Free Motion for Miscellaneous Relief - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO SPECIAL SITUATIONS FUND III, L.P., SPECIAL SITUATIONS CAYMAN FUND, L.P., SPECIAL SITUATIONS TECHNOLOGY FUND NEW, L.P., and SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P., on behalf of themselves and others similarly situated, Plaintiffs, v. QUOVADX, INC., LORINE R. SWEENEY, GARY T. SCHERPING, JEFFREY M. KRAUSS, FRED L. BROWN, J. ANDREW COWHERD, JAMES B. HOOVER, CHARLES J. ROESSLEIN, and JAMES A. GILBERT, Defendants.

Civil Action No. 1:04-cv-01006-RPM

LEAD PLAINTIFFS' MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT AND PLAN OF ALLOCATION OF SETTLEMENT PROCEEDS

LOWENSTEIN SANDLER PC 65 Livingston Avenue Roseland, New Jersey 07068 973-597-2500 Attorneys for Lead Plaintiffs Of Counsel: Lawrence M. Rolnick, Esq.

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TABLE OF CONTENTS TABLE OF CONTENTS .............................................................................................................i TABLE OF AUTHORITIES.......................................................................................................ii INTRODUCTION ......................................................................................................................1 ARGUMENT..............................................................................................................................3 I. STANDARDS FOR APPROVAL OF CLASS ACTION SETTLEMENTS. ...........................3 II. THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE. ...................................5 A. The Settlement Was Fairly and Honestly Negotiated. ............................................................5 B. Serious Questions of Law and Fact Exist, Placing the Ultimate Outcome of the Litigation in Doubt ................................................................................................................5 C. The Value of an Immediate Recovery Outweighs the Mere Possibility of Future Relief. ........6 D. The Recommendation of Experienced Counsel Strongly Favors Approval of the Settlement .............................................................................................................................9 E. No Objections to the Settlement Have Been Received............................................................9 III. THE NOTICE PROGRAM SATISFIES ALL APPLICABLE REQUIREMENTS. ............10 IV. THE PLAN OF ALLOCATION IS FAIR AND REASONABLE.......................................11 CONCLUSION.........................................................................................................................14

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TABLE OF AUTHORITIES CASES In re "Agent Orange" Product Liability Litigation, 611 F. Supp. 1396 (E.D.N.Y. 1985), aff'd in part and rev'd in part on other grounds, 818 F.2d 179 (2d Cir. 1987) .............................................................................................................................12 Alvarado Partners, L. P. v. Mehta, 723 F. Supp. 540 (D. Colo. 1989).........................4, 6, 7 In re America Bank Note Holographics, Inc., Security Litigation, 127 F. Supp. 2d 418 (S.D.N.Y. 2001)......................................................................................................11 Armstrong v. Board of School Directors, 616 F.2d 305 (7th Cir. 1980)............................9 Beecher v. Able, 575 F.2d 1010 (2d Cir. 1978)...............................................................11 Carson v. America Brands, Inc., 450 U.S. 79 (1981)........................................................3 In re Chicken Antitrust Litigation America Poultry, 669 F.2d 228 (5th Cir. 1982)..........11 DeJulius v. New England Health Care Employees Pension Fund, 429 F.3d 935 (10th Cir. 2005) .............................................................................................................11 Diaz v. Romer, 801 F. Supp. 405 (D. Colo. 1992), aff'd, 9 F.3d 116 (10th Cir. 1993) ...............................................................................................................................3 Gottlieb v. Wiles, 11 F.3d 1004 (10th Cir. 1993) .........................................................3, 4, 6, 7 Grady v. de Ville Motor Hotel, Inc., 415 F.2d 449 (10th Cir. 1969)..................................3 In re Ikon Office Solutions,Inc., 194 F.R.D. 166 (E.D.Pa. 2006) ....................................11 Jones v. Nuclear Pharmacy, Inc., 741 F.2d 322 (10th Cir. 1984) ................................3, 4, 5, 6 In re King Res. Co. Security Litigation, 420 F. Supp. 610 (D. Colo. 1976)...................4, 9 In re Mego Finance Corp. Security Litigation, 213 F.3d 454 (9th Cir. 2000)..................12 In re New Mexico Natural Gas Antitrust Litigation, 607 F. Supp. 1491 (D. Colo. 1984) ...............................................................................................................................4

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Officers for Justice v. Civil Service Commission, 688 F.2d 615 (9th Cir. 1982)................4 Petrovic v. AMOCO Oil Co., 200 F.3d 1140 (8th Cir. 1999) ..........................................12 Class Plaintiffs v. Seattle, 955 F.2d 1268 (9th Cir. 1992) ...............................................11 Protective Committee for Independent Stockholders of TMT Trailer Ferry v. Anderson, 390 U.S. 414 (1968)........................................................................................3 Robbins v. Koger Props., 116 F.3d 1441 (11th Cir. 1997)................................................6 Rubenstein v. Republic National'1 Life Insurance Co., 74 F.R.D. 337 (N.D. Tex. 1976) ...............................................................................................................................7 S.C. National Bank v. Stone, 749 F. Supp. 1419 (D.S.C. 1990) ......................................12 In re Warner Commc'ns Security Litigation, 618 F. Supp. 735 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986)................................................................................8, 11 Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982)......................................................11 White v. NFL, 822 F. Supp. 1389 (D. Minn. 1993).........................................................11 Wilkerson v. Martin Marietta Corp., 171 F.R.D. 273 (D. Colo. 1997)..........................3, 8 Williams v. First National Bank, 216 U.S. 582 (1910) .....................................................3 RULES Federal Rule of Civil Procedure 23............................................................................3, 11 STATUTES 15 U.S.C. § 77k(e).........................................................................................................12 ARTICLES Elaine Buckberg, Todd Foster, and Stephanie Plancich, Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 8 (NERA February 2004) ...............................................................................................................................8 Ronald I. Miller, Ph.D., Todd Foster, Elaine Buckberg, Ph.D., Recent Trends in Shareholder Class Action Litigation: Beyond the Mega-Settlements, is Stabilization Ahead?, at 8 (NERA April 2006) ................................................................9

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Lead Plaintiffs Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P., Special Situations Technology Fund New, L.P., and Special Situations Fund II, L.P. (collectively, "Lead Plaintiffs"), by and through their attorneys, Lowenstein Sandler P.C., hereby submit this memorandum of law in support of their Motion for Final Approval of Class Action Settlement and Plan of Allocation of Settlement Proceeds. INTRODUCTION The proposed settlement reached in this securities class action lawsuit between Lead Plaintiffs and Quovadx is an excellent outcome for the Class. Essentially, the settlement fund consists of $7,800,000, which is a recovery of approximately 85.6% of the total damages, after applying the statutorily required mitigation, assuming complete participation by the Class and excluding any deductions for negative loss causation. Moreover, the settlement entirely

eliminates the risk of the Class receiving less than this amount at trial, which could occur if Quovadx prevailed in demonstrating that it was not liable for omissions in the Registration Statement filed with the Securities and Exchange Commission, and/or that the decline in the company's share price was attributable to factors other than misstatements and omissions. An overview of Lead Plaintiffs' claims and the history of this action are detailed in the Declaration of Lawrence M. Rolnick, Esq. in Support of Lead Plaintiffs Motion for Final Approval of Class Action Settlement and Plan of Allocation ("Rolnick Decl."), filed herewith. In summary, Lead Plaintiffs and their counsel filed the Action after conducting an extensive factual investigation; reviewed and analyzed approximately 350,000 pages of Quovadx and third party documents to establish the facts of the fraud; obtained certification of the Class; moved for and obtained partial summary judgment as to all affirmative misstatements, including the improper recognition of revenue from a transaction involving Infotech, Network Group ("Infotech") in Quovadx's Registration Statement; moved for partial summary judgment to
S5313/68 04/24/2007 2150704.01

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establish Quovadx's liability for all material omissions in the Registration Statement; moved to amend the complaint to add allegations pertaining Quovadx's recognition of revenue for two additional transactions; moved to compel Quovadx's production of documents concerning the Audit Committee's investigation of the company's relationship with InfoTech and submit to a 30(b)(6) deposition regarding same; served expert reports; participated in a mediation; and negotiated a settlement that results in an excellent recovery for the Class. For the reasons discussed herein and in the Rolnick Declaration, Lead Counsel recommends that the settlement be approved as fair, reasonable, and adequate based upon its investigation of the facts pled, analysis of all evidence obtained to date, the amount of the settlement versus likely provable damages and past experience in other class action cases.

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ARGUMENT I. STANDARDS FOR APPROVAL OF CLASS ACTION SETTLEMENTS. Courts have long held that the settlement of disputed claims is favored as a matter of public policy. See Williams v. First Nat`l Bank, 216 U.S. 582, 595 (1910); Grady v. de Ville Motor Hotel, Inc., 415 F.2d 449, 451 (10th Cir. 1969); Wilkerson v. Martin Marietta Corp., 171 F.R.D. 273, 284 (D. Colo. 1997); Diaz v. Romer, 801 F. Supp. 405, 407 (D. Colo. 1992) (in approving class action settlement, the court explained that a "consensual resolution of a dispute is always preferred"), aff'd, 9 F.3d 116 (10th Cir. 1993). In deciding whether to approve a proposed settlement of a stockholders' class action under Federal Rule of Civil Procedure 23(e), this Court must find that the proposed settlement is "fair, reasonable and adequate." Gottlieb v. Wiles, 11 F.3d 1004, 1014 (10th Cir. 1993). The United States Supreme Court has stressed that: [T]he judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise. Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of litigation. Protective Comm. for Indep. Stockholders of TMT Trailer Ferry v. Anderson, 390 U.S. 414, 42425 (1968). The district court must exercise its "sound discretion" in approving a settlement. Jones v. Nuclear Pharmacy, Inc., 741 F.2d 322, 324 (10th Cir. 1984). But, as the Supreme Court has instructed, courts should not adjudicate the merits of the action, nor substitute their judgment for that of the parties who negotiate the settlement. See Carson v. Am. Brands, Inc., 450 U.S. 79, 88 n.14 (1981). As a court in this district stated:

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[T]he court's intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole is fair, reasonable and adequate to all concerned. Therefore, the settlement or fairness hearing is not to be turned into a trial or rehearsal for trial on the merits. In re New Mexico Natural Gas Antitrust Litig., 607 F. Supp. 1491, 1497 (D. Colo. 1984) (quoting Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 625 (9th Cir. 1982)). In Jones, the Tenth Circuit established factors for courts to consider in assessing the fairness of a settlement: In exercising its discretion, the trial court must approve a settlement if it is fair, reasonable and adequate. In assessing whether the settlement is fair, reasonable and adequate the trial court should consider: (1) whether the proposed settlement was fairly and honestly negotiated; (2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt; (3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and (4) the judgment of the parties that the settlement is fair and reasonable. 741 F.2d at 324; see also Gottlieb, 11 F.3d at 1014. Accord Alvarado Partners, L. P. v. Mehta, 723 F. Supp. 540, 546 (D. Colo. 1989); In re King Res. Co. Sec. Litig., 420 F. Supp. 610 (D. Colo. 1976). The Jones factors require the Court to decide whether the proposed settlement falls within the range of reasonable settlements, taking into account that settlements are compromises between the parties reflecting subjective, unquantifiable judgments concerning the risks and possible outcomes of litigation. As discussed herein and in the Rolnick Declaration, the

proposed settlement easily satisfies each of the factors articulated by the Tenth Circuit.

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II.

THE SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE. A. The Settlement Was Fairly and Honestly Negotiated.

The first factor that the Tenth Circuit considers in any assessment of the merits of a class action settlement is whether the proposed settlement was fairly and honesty negotiated. Here, this factor is easily satisfied. Indeed, highly experienced counsel on both sides, each with an understanding of the strengths and weaknesses of the respective claims and defenses, negotiated this settlement. The settlement discussions first took place in a mediation involving former Judge Layn R. Phillips, and were unsuccessful because Quovadx was willing to pay only an amount substantially below the amount of the ultimate settlement. After almost another year of hard fought litigation -- especially over the defendants' liability for so-called omissions and the damages opined by the experts -- the parties began to discuss settlement again, and ultimately reached agreeable terms. See Rolnick Decl., ¶¶ 8-9. B. Serious Questions of Law and Fact Exist, Placing the Ultimate Outcome of the Litigation in Doubt

The second factor considered by the Tenth Circuit is whether there are "serious questions of law and fact . . . [that] plac[ed] the ultimate outcome of the litigation in doubt." Jones, 741 F.2d at 324. Here, the gravamen of Lead Plaintiffs' Section 11 claim is that Quovadx filed a Registration Statement with the S.E.C. in connection with its acquisition of Rogue Wave Software, Inc., which incorporated financial statements that included improperly recognized revenue from a transaction with InfoTech. Lead Plaintiffs also alleged that there were material omissions in the Registration Statement, including that Quovadx's transaction with Infotech was circular -- i.e., that the contractual "payments" to Quovadx from InfoTech constituted a return of monies paid by the company to InfoTech under a separate undisclosed but simultaneous agreement.

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While Quovadx ultimately conceded liability for the affirmative misstatements in its Registration Statement, it denied liability for omissions. When this Court denied Lead Plaintiffs' motion for partial summary judgment as to all omissions-based liability, the ultimate outcome of this issue at trial was put into doubt. Moreover, the defendants raised serious questions of loss causation -- even if plaintiffs prevailed on their claimed omissions. Additionally, presenting this complex transaction to a jury posed a risk to Lead Plaintiffs' chances for success at trial. It is also possible that a jury would be swayed by testimony of Quovadx's witnesses and find no liability for omissions. Even assuming Lead Plaintiffs would be able to establish liability for all omissions, the ultimate outcome as to damages would still be in doubt because the parties vigorously disputed the extent of so-called negative loss causation. See Rolnick Decl. ¶¶ 12-14. Even if Lead Plaintiffs prevailed at trial, it is almost certain that, given the competing legal precedent and the differing views of the evidence, Quovadx would likely appeal the verdict. The appeals process would have spanned several years, during which time members of the Class would receive no distribution from the awarded damages. Moreover, an appeal of the verdict would carry the risk of reversal, in which case the Class would receive nothing after having prevailed on their claims at trial. See, e.g., Robbins v. Koger Props., 116 F.3d 1441 (11th Cir. 1997) (reversing plaintiffs jury verdict of $81 million for securities fraud). C. The Value of an Immediate Recovery Outweighs the Mere Possibility of Future Relief.

The third factor for evaluating the adequacy of a class action settlement is whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation. See Gottlieb, 11 F.3d at 1014; Jones, 741 F.2d at 324; see also Alvarado Partners, 723 F. Supp. at 546. This factor weighs the value of an immediate recovery "against the possibility of some greater relief at a later time, taking into consideration the

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additional risks and costs that go hand in hand with protracted litigation." Gottlieb, 11 F.3d at 1015. As many courts have noted, "`[t]he bird in the hand is to be preferred to the flock in the bush and a poor settlement to a good litigation.'" Rubenstein v. Republic Nat'1 Life Ins. Co., 74 F.R.D. 337, 347 (N.D. Tex. 1976) (citation omitted); see also Alvarado Partners, 723 F. Supp. at 547. As discussed above and in the Rolnick Declaration, Lead Plaintiffs faced risks as to whether a jury would ultimately find that Quovadx was responsible for omitting material information in the Registration Statement and whether the Court would grant to Lead Plaintiffs' motion to amend the complaint which sought to add allegations pertaining to Quovadx's recognition of revenue for two additional transactions (as well as whether the latter allegation could be proven at trial). In addition, in this action, like other Section 11 actions, there was great uncertainty as to the amount of damages. The determination of damages is a complicated and uncertain process, which often hinges upon a defendant establishing negative loss causation. Indeed, Quovadx's expert argued that 63% of Quovadx's price decline was caused by industrywide effects. The Class expert vigorously disputed Quovadx's negative loss causation analysis, and opined among other things that Quovadx's expert: employed an unreliable event study because serial correlation was present; improperly allocated stock price declines using an allocation methodology; and used a peer index that contradicted his own event study. Thus, it is unclear how a jury would decide the dispute over negative loss causation in formulating a damages award. Because it is conceivable that a jury could find that only a fraction of the statutory measure of damages is appropriate, this factor weighs in favor of a settlement.1 See Rolnick Decl. ¶¶ 15-18.

1

As one judge has observed: -77

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Also balanced against the risks of not being able to prove omissions at trial, not being permitted to amend the complaint to add additional transactions or proving improprieties associated with those transactions, and the risk of Quovadx proving negative loss causation, is the excellent recovery for the Class if the settlement is approved. The Class expert opined that after applying the statutorily required mitigation and without accounting for any negative loss causation, damages totaled $9,107,239. If every member of the Class member participates in the settlement, it represents a recovery of 85.6% of the damages, after applying the statutorily required mitigation, and excluding any deductions for negative loss causation. Such a recovery is well above the norm. Id. Not only is the settlement exceptional when weighed against a potential trial recovery, but it is extraordinary when weighed against other class action settlements. A study by National Economic Research Associates ("NERA") states that in 2003, the median percentage of investor losses obtained in shareholder class action settlements was 2.8%. See Elaine Buckberg, Todd Foster, and Stephanie Plancich, Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 8 (NERA February 2004), attached as Exhibit 1 to the Rolnick Decl. The subsequent NERA April 2006 study includes a chart that indicates the median ratio of the settlement amount

Undoubtedly, expert testimony would be needed to fix not only the amount, but the existence, of actual damages. In this "battle of experts," it is virtually impossible to predict with any certainty which testimony would be credited, and ultimately, which damages would be found to have been caused by actionable, rather than the myriad nonactionable factors such as general market conditions. In re Warner Commc'ns Sec. Litig., 618 F. Supp. 735, 744-45 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986) (citations omitted); see also Wilkerson, 171 F.R.D. at 286 ("It is clear that a fact finder, when confronted with diverging opinions from experts of this caliber, could adopt the approaches used by one expert, or the other; could reject both; or could arrive at a middle ground between the two."). -88

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to investor losses for 2004 and 2005 were 2.4% and 2.8% respectively. See Ronald I. Miller, Ph.D., Todd Foster, Elaine Buckberg, Ph.D., Recent Trends in Shareholder Class Action Litigation: Beyond the Mega-Settlements, is Stabilization Ahead?, at 8 (NERA April 2006), attached as Exhibit 2 to the Rolnick Decl. D. The Recommendation of Experienced Counsel Strongly Favors Approval of the Settlement

The fourth factor considered by the Tenth Circuit -- i.e., the judgment of the parties that the settlement is fair and reasonable -- also strongly supports approval of the settlement.2 In this regard, "the court is entitled to rely heavily on the opinion of competent counsel." Armstrong v. Bd. of Sch. Dirs., 616 F.2d 305, 325 (7th Cir. 1980). See also King Res., 420 F. Supp. at 625 ("Courts have consistently refused to substitute their business judgment for that of counsel, absent evidence of fraud or overreaching."). Here, experienced and well-respected Lead

Counsel, which been involved in the prosecution of securities and other complex class action lawsuits and has negotiated other substantial class action settlements, has concluded that the settlement is a very good result for the Class. This conclusion is based, among other factors, on a careful review and analysis of all the evidence, the likelihood of prevailing on the claims asserted, the likely appeals and subsequent proceedings necessary if Lead Plaintiffs prevailed at trial. E. No Objections to the Settlement Have Been Received.

No objections to the settlement have been received from any Class member, except for William S. Karn's "Motion for Admission of Appearance Of Objecting Share Owner and Motion
2

Over 4,619 notices were mailed to potential Class members derived a list provided to the Claims Administrator. See Declaration of Anya Verkhovskaya ¶ 5 (Doc # 257). Additionally, 3,124 notices have been mailed to the largest brokerage firms, banks, institutions and nominees. Id. ¶ 4. The deadline for objections was March 16, 2007, and counsel has received only one objection to the settlement from a person who is not a Class member. (Doc. # 258). -99

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for Hearing on Alleged Title USC 1 Violation and Motion For Ruling on Constitutionality Of Class Action" (Doc. #238) and his "Motion for Allowance Of HTML Format Filing By Objecting Share Owner." (Doc. #239). The Court already denied both of Mr. Karn's motions. (Doc. # 240). Moreover, he is not a member of the Class and therefore lacks standing to file an objection. (Doc. # 258).3 III. THE NOTICE PROGRAM SATISFIES ALL APPLICABLE REQUIREMENTS. The Court-approved notice program by mail and publication has been completed by Lead Counsel. A qualified and experienced claims administrator, A.B. Data, Ltd. ("A.B. Data"), administered the notice process. A.B. Data mailed the Court approved Notice of Pendency and Proposed Settlement of Class Action ("Notice") to 4,619 potential Class members who were derived from a list provided to the Claims Administrator. See Declaration of Anya

Verkhovskaya ¶ 5 (Doc # 257). A.B. Data also mailed such information to 3,124 of the largest brokerage firms, banks, institutions and nominees. Id. ¶ 4. In addition, the Summary Notice was published in the national edition of Investor's Business Daily on February 16, 2007. Id. ¶ 6. The Notice and Proof of Claim form was posted on A.B. Data's website, as well as on the webs-site, www.quovadxclassaction.com. Id. ¶ 8. The Notice informed Class members of the terms of the settlement, the nature of the litigation, the Plan of Allocation, the attorney fees and expense request, and the date, time and place of the hearing on final approval of the settlement. In addition, the Notice described the Class members' rights, as well as the procedure for them to request exclusion from the Class or object to any aspect of the settlement, as well as the procedure for filing a Proof of Claim and Release form. The Notice also explained how to obtain additional information regarding the
3

The basis for Mr. Karn's objection is a generalized antipathy to all class actions, regardless of their merits or results. The Court dismissed this objector's motion to appear "an objecting shareholder." (Doc. # 240). -1010

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settlement or litigation and whom to contact with any questions. The published Summary Notice clearly and concisely provided information concerning the settlement and the means to obtain a copy of the Notice. The notice program complies with the requirements of Rule 23, due process principles and the pertinent provisions of the PSLRA, and is similar to procedures approved in other cases. See DeJulius v. New England Health Care Employees Pension Fund, 429 F.3d 935, 943-47 (10th Cir. 2005). IV. THE PLAN OF ALLOCATION IS FAIR AND REASONABLE. Lead Plaintiffs also seek approval of the plan of allocation of the settlement proceeds. The Plan of allocation was set forth in the Notice mailed to Class members. The plan of allocation will distribute the settlement proceeds to those Class members who suffered economic losses as a result of the alleged fraud. Assessment of a plan of allocation in a class action under Federal Rule of Civil Procedure 23 is governed by the same standards of review applicable to the settlement as a whole -- the plan must be fair and reasonable. See In re Ikon Office Solutions, Inc., 194 F.R.D. 166, 184 (E.D.Pa. 2000); Class Plaintiffs v. Seattle, 955 F.2d 1268, 1284 (9th Cir. 1992). An allocation formula need only have a reasonable basis, particularly if

recommended by experienced class counsel. See White v. NFL, 822 F. Supp. 1389, 1420-24 (D. Minn. 1993); In re Am. Bank Note Holographics, Inc., Sec. Litig., 127 F. Supp. 2d 418, 429-30 (S.D.N.Y. 2001). District courts enjoy "broad supervisory powers over the administration of class-action settlements to allocate the proceeds among the claiming class members . . . equitably." Beecher v. Able, 575 f.2d 1010, 1016 (2d Cir. 1978); Accord In re Chicken Antitrust Litig. Am. Poultry, 669 F.2d 228, 238 (5th Cir. 1982). Numerous courts have approved distribution plans that allocate the settlement proceeds according to the relative strengths and weaknesses of the various claims. See Warner Comm., 618 F.Supp. at 745; Weinberger v. Kendrick, 698 F.2d 61, 78 (2d -1111

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Cir. 1982). Thus, "if one set of claims had a greater likelihood of ultimate success than another set of claims, it is appropriate to weigh `distribution of the settlement . . . in favor of plaintiffs whose claims comprise the set' that was more likely to succeed." In re "Agent Orange" Prod. Liab. Litig., 611 F. Supp. 1396, 1411 (E.D.N.Y. 1985) (quoting In re Corrugated Container Antitrust Litig., 643 F.2d 195, 220 (5th Cir. 1981)), aff'd in part and rev'd in part on other grounds, 818 F.2d 179 (2d Cir. 1987). Moreover, there is no requirement that a settlement must benefit all class members equally. See S.C. Nat'l Bank v. Stone, 749 F. Supp. 1419, 1437 (D.S.C. 1990) (approving settlement where some class members did not share in recovery); In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 461 (9th Cir. 2000) (same); Petrovic v. AMOCO Oil Co., 200 F.3d 1140, 1152 (8th Cir. 1999) (upholding distribution plan where class members received different levels of compensation and finding that no subgroup was treated unfairly). The decisions cited above acknowledge that the goal of a distribution plan is fairness to the class as a whole, taking into consideration the strength of claims based on available evidence. Here, Lead Counsel developed a plan of allocation that would result in a fair distribution of the available settlement proceeds. Quovadx made three corrective disclosures, which occurred on March 15, April 12, and May 13, 2004, and caused material declines in the company's share price. Under Section 11, there is a statutory measure of damages that is calculated as the difference between the price paid for the stock and the value of the stock on the date the lawsuit is instituted (the "Statutory Measure"). 15 U.S.C. § 77k(e). However, if there is a disposition of the stock at a price higher than the value of the stock on the date the lawsuit was initiated, damages are mitigated by statute using the subsequent sale price. Id. Here, the plan of allocation properly allows every member of the Class to submit a claim in an amount equal to the Statutory Measure subject to statutorily required subsequent-disposition mitigation. Accordingly, it denies

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recovery for Class members who have no damages because they sold their shares prior to the first disclosure (at a price higher than the merger price). As required by Section 11, Class members who sold their shares any time between the first corrective disclosure and the last corrective disclosure are awarded damages based upon the decline in share price that corresponds with the applicable disclosure. See generally Rolnick Decl. ¶¶ 19-24.

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CONCLUSION For the foregoing reasons, Lead Plaintiffs respectfully request that the Court grant this Motion for Final Approval of the Class Action Settlement and Plan of Allocation of Settlement Proceeds on the basis that the settlement and plan of allocation is fair, reasonable and in the best interest of the Class.

DATED: April 24, 2007 By:

Respectfully submitted, s/ Michael J. Hahn Michael J. Hahn, Esq. (MH-1767) Lawrence M. Rolnick, Esq. (LR-0546) LOWENSTEIN SANDLER PC 65 Livingston Avenue Roseland, New Jersey 07068 Telephone: (973) 597-2500 Fax: (973) 597-2469 Email: [email protected] -andBy: s/ Marc B. Kramer Marc B. Kramer, Esq. (MK-8473) A Professional Corporation 150 JFK Parkway, Suite 100 Short Hills, New Jersey 07078 Telephone: (973) 847-5924 Email: [email protected] Attorneys for Lead Plaintiffs Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P., Special Situations Technology Fund New, L.P., and Special Situations Technology Fund II, L.P.

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