Free Proposed Scheduling Order - District Court of Colorado - Colorado

Case 1:04-cv-01006-RPM

Document 136-2

Filed 12/30/2005

Page 1 of 3

EXHIBIT A

MEMORANDUM

FROM: TO: DATE: SUBJECT:

Lawrence M. Rolnick, Esq. Layn R. Phillips, Esq. November 29, 2005

Tel 973.597.2450 Fax 973.597.2451 [email protected]

Quovadx - Calculation of Damages under Section 11 of the Securities Act

FORMULA FOR CALCULATING DAMAGES UNDER SECTION 11 Section 11 of the Securities Act of 1933 provides three methods for calculating damages. See 15 U.S.C. § 77K(e). The first method applies when the plaintiff has not yet disposed of the security. If the plaintiff still owns the security, the plaintiff may recover the difference between the amount that the plaintiff paid for the security and the value of the security at the time of suit. 15 U.S.C.A. § 77k(e)(1). The second method applies when the plaintiff has disposed of the security before suit. If the plaintiff sold the security in the market before suit, the plaintiff may recover the difference between the amount that the plaintiff paid for the security and the price at which the plaintiff disposed of the security. 15 U.S.C.A. § 77k(e)(2). The third method applies when the plaintiff disposes of the security after suit, but before judgment. If the plaintiff sold the security after the time of suit but before the court rendered a judgment, the plaintiff may recover the difference between the amount that the plaintiff paid for the security and the price at which the plaintiff disposed of the security after suit. 15 U.S.C.A. § 77k(e)(3). However, if the amount at which the plaintiff disposed of the security after suit is less than the value of the security at the time of suit, the plaintiff may only recover the difference between the amount that the plaintiff paid for the security and the value of the security at the time of suit. Id.; see also Michael J. Kaufman, 26 Securities Litigation: Damages § 6:14 (2001).

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Case 1:04-cv-01006-RPM

Document 136-2

Filed 12/30/2005

Page 2 of 3

Lead Plaintiffs Special Situations contends that in this case Class damages under Section 11 should be calculated pursuant to the statutory measure set forth in 15 U.S.C.A. § 77k(e)(1). Special Situations did not sell any of its shares and still holds them. It is unlikely that any Class members sold their shares because of the relatively short period of time between the exchange offer and the filing of the lawsuit -- a mere five months. The federal courts have not extensively discussed the issue of damages under Section 11 because the statute itself sets forth a clear and simple formula for calculating damages. See Kaufman, 26 Securities Litigation: Damages § 6:27 ("Judicial comment on the Section 11(e) damage provisions is scarce.") Award of pre-judgment interest, however, is an area where courts have commented extensively and consistently held that awards of prejudgment interest in a claim for damages brought under Section 11 is within the sound discretion of the trial court. See Beecher v. Able, 435 F. Supp. 397, 410-11 (S.D.N.Y. 1977) ( allowing plaintiffs to "recover interest on their damages from the date of the suit" (citing Austrian v. Williams, 103 F. Supp. 64, 117-19 (S.D.N.Y. 1952). See also In re Home-Stake Production Co. Sec. Litig., No. 73-C-382, 1989 WL 201629 (N.D. Okla. Nov. 15, 1989); Astor Chauffeured Limousine Co. v. Runnfeldt Investment Corp., 910 F. 2d 1540, 1552 (7th Cir. 1990); Anixter v. Home-Stake Prod. Co., 977 F. 2d 1549, 1553-55 (10th Cir. 1992). The rationale behind the award of pre-judgment interest rests in considerations of fairness and redress for the wrong done. Underscoring this rationale, the United States Supreme Court has noted that in deciding if and how much prejudgment interest should be granted . . . in a federal securities action such as this case, a district court will consider a number of factors, including whether prejudgment interest is necessary to compensate the plaintiff fully for his injuries, the degree of personal wrongdoing on the part of the defendant, the availability of alternative investment opportunities to the plaintiff, whether the plaintiff delayed in bringing or prosecuting the action, and other fundamental considerations of fairness. Osterneck v. Ernst & Whinney, 489 U.S. 169, 165 (1989). With respect to the rate of interest applied to an award for damages in securities claims, in general courts agree that the "forum state rate" is the appropriate benchmark. In re Livent, Inc., 360 F. Supp. 2d 568, 571 (S.D.N.Y. 2005). The legal rate of interest in Colorado is "8 percent per annum, compounded annually." Colo. Rev. Stat. Ann.,§ 5-12-101 (Thompson/West 2005). QUOVADX - SECTION 11 CLASS DAMAGES Considering the foregoing, the following is a calculation of the Section 11 Class damages in Quovadx:

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