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 Civil Action No. 04-cv-01006-RPM 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, 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.

JOINT MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT AND MEMORANDUM OF LAW IN SUPPORT OF SAME

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CERTIFICATION PURSUANT TO D.C.COLO.LCIVR 7.1.A Pursuant to D.COLO.LCivR 7.1A, Lead Plaintiffs' counsel and counsel for Defendant Quovadx, Inc. ("Quovadx") (collectively, the "Parties") conferred with each other by telephone and email regarding this motion, and have stipulated to the relief requested here. I. INTRODUCTION The Parties are pleased to report that they have reached an agreement to settle the present class action lawsuit for payment to the Class of the sum of $7,800,000 in cash ("Settlement Fund") in exchange for the compromise and release of all Released Claims (as defined in the Parties' Stipulation of Settlement). The Settlement Fund has been deposited into Lead Counsel's trust account and is presently earning interest for the benefit of the Class. The Settlement Fund will be distributed pursuant to the terms of the Stipulation of Settlement dated January 26, 2007 ("Stipulation"), and separately filed with the Court on this date. The Stipulation has affixed to it (i) a proposed Order Granting Preliminary Approval to Class Action Settlement ("Preliminary Approval Order"); (ii) a proposed Order Granting Final Approval to Class Action Settlement and Entry of Final Judgment ("Final Approval Order"); (iii) a Notice of Proposed Class Action Settlement (including a Claim Form and Release); and (iv) a Summary Notice for publication. Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure ("Rule 23(e)"), the Parties jointly move the Court for entry of their proposed Preliminary Approval Order wherein the Court would authorize the proposed forms, contents, and methods of notice to be given to the Class,1 preliminarily approve the settlement provided for in the Parties' Stipulation, and schedule a
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Lead Plaintiffs and Quovadx have reached an agreement to settle the present class action lawsuit in a manner that is coextensive with the class certified by the Court on November 10, 2005.

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Fairness Hearing to consider whether to grant final approval of the settlement and enter the Parties' proposed Final Approval Order. A copy of the Parties' proposed Preliminary Approval Order is attached hereto as Exhibit A. II. SUMMARY OF THE ACTION The Action was filed as a securities fraud class action against Quovadx, alleging violations of Sections 11 and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k and 77o, on behalf of Lead Plaintiffs and all other persons and entities who acquired newly issued Quovadx common stock pursuant to a Form S-4 Registration Statement filed in connection with Quovadx's exchange offer for all outstanding shares of Rogue Wave Software, Inc. ("Rogue Wave"), which acquisition occurred on December 19, 2003. Pursuant to the Private Securities Litigation Reform Act of 1995, on June 29, 2005, the Court appointed 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. as Lead Plaintiffs. Lead Plaintiffs moved for class certification, and on November 10, 2005, the Court certified a Class consisting of all persons and entities who acquired newly issued Quovadx common stock pursuant to a Registration Statement filed in connection with Quovadx's exchange offer for all of the outstanding shares of Rogue Wave, which became effective on or about December 19, 2003. The Class does not include any present or former defendant in this action; members of the immediate family of each of the former defendants; any person, firm, trust, corporation, officer, director, or other individual or entity in which any of the present or former defendants has a controlling interest or which is related to or affiliated with any of the

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present or former defendants; and the legal representatives, agents, affiliates, heirs, successors in interest, or assigns of any excluded party. In the Action, Quovadx did not oppose Lead Plaintiffs' Motion for Partial Summary Judgment on the question of liability under Section 11 of the Act for filing a Registration Statement that incorporated financial statements that misstated revenue from transactions with the InfoTech Network Group. Quovadx, however, continues to deny each and all of the claims and contentions alleged by Lead Plaintiffs concerning the existence of material omissions in the Registration Statement. Quovadx also has conceded that some Class Members suffered

damages, but Quovadx continues to deny the claims and contentions alleged by Lead Plaintiffs as to the amount of the Class Members' damages. 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. Fed. Power Comm'n, 465 F.2d 1350, 1354 (10th Cir. 1972); Grady v. De Ville 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) requires judicial approval of the compromise of claims brought on a class basis. 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

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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 Sch. Dirs., 616 F.2d 305, 314 (7th Cir. 1980) (emphasis added and footnote omitted); see also Manual for Complex Litigation (Fourth) §§ 21.632 at 320-21, 21.634 at 322 (Fed. Jud. Ctr. 2004) (internal citations and footnotes omitted); Alvarado Partners, L.P. v. Mehta, 723 F. Supp. 540, 545 (D. Colo. 1989) (describing the two-step process followed by the trial court before determining whether to grant final approval to the partial settlement). At the preliminary approval stage, this Court should merely examine whether the settlement is within the range of possible final approval because the Court, as well as any objectors, will have the opportunity to consider all the relevant factors at the Fairness Hearing. See Horton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 855 F. Supp. 825, 827 (E.D.N.C. 1994). "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). In conducting this determination, the Court should presume that the settlement is fair if it has been reached through arm's-length bargaining and after sufficient investigation and discovery of the claims and defenses in the case. In re Southern Ohio Correctional Facility, 173 F.R.D. 205, 211 (S.D. Ohio 1997). 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,

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such as unduly preferential treatment of the class representative or of segments of the class, or 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 (Fourth) §§ 21.632 at 320-21, 21.634 at 322 (Fed. Jud. Ctr. 2004). 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 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 take the first step in this process and grant preliminary approval of the proposed settlement. The proposed settlement here satisfies the standard for preliminary approval because it is well within the range of possible approval. See Armstrong, 616 F.2d at 314. The settlement is very beneficial to the Class under the circumstances presented here, providing the sum of $7,800,000 to compensate Class Members for their alleged losses in connection with Quovadx's exchange offer for all of the outstanding shares of Rogue Wave, which became effective on or about December 19, 2003. 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 Class might recover damages in an amount substantially less than the amount claimed by Lead Plaintiffs. Moreover, reference to factors considered by courts in granting final approval of class action settlements lend support to the proposition that this settlement is well within the range of

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possible approval. See, e.g., 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 that occurred over a period of approximately one year. Second, Lead Counsel has significant experience in securities and other complex class action litigation. The Court may attribute significant weight to the belief of experienced class 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 Class Members. Finally, at the Fairness Hearing tentatively scheduled for May 4, 2007, the Court will have the opportunity to weigh the settlement's benefits against the risks of continued litigation and other relevant factors. See id.; Miller v. Woodmoor Corp., No. 74-F-988, 1978 U.S. Dist. LEXIS 17094 (D. Colo. June 20, 1978). Here, Lead Plaintiffs faced substantial challenges in proving the existence of the alleged material omissions in the Registration Statement and the amount of the Class Members' damages--both issues that Quovadx has vigorously contested. At this juncture, however, the Court need not answer the ultimate question of whether the settlement is fair, reasonable, and adequate to the Class. The Parties only ask the Court, pursuant to Rule 23(e), to (a) authorize the Parties to provide mailed and publication notice of the terms of the proposed settlement to the Class, (b) set a deadline by which members of the Class must submit their Claim Forms, (c) schedule the Fairness Hearing, and (d) at that hearing, consider any views expressed by objecting Class Members and determine whether to enter the Parties' proposed Final Approval Order.

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B.

The Parties' Proposed Forms of Notice and Methods of Notice Dissemination Satisfy Rule 23 and Due Process.

Rule 23(e)(1)(B) requires that "[t]he court must direct notice in a reasonable manner to all class members who would be bound by a proposed settlement, voluntary dismissal, or compromise." The Parties jointly propose a notice plan that provides for the best notice

practicable under the circumstances. 1. Mailed Settlement Notice and Claim Form

The Parties have submitted a proposed combined Settlement Notice and Claim Form and a plan for its dissemination by direct mail to the members of the Class whose addresses are currently known or can be identified through reasonable effort. (See Stipulation ¶ 1.27 & Ex. 3.) Quovadx and Lead Plaintiffs previously have created a database that contains mailing addresses for many of the members of the Class and that the Parties have used to provide notice of class certification and a request for information to Class Members. The Parties will use the existing notice database to send, by first-class United States Mail, to every member of the Class whose address is known or reasonably identifiable, a copy of the Notice Materials. This method of individual notice constitutes the "best notice practicable under the circumstances." Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 176 (1975). Rule 23(e) enumerates three components of any settlement notice. First, the notice should advise each Class Member that the Court will exclude from the Class any person who so requests by a specified date. See Fed. R. Civ. P. 23(e)(3). Second, the notice should inform Class Members that the judgment will include all members who do not request exclusion. See Fed. R. Civ. P. 23(1)(B). Third, the notice must inform Class Members that any Class Member may object to a proposed settlement or compromise that requires court approval under Rule

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23(e)(1)(A). See Fed. R. Civ. P. 23(e)(4)(A). The Parties' proposed Settlement Notice meets each of these requirements. (See Stipulation Ex. 3.) In addition, Rule 23 and due process require that a settlement notice include other information. See, e.g., In re Nissan Motor Corp. Antitrust Litig., 552 F.2d 1088, 1104 (5th Cir. 1977). The Notice Materials here satisfies these additional requirements, as described by the United States Supreme Court: The plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel. The notice must be the best practicable, "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." The notice should describe the action and the plaintiffs' rights in it. Additionally, we hold that due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an "opt out" or "request for exclusion" form to the court. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985) (internal citations omitted). The Settlement Notice and Claim Form fairly, accurately, and reasonably inform members of the Class of the nature of the litigation and the essential terms of the settlement, including information regarding attorneys' fees, how to obtain additional information regarding this lawsuit and the settlement, how to (1) challenge the settlement or exclude themselves from the Class, if they wish to do so, or (2) if they are eligible for and wish to seek compensation from the Settlement Fund, complete the Claim Form and return it directly to the Claims Administrator, and the time and place of the Fairness Hearing. (Compare Stipulation Ex. 3 with Manual for Complex Litigation (Fourth) §§ 21.633 at 321-22, 21.722 at 338 (describing requirements of settlement notices).)

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2.

Newspaper Publication of the Summary Notice

Even though the number of Class Members who will not receive individual notice by United States Mail is likely to be small, and even though publication notice is not required in such circumstances, the Parties also have submitted a proposed Summary Notice and a plan for its publication in a newspaper with nationwide distribution. (See Stipulation ¶ 1.30 & Ex. 4.) Lead Counsel shall cause the publication of the Summary Notice in the national edition of Investor's Business Daily. The Summary Notice fairly and reasonably provides to Class Members (1) appropriate information about the nature of the litigation and the essential terms of the settlement, (2) appropriate information about how to obtain additional information regarding the settlement, (3) appropriate information about and means for obtaining a Settlement Notice and Claim Form, (4) appropriate information about and means for submitting a claim, and (5) appropriate information about how to challenge or exclude themselves from the settlement and how to appear in this lawsuit, if they wish to do so. (See Stipulation Ex. 4.) Taken together, the Settlement Notice and Claim Form, the Summary Notice, and the plan for dissemination and publication of those notices satisfy the requirement of Rule 23 and the due process clause that the Court provide to the Class Members the best notice practicable under the circumstances. See, e.g., Zimmer Paper Prods. Inc. v. Berger & Montague, P.C., 758 F.2d 86, 90 (3d Cir. 1985) ("It is well settled that in the usual situation first-class mail and publication in the press fully satisfy the notice requirements of both Fed. R. Civ. P. 23 and the due process clause.").

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IV.

PROPOSED SCHEDULE OF EVENTS In connection with preliminary approval of the settlement, the Court must set deadlines

for mailing and publication of the notices, submitting claims, requesting exclusion from the Class, and objecting to the settlement. The Court also should set the date of the Fairness Hearing. Assuming the Court grants preliminary approval of the Stipulation submitted herewith, the Parties propose the following schedule: Notice Mailed to the Class Summary Notice Published Deadline for Exclusion from the Class Deadline for Objection to the Settlement Fairness Hearing Deadline for submitting Claim Forms February 16, 2007 February 16, 2007 March 16, 2007 March 16, 2007 May 4, 2007 April 16, 2007

The above dates have been inserted into the Proposed Order submitted herewith. V. CONCLUSION The Parties' joint motion should be granted, and the parties' proposed Order Granting Preliminary Approval to Class Action Settlement should be entered.

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Dated: January 26, 2007

Respectfully submitted,

s/ Michael J. Hahn _______ Lawrence M. Rolnick Gavin J. Rooney Michael J. Hahn Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attorneys for Lead Plaintiffs and the Class

s/ Michael T. Williams Hugh Q. Gottschalk John M. Vaught Michael T. Williams Wheeler Trigg Kennedy LLP 1801 California Street, Suite 3600 Denver, Colorado 80202 Attorneys for Defendant Quovadx, Inc.

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CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on January 26, 2007, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses:
· · · · · · · · · · · · ·

Frederick J. Baumann [email protected],[email protected] Solomon Benjamin Cera [email protected],[email protected] Hugh Gottschalk [email protected],[email protected],[email protected] Michael Jeffrey Hahn [email protected],[email protected] Marcela A. Kirberger [email protected] Marc Bradley Kramer [email protected],[email protected] Evan S. Lipstein [email protected],[email protected] Lawrence M. Rolnick [email protected] Gavin J. Rooney [email protected],[email protected] John Peter Stigi , III [email protected] John Mark Vaught [email protected],[email protected] Craig Richard Welling [email protected],[email protected] Michael T. Williams [email protected],[email protected],[email protected]

s/ Michael T. Williams Michael T. Williams Attorney for Defendant Quovadx, Inc. Wheeler Trigg Kennedy LLP 1801 California Street, Suite 3600 Denver, Colorado 80202 Telephone: (303) 244-1800 Facsimile: (303) 244-1879

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