and Proof of Claim and Release form to be mailed to all Settlement Class Members who can be identified with reasonable effort. In addition, a summary notice will be published in the national edition of Investor's Business Daily. The proposed method of giving notice is appropriate because it provides a fair opportunity for Settlement Class Members to obtain full -5-

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disclosure of the conditions of the settlement. See DeJulius v. New England Health Care Employees Pension Fund, 429 F.3d 935, 943-945 (10th Cir. 2005); Newton v. Fortis Ins. Co., No. 04-cv-1650-PSF-OES, 2006 U.S. Dist. LEXIS 33965 (D. Colo. May 26, 2006). The Notice will advise Settlement Class Members of the essential terms of the settlement, set forth the procedures for requesting exclusion from the Settlement Class or objecting to the settlement, and will provide specifics on the date, time and place of the settlement approval hearing. Thus, the Notice provides the necessary information for Settlement Class Members to make an informed decision regarding the proposed settlement. The Notice also contains information regarding Lead Counsel's fee application and the proposed plan for allocating the available settlement proceeds among Settlement Class Members. Lead Counsel believe the Notice fairly apprises class members of their rights with respect to the settlement and therefore is the best notice practicable under the circumstances and should be approved by the Court. See DeJulius, 429 F.3d at 943-45. IV. CERTIFICATION OF THE SETTLEMENT CLASS IS PROPER In connection with the settlement, the parties have stipulated to the certification of a Settlement Class as defined in the Stipulation. See Stipulation ¶1.21. The agreed upon Settlement Class satisfies the applicable requirements of Rule 23, and should be certified. On April 12, 2005, the Court certified a 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 -6-

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persons who acquired Quovadx stock at an allegedly inflated price due to the acquisition of Rogue Wave Software by Quovadx. For the same reasons set forth by Lead Plaintiff in his motion for class certification, the proposed Settlement Class meets the requirements of Rule 23 and should be certified for purposes of this settlement. V. SCHEDULE OF EVENTS In connection with preliminary approval of the settlement, the Court must set dates for mailing and publication of the Notice and the Summary Notice, deadlines for submitting claims, requesting exclusion from the Settlement Class, and objecting to the settlement. The Court must also set the date of the Settlement Hearing. Assuming the Court grants preliminary approval of the Stipulation submitted herewith on or before September 8, 2006, Lead Plaintiff proposes the following schedule: Notice Mailed to Settlement Class Summary Notice Published Deadline for Exclusion from the Settlement Class Deadline for Objection to the Settlement Settlement Hearing September 25, 2006 September 26, 2006 November 9, 2006

November 9, 2006

Week of November 27, 2006 (at the Court's convenience) December 26, 2006

Deadline for submitting Proof of Claim forms

The above dates with the exception of the Settlement Hearing have been inserted into the Proposed Order submitted herewith.

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VI.

CONCLUSION For all the foregoing reasons, Lead Plaintiff submits that the proposed settlement is a fair and

reasonable compromise of the issues in dispute and warrants this Court's preliminary approval. DATED: August 22, 2006 Respectfully submitted, LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP JOY ANN BULL s/ Joy Ann Bull JOY ANN BULL 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax) Email: [email protected] JEFFREY W. LAWRENCE DENNIS J. HERMAN EX KANO S. SAMS II 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] Email: [email protected] Email: [email protected] Lead Counsel for Plaintiffs
S:\Settlement\Quovadx.set\BRF PRELIM APPROVAL 00034092.doc

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CERTIFICATE OF SERVICE I hereby certify that on August 22, 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/ Joy Ann Bull JOY ANN BULL LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax) E-mail:[email protected]

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