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

Case 1:04-cv-01006-RPM

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO
Civil Action No. 04-cv- OI006- RPM
III L.P. SPECIAL SITUATIONS FUN SPECIAL SITUATIONS CAYMAN FUN , L.P. SPECIAL SITUATIONS TECHNOLOGY FUN SPECIAL SITUATIONS TECHNOLOGY FUN themselves and others similarly situated

NEW , L.P. , and
L.P. , on behalf of

Plaintiffs

LORI R. SWEENEY
GARY T. SCHERPING JEFFREY M. KRAUSS FRED L. BROWN
1. ANREW

QUOV ADX , INC.

JAMS B. HOOVER

COWHRD

CHARES 1. ROESSLEIN and
Defendants.

JAMS A. GILBERT

(PROPOSED) AMENDED SCHEDULING ORDER

INTRODUCTION
Lead Plaintiffs Special Situations Fund

III L.P. , Special Situations Cayman Fund , L.P.
L.P.

Special Situations Technology Fund New , L.P. , and Special Situations Technology Fund
Lead Plaintiffs ), and Defendants Quovadx , Inc. (" Quovadx"
or the " Company

), Jeffrey M.

Krauss , Fred L. Brown , 1. Andrew Cowherd , James B. Hoover , Charles 1. Roesslein and James A.

Gilbert (the " Quovadx Defendants ), and Defendants Lorine R. Sweeney and Gary T. Scherping

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hereby submit this (Proposed) Amended Scheduling Order pursuant to D. C. COLO. L. Civ. R. 16.2(A)
and the Court' s

prior orders in this action.

APPEARANCES OF COUNSEL
Plaintiffs:

Lawrence M. Rolnick , Esq. Gavin 1. Rooney, Esq. Marcela A. Kirberger , Esq. Paul W. Horan , Esq. Lowenstein Sandler , P. 65 Livingston Avenue Roseland , New Jersey 07068 Telephone: (973) 597- 2468 Marc B. Kramer , Esq. 150 John F. Kennedy Parkway, #100 Short Hills , New Jersey 07078 Telephone: (973) 847- 5924

Defendant Ouovadx , Inc.

Hugh Q. Gottschalk John M. Vaught Michael T. Williams Wheeler Trigg Kennedy LLP 1801 California St. , Suite 3600 Denver , Colorado 80202- 2617 Telephone: (303) 244- 1800 Facsimile: (303) 244- 1879

Defendants Jeffrey M. Krauss, Fred L. Brown , 1. Andrew Cowherd, James B. Hoover. Charles 1. Roesslein and James A. Gilbert

Nicki F. Locker Wilson Sonsini Goodrich & Rosati , P. One Market Street, Spear Tower , Suite 3300 San Francisco , CA 94105 Telephone: (415) 947- 2000

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For Defendants Lorine R. Sweeney and Gary T. Scherping:
Frederick 1. Baumann Rothgerber Johnson & Lyons LLP One Tabor Center, Suite 3000 1200 Seventeenth Street Denver , CO 80202- 5855 Telephone: (303)- 628- 9542

II.

STATEMENT OF CLAIMS AND DEFENSES
Statement of Claims of Lead Plaintiffs
This is a securities class action seeking remedies under Sections 11 and 15 of the Securities

Act of 1933 for materially false and misleading statements and omissions in a Form S- 4 Registration

Statement (the " Registration

Statement" ) fied with the United States

Securities and Exchange

Commission (" SEC" ) for the issuance of securities in connection with an exchange offer (the

Exchange Offer ) with Rogue Wave Software , Inc. (" Rogue Wave ), which became effective on or
about December 19 , 2003. The case is brought on behalf of all persons and entities , other than

Defendants , who acquired common stock ofQuovadx (" Quovadx " or the " Company ) in connection
with the Exchange Offer. Plaintiffs allege that Quovadx ' s Registration Statement on Form S- 4 was

materially false and misleading and contained misrepresented material facts and omissions
including, among other things , misrepresenting Quovadx s financial results for the third quarter of
2003 and omitting to disclose truthfully about an alleged historic software , training, maintenance and

support agreement with an Indian Conglomerate , Info T ech Network Group (" Info Tech" ), pursuant to

which Quovadx announced it would realize gains of$7. 6 million (the " InfoTech Contract"
Quovadx further announced that it had already recognized $4. 6 million ofthe total amount of
the Info Tech Contract during the third quarter of2003 and expected to recognize the remainder over

the next four quarters. On the same day, Quovadx announced its " highest quarterly revenue " in the
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Company s history. Only a few days later , on November 4 , 2003 , the Company announced its

intention to acquire Rogue Wave in a cash and stock transaction valued at $71 million. Merger
negotiations between Rogue Wave and Quovadx took place between July and November of2003.
On November 12 , 2003 ,

Quovadx fied a Registration Statement with the SEC on Form S- 4 in

connection with its offer to exchange the common stock of Rogue Wave. Quovadx incorporated by

reference its Form 10- Q for the third quarter , ending on September 30 2003 , into the Registration

Statement. The Company fied two subsequent amendments to the Registration Statement , the
second one on December 10 , 2003 , which again , included Quovadx s financial results for the third

quarter of fiscal year 2003. The acquisition was completed on December 19 , 2003.
On March 15 , 2004 ,

less than five months after announcing its " highest quarterly revenue" in

the history of the Company and its acquisition of Rogue Wave , Quovadx announced it would be

restating its previously reported third quarter 2003 financial results and revise its previously
announced preliminary 2003 fourth quarter and full year financial results. Quovadx explained that
the Company had not been able to collect funds from letters of credit opened by InfoTech, and as a
result , it had to remove all revenue from sales to InfoTech from the Company s published financial
reports for fiscal year 2003. As a result of the restatement of the third quarter 2003 financial results
software license revenues were reduced by $4. 6 million to $3.2 million and total revenues were
reduced from $19. 9

million to $15.2 million. The Company further reported that it would reverse

the entire $11 million of reported income it had recognized pursuant to the InfoTech Contract.
Following the March 15 announcement , the price of Quovadx stock fell approximately 29% , closing
at $3. 58 per share on March 16 ,

2003. After March 15 , 2003 , as the Company issued frequent press

releases updating the investing public on its investigation into the restatement and the extent of the

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accounting irregularities in connection with the Info Tech Contract , the price of Quovadx ' s stock

steadily declined. On May 17 , the date this suit was brought , the price of Quovadx stock was $1.
per share.

Lead Plaintiffs contend that Defendants are liable under Section 11 for having prepared and
signed a misleading Registration Statement containing

material misstatements and omissions

pursuant to which they consummated the Exchange Offer with Rogue Wave. Indeed , Quovadx
false third quarter 2003 financial results and its announcements about InfoTech artificially inflated
the Company s income- and

therefore its stock price-at the same time the Company

was

negotiating the acquisition of Rogue Wave. Because the price of its stock was higher than it should

have been had Quovadx properly reported its financial results , the Company was able to acquire
Rogue Wave on more favorable terms. Contrary to Defendants ' position , Lead Plaintiffs assert that

the Registration Statement (i) misrepresented material information , (ii) omitted to state material
information about the Info Tech transactions

and (iii) omitted to state information needed to make the

statements made

not misleading.

Statement of Defenses by the Ouovadx Defendants
This suit arises from a Registration Statement that Quovadx fied with the SEC on Form S-

in connection with its offer to exchange its stock for the common stock of Rogue Wave. Quovadx

incorporated by reference its third quarter 2003 financial statements into the Registration Statement
which included $4. 6 million in software license revenues relating to transactions between Quovadx

and InfoTech. Quovadx subsequently restated its third quarter 2003 financial statements to remove
the Info Tech revenue , and Plaintiffs have alleged that Quovadx ' s Form S- 4 Registration Statement

was therefore materially false and misleading.

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Quovadx does not dispute

that the inclusion of the

InfoTech revenue rendered the

Registration Statement materially false , and has not opposed entry of partial summary judgment on

this liability issue. Quovadx does dispute Plaintiffs '

recent suggestion that the Registration

Statement contained omissions of material facts that were required to be stated to make certain
statements not misleading, and does not concede an omissions claim has been properly pled.
Assuming that the Court grants Plaintiffs ' motion to dismiss the claims against the individual
defendants and Plaintiffs '
motion for

partial summary judgment as to Quovadx

s admitted

affrmative misstatements relating to the third quarter 2003 financial statements , the remaining issues

to be tried are whether Quovadx s Form S- 4 Registration Statement omitted material facts and
whether Lead Plaintiffs and absent class members can individually prove loss causation and damages

and in what amounts. The Quovadx Defendants have asserted various affrmative defenses to
Plaintiffs ' claims relating to causation and damages:

Third Affrmative Defense : Every act or omission of the Individual Defendants alleged in
the Complaint was done or omitted in good faith conformity with the rules and regulations of the

SEC and ,

therefore , pursuant to Section 19(a) of the

Securities Act of 1933 ,

the Individual

Defendants have no liability for any act or omission so alleged.

Fourth Affrmative Defense : The Individual Defendants assert that they had , after reasonable
investigation , reasonable grounds to believe , and did believe , at the time the Registration Statement

became effective , that the statements therein were true and that there was no omission to state a
material fact required to be stated therein or necessary to make the statements not misleading.

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Fifth Affrmative Defense: All or a portion of the losses and damages alleged by Lead
Plaintiffs and members of the class are attributable to causes other than any actions or omissions for

which Defendants are responsible.

Ninth Affrmative Defense: Lead Plaintiffs and the members of the class are barred from
claiming injury or damage , if any, because they failed to make reasonable efforts to mitigate such
injury or damage , which would have prevented their injury or damage , if any.
Tenth Affrmative Defense:

Any recoveries for damages allegedly incurred by Lead

Plaintiffs and individual members of the class , if any, are subj ect to offsets in the amounts of any tax

benefits or other benefits received by Lead Plaintiffs or members of the class through their
investments.

Eleventh Affrmative Defense: Lead Plaintiffs and members of the class do not have
standing under Section 11 of the 1933 Act to the extent that they did not acquire
pursuant to or traceable to the Registration Statement.
their shares

Statement of Defenses by Defendants Lorine R. Sweeney and Gary T. Scherping
Defendants Lorine R. Sweeney and Gary T.

Scherping, the former CEO and CFO

respectively, of Quovadx , join in the Statement of Defenses submitted by the Quovadx Defendants.

Sweeney and Scherping deny that they have any liability to Lead Plaintiffs in this action. Assuming
that the Court grants Plaintiffs ' motion to dismiss the claims against the Individual Defendants , then

Sweeny and Scherping will no longer be parties to the case. In the event the Court does not grant
Plaintiffs ' motion to dismiss the claims against the Individual Defendants , Sweeney and Scherping

will mount several defenses to Lead Plaintiffs ' claims that the restatement of Quovadx s third
quarter 2003 financial statements and the revision of its preliminary fourth quarter 2003 and full year

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2003 results were caused by securities fraud. To the extent that Sweeney and Scherping even
participated in decisions to enter into agreements with InfoTech and to recognize revenue on those
contracts , they acted at all times in good faith and without knowledge or reason to believe that

collection from InfoTech was not probable at the time the revenue was recognized on the sales to

InfoTech. Moreover , Sweeney and Scherping did not attempt to fraudulently inflate Quovadx
financial results or increase its stock price in order to acquire Rogue Wave on more favorable terms.

All the accounting matters alleged to form the basis of Lead Plaintiffs ' claims were reviewed and

approved by various experts , including inside and outside counsel for Quovadx and their
independent auditor , Ernst & Young
LLP.

Thus , any losses or damages that Lead Plaintiffs suffered

could not have been caused by Sweeney s and Scherping s actions or omissions.
Defendants Sweeney and Scherping have raised the following affrmative defenses to Lead

Plaintiffs ' claims asserted under Sections

11

and 15 of the 1933 Act , 15 U.S. C. 99 77k and 770: (1)

that the Complaint fails to state a claim on which relief may be granted; (2) that Lead Plaintiffs and
the class have failed to plead fraud or its predicate acts with suffcient particularity; (3) that every act

or omission alleged in the Complaint was done or omitted in good faith conformity with the rules

and regulations of the SEC , and there is no liability for any such act or omission alleged; (4) that
Sweeney and Scherping had , after reasonable investigation , reasonable grounds to believe and did
believe , at the time the Registration Statement became effective , that the statements therein were true
and that there was no material omission required or necessary to make the statements not misleading;

(5) that all or a portion of the losses and damages alleged by Lead Plaintiffs and the class are
attributable to causes other than any actions or omissions for which Sweeney and Scherping are

alleged responsible; (6) that some or all of the matters now claimed by the Complaint to be the

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subject of misrepresentations and omissions were publicly disclosed or were in the public domain
and , accordingly, were available to Lead Plaintiffs and the class and were at all times reflected in the
price of Quovadx ' s common stock; (7) that , if any false or misleading statement was made or if any

material fact required to be stated or necessary to make any statement made not misleading was
omitted , which Defendants deny, then Lead Plaintiffs and the class were aware of that alleged

misstatement or omission and did not rely upon it in acquiring Quovadx s common stock; (8) that

Lead Plaintiffs and the class were expressly advised in Quovadx s public fiings and otherwise
regarding the material facts and risks concerning their investments ,
and that ,

therefore , Lead

Plaintiffs and the class therefore assumed the risk of any loss and are estopped from recovering any

relief; (9) that Lead Plaintiffs and the class are barred from claiming injury or damage , if any,
because they failed to make reasonable efforts to mitigate such injury or damage , which would have

prevented their injury or damages , ifany; (10) that any recovery for damages allegedly incurred by

Lead Plaintiffs and the class , if any, is subject to offset in the amount of any tax benefits or other

benefits received by plaintiffs and the class through their investments;

(11) that

Sweeney and

Scherping acted in good faith and had no knowledge of or reasonable grounds to believe in the
existence of the facts by reason of which their liability is alleged to exist , and therefore , pursuant to
Section 15 of the 1933 Act , Sweeney and Scherping have no liability for any act or omission so
alleged; (12) Lead Plaintiffs and the class do not have standing under Section 11

of the 1933 Act to

the extent that they did not acquire their

shares pursuant to or traceable to the Registration

Statement; and (13) Lead Plaintiffs and the class do not have standing under Section

11

of the 1933

Act because they acquired their shares ofQuovadx stock without any investment decision caused by

or in reliance upon any statement or omission in the Registration Statement.

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III.

UNDISPUTED FACTS
The following facts are undisputed:

Quovadx is a global platform software and vertical solutions company.
The Company s software and services help healthcare , insurance , and other

companies integrate their technology systems and business processes.

This Court has jurisdiction over the claims asserted in this case , and venue is proper because Defendants conducted business in this District.
Sweeney was President , CEO , and a director of Quovadx.

Scherping was Executive Vice President of Finance and CFO of Quovadx. Scherping assisted in the preparation of the Company s financial statements.

Quovadx fied its quarterly report on Form 10- Q with the SEC for the quarter ending September 30 , 2003 , which included $4. 6 million in revenue from the third quarter 2003 sale to InfoTech and deferred the remaining $3 million , expecting to recognize it over the next four quarters.
On November 12 , 2003 ,

On November 11 , 2003 ,

Quovadx fied the S- 4 Registration Statement with the SEC for the issuance of Quovadx stock that would be provided to Rogue Wave shareholders in connection with the acquisition.

The Registration Statement incorporated by reference Quovadx s Form 10- Q for third quarter 2003.
The Registration Statement became effective on December 10 , 2003.
On February 11 , 2004 , Quovadx publicly announced its preliminary results for 2003 and fourth quarter 2003 , which included revenue from the fourth quarter 2003 sale to InfoTech.

On March 15 , 2004 , Quovadx announced that it was restating its third quarter 2003 financial results and revising its previously announced preliminary fourth quarter 2003 and 2003 full year financial results to remove all revenue associated with sales to InfoTech.

This action was fied on May 17 , 2004.

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IV.

COMPUTATION OF DAMAGES
Plaintiffs
For a detailed statement of Lead Plaintiffs ' computation of statutory damages , see Plaintiffs

Statement of Damages , attached as
February 21

Exhibit A to the parties ' proposed Scheduling Order submitted

2006.

Defendants have made the assertion that members of the class are in the best position to
provide information regarding their disposition of Quovadx stock, and that each individual class
member should be required to provide that information at the outset of this class action proceeding.

This assertion turns class action principles on their head. There are well-established methodologies

for calculating class-wide damages based on expert testimony. The purpose of a class action is to

allow for economies and effciencies in the litigation of class claims and to avoid discovery of
individual class members. That is why a class representative must demonstrate in conjunction with
class certification

, typicality, and that the lead plaintiff adequately represents the class. It is well

established that by proving its own claim , the lead plaintiff presumptively proves the claim of all

class members. See 2- 14A James Wm. Moore , et aI. , Moore s Manual- Federal Practice and
Procedure 9 14A.23 (5)(fj (2004). What Quovadx suggests undermines the whole purpose of class

actions by conducting individualized discovery in violation of class action principles. That is also

why the proofs of individualized class members are always handled through the use of postjudgment claims handling administration procedures. However, in order to calculate damages on a class-wide basis , Plaintiffs intend to conduct

limited discovery to determine the extent to which class members may have sold prior to the
allegedly " curative " disclosures. This will include obtaining a

list of all shareholders who obtained

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shares in the exchange offer and the issuance of subpoenas to the largest retail broker dealers for relevant trading records. With this information , damages will be calculated on a class-wide basis.
Whether such a methodology is suffciently reliable can be tested under Daubert

at the appropriate

juncture.
With respect to the " depreciation in value " of the Quovadx stock between the Registration

Statement's effective date and the date on which this action was fied , the Lead Plaintiffs contend
that this was caused by the misstatements and omissions in the Company s Registration Statement

relating to the InfoTech transaction , and the Defendants bear the burden of demonstrating, as an
affrmative defense ,

that the losses were wholly unrelated to the misstatements and omissions at

Issue.

Defendants I
Proof of Damages

Lead Plaintiffs have submitted their proposed damages calculation in

Exhibit A, which

simply calculates the difference between the price of the Quovadx stock on the date of the Rogue

Wave transaction and the date this lawsuit was fied. Lead Plaintiffs ' methodology is directly in
conflict with the measurement of damages clearly established by statute in Section 11

cases.

I This section is submitted solely on behalf of Quovadx in light of the Court' s statements at the conference held on February 24 , 2006 , that the Court intends to grant Plaintiffs ' motion to

dismiss the claims against the Individual Defendants , in which case Quovadx will be the only
remaining defendant in this action.

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As in any Section 11 case , Lead Plaintiffs here must prove that their damages were caused

the misstatements in the Registration Statement , and Section 11 ( e) of the 1933 Act establishes three

measures of damage , depending on when and if the purchaser sold the security:
(1) the

difference between the value of the security at the time it was purchased and the value at the time the lawsuit was brought , or difference between the value of the security at the time it was purchased and the price at which it was sold prior to the fiing of the lawsuit , or

(2) the

(3) the

difference between the value of the security at the time it was purchased and the price at which it was sold after the fiing of the lawsuit but before judgment , if the price of the security increased from the date of fiing, thereby reducing the damages as measured from the date of the fiing of the lawsuit.

15 U.S. C. 977k(e). In short , a critical component of Lead Plaintiffs ' damage case will be to prove

when Lead Plaintiffs ' and the absent class members ' securities were sold and the prices at which
these securities were sold.

Lead Plaintiffs suggest that the class members ' individualized questions ofloss causation and

damages can be answered simply by allowing Lead Plaintiffs to present to the Court speculative
expert testimony utilizing trading models to estimate the timing and amount of stock sales by the

class members. Such a process , however , is not proof of damages.
Supp. 1001 , 1004 (W. D.
members); cf Mangone v.

See e. g.

Biben

v.

Card

789 F.

Mo. 1992) (requiring individual proofs of claim from absent class
Bank 206 F.

First USA

D. 222 , 234- 35 (S. D. Ill. 2001) (the law requires
and

class members to bear the burden of proving liability

damages , and " a class action statutes does

not alter this basic principle
testimony is not admissible.

). Moreover ,

several federal courts have concluded that such expert
No. SACVOI275GLTMLGX
v.

E.g., In re Broadcom Corp. Sees. Litig.,

2005 WL 1403756 , at *3 (C.D. Cai. June 3 , 2005);
2002 WL 32097540 , at *4 (W. D. Pa. Aug. 2 2002).
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Bell

Fore Sys. ,

Inc. No. Civ. A. 97- 1265

...
Case 1:04-cv-01006-RPM Document 170-2 Filed 05/22/2006 Page 14 of 22

The only actual damages which can be awarded at trial will be those incurred by the Lead
Plaintiffs based on evidence submitted regarding the date of the sale of their shares and the actual
amount oftheir loss. With respect to the absent class members , the Court will be required to make a

per-share damage calculation based on whether shares have been sold since the class members
acquisitions , and the dates on which the shares were sold. Each absent class member will then be
required to submit proofs-of- claim
determination. 2

to

establish its total loss based on the Court' s

per-share

Loss Causation
Section 11

( e) also provides

that a defendant is not liable for any damages , which were caused

by factors other than false statements in the Registration Statement:
(I)

the defendant proves that any portion or all of such damages represents

other than the depreciation in value of such security resulting from such part

of the registration statement , with respect to which his liability is asserted

not being true or omitting to state a material

fact required to be stated

therein or necessary to make the statements therein not misleading, such portion of or all such damages shall not be recoverable.
15 US. C. 977k(e).
In this case

, Quovadx will demonstrate that much of the " depreciation in value "

of the

Quovadx stock between the effective date of the Registration Statement and the date on which this

2 Quovadx requested the Court to commence the proof-of- claim process promptly in
connection with the class certification notice that will be distributed to class members in the next several weeks. At the Scheduling Conference , the Court indicated that it would not conduct the proof-of- claim process at this time. The Court stated that , although the class members will be asked to provide information regarding their dates of purchase and sales of Quovadx securities , the information requests will be voluntary, and failure to provide this information to the Court will not preclude class members from submitting proofs-of- claim after the trial.

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action was fied resulted from matters other than the falsity of the Company s third quarter 2003
financial statements. Indeed , a significant percentage of the depreciation in value ofQuovadx stock

resulted from the revision of the Company s fourth quarter 2003 financial results , the threatened
delisting of the Company s stock from Nasdaq in April 2004 , and a drop in the Company s cash
position in April 2004 , all of which occurred
after

the effective date of the Registration Statement

Although Lead Plaintiffs ' Complaint and Motion for Partial Summary Judgment focus

exclusively on the falsity of the S- 4 Registration Statement because of the improperly booked
InfoTech Revenue in the third quarter 2003 financial statements, Lead Plaintiffs have recently
suggested that the Registration Statement may also contain unspecified material omissions that , if

true , allegedly would have the effect of expanding the scope of recoverable damages by allowing the
class to recover for the " depreciation in value " caused by events
unrelated

to the restatement of the

third quarter 2003 financial statements. Defendants believe that Lead Plaintiffs ' omissions theory is

not legally or factually supportable and that it will have no effect on the damages that can be
recovered by class members in this case.

REPORT OF PRECONFERENCE DISCOVERY AND MEETING UNDER FED. R. CIV. P. 26(F)
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)(I)(B).

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VI.

CASE PLAN AND SCHEDULE
The Parties are in agreement regarding the following case schedule:
Deadline for Joinder of Parties and Amendment of Pleadings

The deadline for motions for leave to amend pursuant to Fed. R. Civ. P. 15 expired on
March 28

2006.

Notice to Members of the Plaintiff Class
The Court has instructed the parties to provide notice to all class members of (1) the Class
Certification Order , (2) the of the prospective order dismissing without prejudice the claims against

the Individual Defendants , (3) the prospective trial on damages and omissions liability, and (4) if
partial summary judgment is entered on misrepresentation liability, the fact that misrepresentation
liability has been established. The Court also authorized the parties to include with the class notice a

questionnaire that requests from the class members information regarding their individual damage
claims. The

Parties have prepared , and contemporaneously fied with this Amended Scheduling

Order , a proposed class notice , a proposed damages questionnaire , and a proposed order authoring
the parties to disseminate the notice and questionnaire to the class. The parties fied
their notice plan

on May 22 2006. If the Court approves the parties ' proposed notice plan without amendment on or

before June 2 , 2006 , the parties anticipate that they would be able complete the notice mailings by

section is submitted solely on behalf of Plaintiffs and Quovadx in light ofthe Court' statements at the conference held on February 24 , 2006 that the Court intends to grant Plaintiffs motion to dismiss the claims against the Individual Defendants. In the event that the Court does not grant that motion , then Plaintiffs and the Individual Defendants will propose a schedule for discovery and other pretrial activities that reflects the continuing involvement of the Individual Defendants

3 This

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June 30 , 2006. The parties will propose to the Court that the class members ' responses must be

returned by first- class US. Mail and postmarked no later than 60 days after the notice mailing date.
Thus , if the notice mailing date is June 30 2006 , the notice shall inform members of the Class that

they must send their responses postmarked no later than August 29 , 2006.

Fact Discovery Cut-off Date

The parties will complete all fact discovery by June 30 , 2006 , with the exception ofthe class
damages questionnaires. If the Heller

action proceeds , the parties here shall attempt in good faith to
Heller

coordinate discovery proceedings with the

parties to avoid or minimize duplication and

unnecessary expense.

Dispositive Motion Schedule

All dispositive motions will be fied no later than July

31 ,

2006.

Expert Witness Disclosures

Initial Disclosures by the party having the burden of proof on an issue - September 22
2006.

Rebuttal Disclosures - October 23 , 2006.
Expert witness depositions shall be completed by November 10 , 2006 . Notwithstanding the

provisions of Fed. R. Civ. P. 26(a)(2)(B), no exception to the requirements of the Rule will be
allowed unless approved by this Court.

Anticipated Fields of Expert Testimony

Lead Plaintiffs anticipate that expert discovery will be needed in connection with: (i)
Defendant Quovadx , Inc. s assertion of a " negative causation defense " i. , its assertion that some

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portion of the drop in Quovadx ,

Inc.

' s stock price was attributable to factors other than the

misstatements and omissions in its Registration Statement. To the extent Lead Plaintiffs seek an
aggregate damage award and the Court permits such testimony, the parties may utilize the experts in

connection with the calculation of damages.

Proposed Limitations on Use or Number of Expert Witnesses
Each separately represented party may designate up to three experts.

Proposed Deposition Schedule

The parties will meet and confer regarding the deposition schedule , and will attempt in good
faith to coordinate discovery proceedings with the plaintiff in the Heller

action to avoid or minimize

duplication and unnecessary expense.

Schedule for Requests for Production of Documents, Interrogatories, and Requests for Admissions
All interrogatories , requests for production of documents , and requests for admissions shall

be served no later than May 26 , 2006. The presumptive limits on written discovery as set by the
Federal Rules of Civil Procedure also shall apply.

Discovery Limitations
Lead Plaintiffs shall be limited to two depositions (in addition to the depositions of parties
and designated experts) and Defendants shall collectively be limited to two depositions (in addition
to the depositions of parties and designated experts). The presumptive limits on the time allotted for
each deposition as set by the Federal Rules of Civil Procedure should apply, subject to a showing of

good cause for additional time.

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VII.

COMPLIANCE WITH FED. R. CIV. P. 26(F)
The parties participated in a mediation on December 13-

, 2005. The parties have not

discussed settlement further and do not currently anticipate reaching a settlement in this action.

VIII. OTHER SCHEDULING ISSUES
In the event the Court grants Lead Plaintiffs ' motion to dismiss the claims against the

Individual Defendants , Defendants anticipate a five- day trial. Lead Plaintiffs believe only a twoday trial is necessary. The parties have discussed but have not reached an agreement regarding the

waiver of a jury trial in this case.
IX.

AMENDMENTS TO SCHEDULING ORDER
This scheduling order may be altered or amended only upon a showing of good cause.

DATED this

day of May, 2006.
BY THE COURT:

HON. RICHAR MATSCH UNITED STATES DISTRICT JUGE

Dated: May 22 , 2006

Submitted by,

sf Lawrence M. Rolnick (by consent) Lawrence M. Rolnick , Esq. Paul W. Horan , Esq. Lowenstein Sandler 65 Livingston Avenue

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Roseland , NJ 07068- 1791 Tel. 973. 597.2450 Fax. 973. 597.2451 E-mail: lrolnick lowenstein. com; phoran lowenstein. com

Lead Plaintiffs ' Counsel

sf Michael T. Williams Hugh Q. Gottschalk John M. Vaught Michael T. Williams Wheeler Trigg Kennedy 1801 California St. , Suite 3600 Denver , Colorado 80202- 2617
Telephone: (303) 244- 1800 Facsimile: (303) 244- 1879 E-mail: gottschalk wtklaw. com williams wtklaw. com

Counsel for Defendant Quovadx , Inc.

sf Nicki F. Locker (by consent) Nicki F. Locker Kent W. Easter Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto , CA 94304 Telephone: (650) 493- 9300
Facsimile: (650) 493- 6811

E-mail:

nlocker wsgr.com

Counsel for Jeffrey M. Krauss, Fred L. Brown J. Andrew Cowherd, James B. Hoover , Charles J. Roesslein , and James A. Gilbert

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sf Frederick 1. Baumann (by consent)

Frederick 1. Baumann Rothgerber Johnson & Lyons LLP One Tabor Center, Suite 3000 1200 Seventeenth Street Denver , CO 80202- 5855 Telephone: (303) 628- 9542 Facsimile: (303) 623- 9222 E-mail: fbaumann~rothgerber. com

WILMER CUTLER PICKERIG HALE & DORR LLP Charles E. Davidow Christopher Davies Michael Mugmon 2445 M Street , N. Washington , DC 20037 Telephone: (202) 663- 6000

Counsel for Defendants Lorine R. Sweeney and Gary T. Scherping

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CERTIFICATE OF SERVICE (CM/ECF)
I hereby certify that on May 22 , 2006 , I electronically fied the foregoing with the Clerk of Court using the CM/CF system which will send notification of such fiing to the following email addresses:

Frederick J. Baumann
fbaumann~rothgerber. com phenke~rothgerber. com
Solomon Benjamin Cera scera~gbcslaw. com keg~gbcslaw. com

Hugh Q. Gottschalk
gottschalk~wtklaw. com hart~wtklaw. com gottesfeld~wtklaw. com John Alonzo Hutchings
j hutchings~dillanddili. com chuffman~dillanddill. com

Marcela A. Kirberger
mkirberger~lowenstein. com Marc Bradley Kramer MarcBKramer~cs. com MarcBKramerEsq ~aoi. com Evan S. Lipstein evan~li p steinlaw. com eve I yn~li psteinlaw. com

Nina Locker nlocker~wsgr. com Lawrence M. Rolnick lrolnick~lowenstein. com Gavin J. Rooney grooney~lowenstein. com mredmon~lowenstein. com Adam Philip Stapen astapen~dillanddill. com chuffman~dillanddili. com John Mark Vaught vaught~wtklaw. com como~wtklaw. com Craig Richard Wellng
cwelling~rothgerber. com kdail y~rothgerber. com

Michael T. Wiliams
williams~wtklaw. com chavez~wtklaw. com

sf Michael T. Williams (by Elizabeth Anadale) Michael T. Williams

414782v2

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