Free Brief in Opposition to Motion - 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., Defendant.

QUOVADX, INC.'S OPPOSITION TO LEAD PLAINTIFFS' MOTION TO COMPEL

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TABLE OF CONTENTS INTRODUCTION...................................................................................................................... 1 STATEMENT OF FACTS ......................................................................................................... 4 A. B. C. Quovadx's Pre-suit Disclosures Regarding the Infotech Relationship ........................................................................................................ 4 Plaintiffs' Lawsuit and Allegations Regarding the Audit Committee's Investigation and Findings .............................................................. 5 The Court Ordered the Parties to Complete Fact Discovery by June 30, 2006, and Plaintiffs Failed to Take Any Deposition or to Request Production of Documents by the Stipulated Discovery Deadline .............................................................................................................. 6 Quovadx Timely Responded to Plaintiffs' Written Discovery Requests and Never Disclosed Any Privileged or Work-Product Information to Plaintiffs ...................................................................................... 7

D.

ARGUMENT ............................................................................................................................. 9 I. PLAINTIFFS HAVE NOT SHOWN THE REQUISITE GOOD CAUSE FOR REOPENING FACT DISCOVERY MONTHS AFTER THE DEADLINE SET BY THE COURT IN THE AMENDED SCHEDULING ORDER .......................................................................................................................... 9 A. B. It Was Plaintiffs, not Quovadx, Who Failed to Diligently Pursue Discovery Before the Deadlines Established by the Court.................................... 9 If, After More Than Two Years of Litigation, Plaintiffs Were Permitted to Reopen Fact Discovery, Quovadx Would Be Prejudiced ......................................................................................................... 12

II.

PLAINTIFFS HAVE FAILED TO SATISFY ANY OF THE THRESHOLD REQUIREMENTS FOR PRODUCTION OF QUOVADX'S PRIVILEGED OR WORK-PRODUCT MATERIALS.......................... 13

CONCLUSION ........................................................................................................................ 20

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INTRODUCTION Defendant Quovadx, Inc. ("Quovadx" or "the Company") respectfully submits this opposition to 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.'s ("Plaintiffs") Motion to Compel ("Plaintiffs' motion"), filed November 2, 2006. Plaintiffs' motion is based on two false premises. First, they baselessly contend that Quovadx has "inject[ed] the Audit Committee's investigation into this litigation . . . [and] waived any privilege." (Pls.' Mem. of Law in Supp. of Mot. to Compel ("Pls.' Mem.") at 6.) Second, Plaintiffs make the unsupported allegation that "no level of diligence by Lead Plaintiffs during discovery could have caused this motion to be filed any sooner." (Id. at 9.) The procedural history of this litigation shows that Plaintiffs, not Quovadx, attempted to "inject" the Audit Committee's investigation into this litigation when Plaintiffs cited on the Audit Committee's findings to support Plaintiffs' claims under Sections 11 and 15 of the Securities Act of 1933. Further, the facts show that Plaintiffs not only could have, but should have, pursued their belated discovery long ago--before the Court's June 30, 2006, deadline for the completion of fact discovery, which was a deadline jointly proposed to the Court by Plaintiffs and Quovadx and subsequently adopted by the Court in its Amended Scheduling Order ("Scheduling Order") [Doc. #176]. Plaintiffs' failure to diligently pursue discovery is shown by Plaintiffs' filing their motion: · more than two-and-a-half years after they learned that the Audit Committee of Quovadx's Board of Directors ("the Audit Committee") had conducted an internal investigation into Quovadx's relationship with the Infotech Network Group ("Infotech") and Quovadx had published the Audit Committee's findings in a May 13, 2004, press release (see Press Release, "Quovadx Provides Update

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Regarding Form 10-Q, Infotech Network Group," dated May 13, 2004, attached as Ex. C to Decl. of Lawrence M. Rolnick in Supp. of Pls.' Mot. to Compel)1; · more than 15 months after they filed their First Amended Class Action Complaint ("the complaint") in which Plaintiffs explicitly rely on the Audit Committee's findings and the Company's May 13, 2004, press release to support Plaintiffs' claims (see Compl. ¶¶ 56, 66-69); more than 15 months after Quovadx produced non-privileged, non-work-product documents concerning the facts underlying the Infotech relationship and the Audit Committee's investigation (see Am. Scheduling Order ¶ V ("The Defendants have shared with Lead Plaintiffs in this action Quovadx's entire production of documents in response to document requests in Heller, which satisfies the Defendants' obligations, in connection with both actions, pursuant to Fed. R. Civ. P. 26(a)(1)(B)."); Aff. of Jared Kopel ¶ 9, attached hereto Exhibit 1); more than four months after the Court's deadline for completing fact discovery had expired (see Am. Scheduling Order ¶ VI.C); and more than three months after Quovadx served Plaintiffs with it its Responses to Lead Plaintiffs' First Set of Interrogatories and First Set of Requests for Admission ("Quovadx's Discovery Responses") in which Quovadx disclosed all of the facts that Plaintiffs erroneously claim were not disclosed until the Company filed the Affidavit of Jeffrey Krauss ("Krauss Affidavit") on August 29, 2006 (compare Pls.' Mem. Ex. D [Doc. #205-5] with Krauss Aff. [Doc. #187]; see also Ex. 2 attached hereto).

·

· ·

Plaintiffs' only excuse for their belated filing of their motion is their assertion that Quovadx improperly withheld information and documents regarding the Audit Committee's investigation until August 29, 2006--i.e., the date on which Quovadx filed the Krauss Affidavit--which is no excuse at all because their assertion is false. During the entire two-anda-half-year pendency of this case, Plaintiffs were aware that the Audit Committee's investigation presented potential factual issues for trial, but they failed to take any deposition, let alone any deposition of a Quovadx representative regarding the Audit Committee's investigation,
1

Quovadx will cite to the exhibits to Mr. Rolnick's declaration as "Pls.' Mem. Ex. __."

2

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within the time prescribed in the Scheduling Order. More than 15 months ago Plaintiffs also received copies of Quovadx's non-privileged, non-work-product documents concerning the facts underlying the Audit Committee's investigation, but failed to timely serve Quovadx with any request for production of additional documents and failed to file a motion to compel production of the few privileged and work-product documents created during the course of the Audit Committee's investigation. After having waited until the last possible date on which to serve Quovadx with written discovery under the Scheduling Order, after having failed to timely serve any request for production of documents or for supplementation of Quovadx's July 2005 document production, and after having received Quovadx's timely served Discovery Responses, Plaintiffs inexplicably waited another three months to make their request for additional documents and a Rule 30(b)(6) deposition.2 (Compare Am. Scheduling Order ¶¶ VI.C & VI.I with Pls.' Mem. Ex. A.) In short, Plaintiffs have failed to make the requisite showing of good cause to reopen fact discovery.3 The Court should not permit Plaintiffs to delay the trial in this action on account of

2

Undoubtedly, it was not until Plaintiffs' counsel began preparing for the October 23, 2006, summary judgment hearing that they came to the tardy realization that they should have taken additional discovery to prepare Plaintiffs' claims for trial. (Cf. Pls.' Mem. Ex. A (Plaintiffs' counsel first requested additional discovery on the Thursday before the summary judgment hearing, which was held the following Monday).)
3

Federal Rule of Civil Procedure 16(b) ("Rule 16(b)") reads in pertinent part: Except in categories of actions exempted by district court rule as inappropriate, the district judge . . . shall, after receiving the report from the parties under Rule 26(f) or after consulting with the attorneys for the parties . . . by a scheduling conference, telephone, mail, or other suitable means, enter a scheduling order that limits the time . . .
(Footnote cont'd on next page)

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Plaintiffs' failure to conduct discovery in a timely manner. Accordingly, the Court should deny Plaintiffs' motion based on their failure to comply with Rule 16(b) and D.C.COLO.LCivR 16.1.4 Even if the Court were to consider Plaintiffs' waiver argument for production of Quovadx's privileged and work-product documents, Plaintiffs' motion should be denied. Quovadx has produced non-privileged, non-work-product documents concerning the facts underlying the Audit Committee's investigation, and Quovadx has never disclosed any attorneyclient communications or work product in this matter. Plaintiffs' waiver argument not only is unsupported, but contradicted, by the record before the Court, and Plaintiffs are not entitled to the relief they seek under Federal Rules of Civil Procedure 26(b) and 26(c). STATEMENT OF FACTS A. Quovadx's Pre-suit Disclosures Regarding the Infotech Relationship

On April 12, 2004, Quovadx publicly announced that the U.S. Securities and Exchange Commission ("SEC") had notified Quovadx that the SEC's previously announced informal inquiry had become a formal investigation, and that the Audit Committee had retained the law firm Hogan & Hartson LLP to conduct an investigation of Quovadx's relationship with Infotech, as well as Quovadx's disclosures concerning Infotech. (See Compl. ¶ 52; Pls.' Mot. for Partial
(Footnote cont'd from previous page)

(3) to complete discovery. ..... A schedule shall not be modified except upon a showing of good cause and by leave of the district judge, or when authorized by local rule, by a magistrate judge.
4

"The schedule established by a scheduling order shall not be modified except upon a showing of good cause and by leave of court." D.C.COLO.LCivR 16.1.

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S.J. Ex. 11 at 1.)5 That same day Quovadx also announced the resignations of former President and CEO Lorine Sweeney ("Sweeney") and former CFO Gary Scherping ("Scherping"). (Compl. ¶ 53; Pls.' Mot. for Partial S.J. Ex. 12 at 1.) On May 13, 2004, Quovadx issued a press release disclosing the results of the Audit Committee's investigation into the Infotech relationship. (Compl. ¶ 56; Pls.' Mem. Ex. C at 1-2.) B. Plaintiffs' Lawsuit and Allegations Regarding the Audit Committee's Investigation and Findings

This lawsuit was filed on May 17, 2004, against Quovadx, Sweeney, Scherping, and the members of Quovadx's Board of Directors, alleging that the Infotech transactions were fraudulent and intended to inflate the price of Quovadx's stock. (See Compl. ¶¶ 56, 58, 69.) Plaintiffs, who replaced Gayle Henderson as the named plaintiff, filed their complaint on July 26, 2005. (See id.) The complaint makes the following detailed allegations regarding the Audit Committee's investigation: On May 13, 2004, the Company issued a press release entitled "Quovadx Provides Update Regarding Form 10-Q, Infotech Network Group." Among other things, the release stated that new management had identified two distributor contracts totaling approximately $1 million entered into 2003 that required further review. The release went on to say that the Company had notified the SEC of these newly discovered "concerns" and that as a result of these findings Quovadx was unable to timely file its Quarterly Report on Form 10-Q for the period ending March 31, 2004. With respect to the Infotech problem the release stated in relevant part: [quoting from May 13, 2004, Press Release]. In essence, the audit committee investigation confirmed that the Infotech deal was a hoax, that the revenue from the Infotech Contract never existed at all, and that Sweeney and Scherping had orchestrated the massive fraud during September and

5

For the sake of judicial economy, Quovadx incorporates by reference several of the exhibits to Plaintiffs' and Defendant's respective summary judgment briefs.

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October of 2003 to inflate the price of Quovadx stock precisely at the same time the Company was in the midst of merger negotiations with Rogue Wave. (Id. ¶ 56.) C. The Court Ordered the Parties to Complete Fact Discovery by June 30, 2006, and Plaintiffs Failed to Take Any Deposition or to Request Production of Documents by the Stipulated Discovery Deadline

After the Court certified the plaintiff class, the parties jointly submitted a proposed amended scheduling order, which was subsequently entered by the Court on May 30, 2006. (See Am. Scheduling Order.) The Scheduling Order sets forth a detailed list of deadlines for the prosecution and defense of this case. (See id. ¶¶ II, III, VI.) Under the Scheduling Order, the fact discovery cutoff was June 30, 2006, and all written discovery had to be served no later than May 26, 2006. (Id. ¶¶ VI.C, VI.I.) On July 26, 2005, without awaiting a formal set of document requests from Plaintiffs, Quovadx produced to Plaintiffs all of the more than 67,000 pages of non-privileged, non-workproduct documents that Quovadx had produced to the lead plaintiff in the related Heller action. (See Ex. 1 ¶ 9; Pls.' Mem. at 4; id. Ex. E.) After receiving Quovadx's production of documents, Plaintiffs never served Quovadx with any request for production of additional documents, nor did Plaintiffs request supplementation of Quovadx's document production, nor did Plaintiffs file a motion to compel production of any privileged or work-product documents that Quovadx had withheld from its production. The first time that Plaintiffs requested additional documents concerning the Audit Committee's investigation was on October 19, 2006, five months after the deadline for serving Quovadx with requests for production of documents. (Compare Pls.' Mem. Ex. A with Am. Scheduling Order ¶ VI.I.) Further, Plaintiffs' counsel never raised their waiver argument in their correspondence with Quovadx's counsel. (See Pls.' Mem. Ex. B.)

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The first time Plaintiffs requested to take any deposition of a fact witness in this matter was October 19, 2006, in an e-mail from Plaintiffs' counsel Paul W. Horan to Quovadx's counsel Michael T. Williams. (See id. Ex. A.) Because Plaintiffs could have and should have noticed any deposition of a fact witness months earlier, Quovadx denied Plaintiffs' untimely request to reopen fact discovery. (See id. Ex. B.) D. Quovadx Timely Responded to Plaintiffs' Written Discovery Requests and Never Disclosed Any Privileged or Work-Product Information to Plaintiffs

On July 24, 2006, Quovadx timely served Plaintiffs with its responses to Plaintiffs' First Interrogatories and Requests for Admission. (See id. Ex. D; Order Granting Quovadx's

Unopposed Mot. for Extensions of Times to File S.J. Briefs & to Serve Resps. to Written Discovery dated July 14, 2006 [Doc. #182] (granting unopposed motion to allow the parties to serve each other with their respective responses to written discovery on July 24, 2006).) In response to Plaintiffs' reply in support of their motion for partial summary judgment in which Plaintiffs complained that Quovadx had not filed any affidavit in opposition to Plaintiffs' motion, Quovadx filed the Krauss Affidavit, on August 29, 2006. Contrary to Plaintiffs' statements to the Court (e.g., Pls.' Mem. at 2), each of the factual statements made by Mr. Krauss was contained in Quovadx's Discovery Responses.6 (Compare Krauss Aff. with Pls.' Mem. Ex. D; see also Ex. 2.)

6

For example, Plaintiffs argue that the Krauss Affidavit discloses "for the first time" that "some of the B.K. Birla Companies that backed Infotech . . . did have prior [software] distribution experience." (Pls.' Mem. at 2.) Plaintiffs neglect to inform the Court, however, that Quovadx's Response to Interrogatory No. 12(b) stated that "one or more of the B.K. Birla companies that backed Infotech did have prior [software] distribution experience." (Id. Ex. D at 13; see also id. at 25 (Quovadx's Resp. to Request for Admission No. 7).) Plaintiffs also do not state whether they ever attempted to discover background information regarding the B.K. Birla Companies, whether by reviewing the documents produced by Quovadx or from any other source.

7

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More than three months after Quovadx had served its Discovery Responses, on November 2, 2006, Plaintiffs filed their motion to compel. Plaintiffs now allege that Quovadx has engaged in "litigation gamesmanship" by failing "to produce documents underlying the Audit Committee investigation, and also invoked the attorney-client privilege and work product doctrines in its refusal to provide detailed responses to interrogatories." (Pls.' Mem. at 1.) The record demonstrates, however, that Quovadx fully disclosed to Plaintiffs the details of the Audit Committee's findings regarding the Infotech relationship (see id. Ex. D). Although there are a handful of documents that are protected against disclosure to third parties by the attorney-client privilege or the work product doctrine, or both, Quovadx has never disclosed those privileged or work-product documents to the Heller plaintiff, the SEC, or any other third party such that any evidentiary privilege has been waived by the Company. (See Ex. 1 ¶¶ 4-9.) Those documents include Mr. Kopel's Preliminary Report to Quovadx's Board of Directors, which is protected against disclosure by the attorney-client privilege. (See Ex. 1 ¶¶ 4, 7.) In other words, the Audit Committee's findings are not themselves privileged and have accordingly been disclosed to Plaintiffs, but some of the materials generated by the Company's lawyers at the direction of either the Board of Directors or the Audit Committee, or generated by the members of the Board of Directors to memorialize attorney-client communications, constitute non-discoverable, attorney-client communications and attorney work product.

8

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ARGUMENT I. PLAINTIFFS HAVE NOT SHOWN THE REQUISITE GOOD CAUSE FOR REOPENING FACT DISCOVERY MONTHS AFTER THE DEADLINE SET BY THE COURT IN THE AMENDED SCHEDULING ORDER A. It Was Plaintiffs, not Quovadx, Who Failed to Diligently Pursue Discovery Before the Deadlines Established by the Court

The factual premise for Plaintiffs' motion is false and misleading. Plaintiffs seek both a deposition and the production of additional documents pertaining to the Audit Committee's investigation on the grounds that Quovadx improperly withheld factual information in discovery and that Quovadx first disclosed that information in the Krauss Affidavit. As demonstrated above, however, it was Plaintiffs who attempted to inject the Audit Committee's investigation and findings into this litigation--an investigation and findings of which Plaintiffs were aware before this lawsuit was filed on May 17, 2004--and it was Plaintiffs who failed to pursue depositions or serve requests for production of documents before the deadline for completing fact discovery set out in the Court's Scheduling Order. (See Statement of Facts §§ A-C, supra.) Plaintiffs made the Audit Committee's investigation and findings an issue in this litigation at least as early as the filing of the complaint. (See Compl. ¶ 56.) Further, Quovadx timely disclosed to Plaintiffs, in Quovadx's Discovery Responses, each of the facts later recited in the Krauss Affidavit. (Compare Pls.' Mem. Ex. D with Krauss Aff.; see also Ex. 2.) Still further, more than 15 months before Plaintiffs filed their motion, Quovadx produced the non-privileged, non-work-product source documents concerning the facts underlying the Infotech relationship and the Audit Committee's special investigation. (Ex. 1 ¶ 9.) Thus, it is erroneous and misleading for Plaintiffs to repeatedly assert that Quovadx improperly withheld information until Quovadx filed the Krauss Affidavit. (See Pls.' Mem. at 1-2, 5-6.)

9

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It is well-established that the party seeking to modify a scheduling order must establish "good cause" for the modification. See Fed. R. Civ. P. 16(b); D.C.COLO.LCivR 16.1; Marcin Eng'g, LLC v. Founders At Grizzly Ranch, LLC, 219 F.R.D. 516, 521 (D. Colo. 2003) (denying the defendant's motion to reopen expert discovery because the defendant "was dilatory both in failing to review [the plaintiff's] hard copy work product when it was timely produced and also in failing to inform [the plaintiff] and the court that it believed the production was incomplete").7 "Good cause in this context requires a showing, among other things, that the party seeking the extension was diligent in its discovery efforts and could not complete the discovery by the courtordered deadline." Id. at 521. As the district court in Hannah v. Roadway Express, Inc., 200 F.R.D. 651 (D. Colo. 2001), explained in denying the plaintiff's motion for relief from the scheduling order to allow late discovery, [i]t is well known that we litigate these days under the burden of heavy case loads and clogged court calendars. . . . It is the purpose of the scheduling conference provisions of Rule 16(b) to provide the Court with an effective pretrial device into the management and progress of a case once issues are joined on the Court's docket. The . . . Scheduling Order is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril. 200 F.R.D. at 654 (internal citations omitted). Plaintiffs have offered this Court no legitimate basis on which to excuse Plaintiffs' delay in seeking the requested discovery--peril that Plaintiffs' counsel created at their own risk.

7

The same standard applies when a party requests additional discovery following a motion for summary judgment, which is really what Plaintiffs have done here. See Marcin Eng'g, 219 F.R.D. at 521 ("Not surprisingly, a similar rule exists with respect to motions seeking additional discovery in response to a motion for summary judgment.").

10

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In fact, Plaintiffs devote only two paragraphs in their memorandum to their argument that they have "easily" demonstrated the requisite "good cause" to reopen fact discovery. (Pls.' Mem. at 9.) They base their argument on the same false claims discussed above: "Quovadx has interjected information underlying the Audit Committee's findings through the Krauss Affidavit, which was filed only after the close of discovery." (Id.) In making this statement, Plaintiffs do not offer any plausible explanation for their delay in requesting a Rule 30(b)(6) deposition and additional documents, especially given that (1) the Company published findings of the Audit Committee before Plaintiffs filed this action, in a May 13, 2004, press release, also filed that same day with the SEC on a Form 8-K; (2) Plaintiffs' complaint, which was filed in July 2005, contains detailed allegations regarding the Audit Committee's investigation and findings; (3) in July 2005 Quovadx produced non-privileged, non-work-product documents concerning the facts underlying the Infotech relationship and the Audit Committee's investigation; (4) the Company timely responded to the only written discovery served by Plaintiffs, which did not include any request for production of documents; and (5) each fact recited in the Krauss Affidavit was disclosed to Plaintiffs in Quovadx's Discovery Responses. (See Statement of Facts §§ A-D.) Finally, Plaintiffs fail to explain why they waited more than three months after they supposedly learned those facts before seeking relief from the Court's Scheduling Order.8

8

Plaintiffs have failed to identify any fact recited in Quovadx's Discovery Responses or in the Krauss Affidavit that they could not have gleaned from the approximately 67,000 pages of documents produced to Plaintiffs in July 2005 or from some other equally available source. (See generally Pls.' Mem. at 1-10.)

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B.

If, After More Than Two Years of Litigation, Plaintiffs Were Permitted to Reopen Fact Discovery, Quovadx Would Be Prejudiced

If Plaintiffs were permitted to reopen fact discovery at this late stage of the case, Quovadx would suffer undue burden, costs, and prejudice by being forced to essentially relitigate a case that is nearly ready for trial and where (1) fact discovery has been completed for over four months; (2) the parties have briefed and argued and the Court has ruled on Plaintiffs' motion for summary judgment; (3) the parties have exchanged all of their expert reports; (4) Quovadx and its damages expert relied on existing discovery in preparing Quovadx's defenses to this action; (5) the parties are scheduled to complete expert discovery on December 21, 2006, with the deposition of Quovadx's damages expert; and (6) after December 21, 2006, the parties will be ready to prepare and file pretrial motions and to schedule the trial and trial management conference. All these factors weigh against reopening fact discovery here. Cf. Marcin Eng'g, 219 F.R.D. at 524. (denying motion to amend scheduling order filed after motion for summary judgment because such an amendment would prejudice party opposing the amendment, who had relied on existing discovery to oppose summary judgment, and because of the further delay and expense that would result from reopened discovery). In sum, Plaintiffs have failed to set forth any basis for a finding of good cause to reopen fact discovery. On the other hand, Quovadx would be prejudiced if the Plaintiffs were to prevent the Court and the parties from proceeding expeditiously to trial. Accordingly, Plaintiff's request to modify the Court's Scheduling Order should be denied pursuant to Rule 16(b) and Local Civil Rule 16.1. Cf. Marcin Eng'g, 219 F.R.D. at 523-24; Hannah, 200 F.R.D. at 654.

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II.

PLAINTIFFS HAVE FAILED TO SATISFY ANY OF THE THRESHOLD REQUIREMENTS FOR PRODUCTION OF QUOVADX'S PRIVILEGED OR WORK-PRODUCT MATERIALS More than 15 months after Quovadx produced to Plaintiffs non-privileged, non-work-

product documents concerning the Infotech relationship and the facts underlying the Audit Committee's investigation, Plaintiffs assert that they are entitled to privileged and work-product documents, as well as deposition testimony regarding the contents of attorney-client communications, concerning the Audit Committee's investigation. (Pls.' Mem. at 5). The purported basis for their motion is their assertion that Quovadx selectively disclosed for the first time in the Krauss Affidavit privileged and work-product information regarding the Audit Committee's investigation, thereby "improperly attempting to use the privilege as both a sword and a shield." (Id. at 6.) Plaintiffs' argument is baseless. In any dispute regarding the scope of a party's evidentiary privileges, the three threshold questions that must be resolved are (i) what information has been requested in discovery by the moving party, (ii) whether the requested information is relevant to a disputed issue and, therefore, discoverable in the absence of a privilege, and (iii) whether the responding party has waived its evidentiary privileges.9 See Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 982 (6th Cir. 2003); People v. Madera, 112 P.3d 688, 690-91 (Colo. 2005). The burden of establishing a waiver of the attorney-client privilege rests with the party seeking
9

It is well-established that the privilege applies to communications between a corporation's employees and outside corporate counsel where the communications are made to the attorney in his or her capacity as legal advisor. Upjohn Co. v. United States, 449 U.S. 383, 394-95 (1981) (where counsel had been engaged by upper management to conduct an internal corporate investigation, notes and memoranda reflecting communications between the corporation's employees and counsel were protected by the attorney-client privilege).

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to overcome the privilege. Aull v. Cavalcade Pension Plan, 185 F.R.D. 618, 624 (D. Colo. 1998). Further, without a showing of necessity or justification, the moving party cannot "secure written statements, private memoranda and personal recollections prepared or formed by an adverse party's counsel in the course of his legal duties" or "oral statements made by witnesses to" counsel. Hickman v. Taylor, 329 U.S. 495, 509-10, 512-13 (1947) (describing the work product doctrine and stating that "the general policy against invading the privacy of an attorney's course of preparation is so well recognized and so essential to an orderly working of our system of legal procedure that a burden rests on the one who would invade that privacy to establish adequate reasons to justify production"); Fed. R. Civ. P. 23(b)(3) (work product immunity). Plaintiffs' motion ignores these threshold questions altogether by (1) failing to identify with any specificity the withheld documents or information Plaintiffs are seeking here (see Pls.' Mem. at 1-8) and (2) presuming, without record support, (a) that Quovadx's withheld documents are responsive to an outstanding discovery request in this case, (b) that Plaintiffs have showed the requisite necessity under Rule 26(b)(3) to obtain Quovadx's attorney work product, and (c) that Quovadx has selectively waived its evidentiary privileges to gain a tactical advantage. (See Pls.' Mem. at 1-8.) Consequently, Plaintiffs' motion fails at the most fundamental level. As an initial matter, Plaintiffs do not even identify the specific documents and information that they claim should be produced (see generally Pls.' Mot. & Pls.' Mem.), making it difficult for the Court and Quovadx to narrow the issues raised by Plaintiffs' motion. Second, Quovadx has no obligation to produce the documents that Quovadx has surmised to be the "subject documents"--for example, Mr. Kopel's Preliminary Report to the Audit Committee (Ex. 1 ¶ 4)--as those documents are not responsive to any outstanding document

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request, because Plaintiffs served none here.10 Quovadx fully and timely disclosed the Audit Committee's findings in Quovadx's Discovery Responses, and there is no outstanding discovery request in this action to which Quovadx has failed to respond. (See Statement of Facts §§ C & D.) Indeed, the only timely served discovery requests that Plaintiffs can point to are Plaintiffs' Interrogatories 3 and 4, which seek wide-ranging information regarding the Audit Committee's special investigation and to which Quovadx responded in detail and asserted the attorney-client privilege and work-product doctrine only as to the "contents of Mr. Kopel's preliminary report to the Audit Committee" and the "contents of Hogan & Hartson's oral communications with Quovadx's Audit Committee."11 (Pls.' Mem. Ex. D at 7.) The fact that some of the privileged documents and communications contain some information that is no longer confidential due to corporate disclosures does not alter the analysis or outcome of this inquiry. See, e.g., In re Grand Jury Subpoena, 599 F.2d 504, 512-13 (2d Cir. 1979) (where outside counsel was retained to investigate whether certain public filings needed to be amended and what the extent of the corporation's liability might be with respect to improper payments by subsidiaries, the investigation was found to involve the rendering of legal advice and triggered the work product immunity, even though the results of the company's investigation were published in Form 8-Ks); In re Woolworth Corp. Sec. Class Action Litig., No. 94 CIV. 2217 (RO), 1996 WL 306576, at *2 (S.D.N.Y. June 7, 1996) (the attorney-client privilege attaches to internal corporate investigations, even if the corporation publishes an investigative report, because, among other
10

Plaintiffs also did not request supplementation of Quovadx's June 2005 document production until five months after the deadline for serving written discovery. (See Pls.' Mem. Ex. A.)
11

Requests for Production 4 and 25 were served by the plaintiff in Heller, not by Plaintiffs here.

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things, a finding of waiver "might well discourage corporations from taking the responsible step of employing outside counsel to conduct an investigation when wrongdoing is suspected"), attached hereto as Exhibit 3. So long as any non-confidential information was communicated by the client or the attorney's agent to corporate counsel on a confidential basis, or by corporate counsel to the client or counsel's agent on a confidential basis, and for the primary purpose of facilitating counsel's rendition of professional legal services, a confidential document or communication containing some non-confidential information remains attorney-client privileged or work-product immune, or both.12 The Krauss Affidavit did not inject any new information into the record that was not timely disclosed in Quovadx's Discovery Responses and document production, nor was any information in the Krauss Affidavit privileged or work-product immune. Third, Plaintiffs have not carried their burden to show that Quovadx selectively waived its evidentiary privileges by reciting certain facts in the Krauss Affidavit. (Cf. Statement of Facts § D, supra; Pls.' Mem. Exs. D-E.) Although Quovadx timely disclosed all of the Audit

Committee's findings--findings that are not themselves privileged--none of the documents that Quovadx has produced to Plaintiffs, the Heller plaintiff, or the SEC is attorney-client privileged

12

See, e.g., In re Ampicillin Antitrust Litig., 81 F.RD. 377, 389 (D.D.C. 1978) ("It is not necessary that the information [communicated to or from the attorney] be confidential. . . . [I]nformation the attorney learned from a client would be privileged if it was learned in a confidential client communication." (emphasis added)); Cuno, Inc. v. Pall Corp., 121 F.R.D. 198, 202 (E.D.N.Y. 1988) (the fact that the documents submitted to an attorney contain only technical data is not controlling; what is controlling is the intention with which the documents were submitted to an attorney, and if transmission was for the purpose of obtaining or giving legal advice, it is privileged); Sharonda B. v. Herrick, No. 97 C 1225, 1998 WL 547306, at *4 (N.D. Ill. Aug. 27, 1998) (notes of interviews of third parties prepared by lay employees were privileged and work-product immune, just as if the notes had been prepared by an attorney), attached hereto as Exhibit 4.

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or work product. (See Ex. 1 ¶ 9.) At all times, Quovadx and its counsel have taken reasonable precautions to maintain, and in fact have maintained, the confidentiality of the Company's privileged and work-product materials. (See id. ¶¶ 4-9; Pls.' Mem. Ex. D at 7-8.) Thus, there is no basis for Plaintiffs' suggestion that Quovadx has engaged in selective waiver of its privileged and work product materials. Cf. In re Qwest Commc'ns Int'l Inc., 450 F.3d 1179, 1185, 1192 (10th Cir. 2006) (declining to adopt the Eighth Circuit's "selective waiver doctrine as an exception to the general rules of waiver upon disclosure of protected material," affirming finding that Qwest had waived its evidentiary privileges by voluntarily disclosing materials to the SEC, and noting that "confidentiality is the key to the privilege"). The district court in In re Woolworth Corporation Securities Class Action Litigation rejected an argument that was nearly identical to that advanced by Plaintiffs in this case: Plaintiffs argue that Paul, Weiss is using the privilege as both a sword and a shield, to disclose some communications and conceal others. This argument misconstrues the nature of the attorney-client privilege, its applicability to publication of corporate investigative reports, and the facts of this case. The privilege protects communications between attorney and client, not the underlying relevant facts upon which those communications are based. It is the communication, and notes and memoranda memorializing or detailing the communication, that is protected by the privilege. The Report lays out the facts that plaintiffs have used as the basis for over half of the allegations in their Amended Complaint. Plaintiffs are free to depose all of the employees Paul, Weiss interviewed (and plaintiffs have, to a large extent, done so) in order to glean any facts not sufficiently set forth in the Report. The mere fact that plaintiffs have so heavily relied on the Special Report undercuts the contention that Paul, Weiss is using the privilege as a sword and a shield. 1996 WL 306576, at *2 (internal citations omitted). The same can be said of Plaintiffs' motion, except that here, unlike the plaintiffs in Woolworth, Plaintiffs failed to take any depositions or request any documents. For many, many months before the close of discovery, Quovadx's current and former employees were available for depositions, but Plaintiffs elected to not pursue

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discovery in a timely fashion. The Federal Rules of Civil Procedure do not guarantee Plaintiffs the right to take any and all discovery that they deem necessary, at any time they deem appropriate, but only provide a means for diligent litigants to avoid trial surprises by obtaining information regarding their adversary's defenses and facts before the trial. Plaintiffs simply failed to seize those opportunities. The cases upon which Plaintiffs rely do not support Plaintiffs' waiver argument. See e.g., Frontier Refining, 136 F.3d at 701-05 (rejecting argument that party had used work product as a sword by filing suit for indemnity and finding that the party did not waive the attorney-client privilege or work product). The cases on which Plaintiffs rely involve litigants' intentional or strategic waivers of privileged or work-product material. E.g., In re Subpoena Duce Tecum Served on Wilkie Farr & Gallagher, No. M8-85 (JSM), 1997 U.S. Dist. Lexis 2927, at *3-4 (S.D.N.Y. Mar. 14, 1997) (holding disclosure of privileged information to Ernst & Young for purposes of obtaining an unqualified audit opinion, resulted in narrow waiver of all documents disclosed to Ernst & Young because the unqualified audit opinion was used as the basis for a motion to dismiss in pending action). Once a party has strategically waived the privilege, that party cannot then use the privilege to bar the opposing party from obtaining the once-protected information. See id.; In re Om Group Sec. Litig., 226 F.R.D. 579, 593 (N.D. Ohio 2005) (holding that the corporation had waived privilege because of the defendant's "substantial, intentional and deliberate" disclosure of otherwise privileged information in discovery). Here, in stark contrast, Quovadx has not disclosed or used privileged information either intentionally or strategically to gain a litigation advantage. Rather, Quovadx has consistently asserted its

evidentiary privileges in this action, the Heller action, and the SEC's ongoing investigation to

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protect the Company's privileged and work-product documents against disclosure to third parties. (See Ex. 1 ¶¶ 4-9.) Fourth, Plaintiffs' motion fails to demonstrate Plaintiffs' "substantial need of the materials" or that Plaintiffs are "unable without undue hardship to obtain the substantial equivalent of the materials by other means," including through Plaintiffs' examination of the approximately 67,000 pages of non-privileged, non-work-product documents already produced by Quovadx. Compare Fed. R. Civ. P. 26(b)(3) and Hickman, 329 U.S. at 509-10, 512-13, with Pls.' Mem. at 9 (failing to proffer any facts that would support a finding that Plaintiffs have satisfied Rule 26(b)(3)'s "substantial need" or "undue hardship" factors). Plaintiffs do not even claim that the facts recited in Quovadx's Discovery Responses and the Krauss Affidavit cannot be gleaned from the many non-privileged, non-work-product business records and other documents produced by Quovadx in July 2005, let alone from some other, equally available source. (See Pls.' Mem. at 1-8.) In sum, Plaintiffs have not satisfied the threshold requirements for production of Quovadx's privileged communications or attorney work product; they have not met their burden of proof on the waiver issue; and they have failed to provide this Court with a legitimate excuse for their failure to diligently pursue discovery before the expiration of the Court's deadline for fact discovery. Accordingly, Plaintiffs are not entitled to an order modifying the Court's

Scheduling Order and reopening fact discovery.

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CONCLUSION For the foregoing reasons, Quovadx respectfully requests that the Court deny Plaintiffs' motion in its entirety.

Respectfully submitted,

s/ Michael T. Williams Hugh Q. Gottschalk John M. Vaught Michael T. Williams Wheeler Trigg Kennedy LLP 1801 California Street, Suite 3600 Denver, CO 80202 Telephone: (303) 244-1800 Facsimile: (303) 244-1879 [email protected] [email protected] [email protected] Attorneys for Defendant Quovadx, Inc.

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CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on December 6, 2006, 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:
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·

·

· ·

·

Frederick J. Baumann [email protected] [email protected] Solomon Benjamin Cera [email protected] [email protected] Hugh Gottschalk [email protected] [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 by Elizabeth Anadale Hugh Q. Gottschalk John M. Vaught Michael T. Williams Wheeler Trigg Kennedy LLP Attorneys for Defendant Quovadx, Inc.

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