Free Proposed Scheduling Order - District Court of Colorado - Colorado

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Senior District Judge Richard P. Matsch Civil Action No. 1:04-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, v. QUOVADX, INC. LORINE R. SWEENEY, GARY T. SCHERPING, JEFFREY M. KRAUSS, FRED L. BROWN, J. ANDREW COWHERD, JAMES B. HOOVER, CHARLES J. ROESSLEIN, and JAMES A. GILBERT. Defendants. _____________________________________________________________ PROPOSED SCHEDULING ORDER SUBMITTED BY LEAD PLAINTIFFS _____________________________________________________________

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INTRODUCTION: As the Defendants Quovadx, Inc., Jeffrey M. Krauss, Fred L. Brown, J. Andrew Cowherd, James B. Hoover, Charles J. Roesslein and James A. Gilbert (the "Quovadx Defendants") have filed an independent scheduling order, 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. ("Lead Plaintiffs"), hereby submit a proposed Scheduling Order in which Lead Plaintiffs have attempted to address the issues raised by the Quovadx Defendants. As set forth in Lead Plaintiffs' brief in support of its Motion for Voluntary Dismissal of the Individual Defendants, notice to the class of the voluntary dismissal of the individual defendants is not warranted. Fed. R. Civ. P. 23(e) was amended in 2003. As discussed in the Advisory Committee Notes, subdivision (e)(1)(B) "carries forward the notice requirement of present 23(e) when the settlement binds the class through claim or issue preclusion; notice is not required when the settlement binds only the individual class representatives." Fed. R. Civ. P. 23, Advisory Committee Notes, 2003 Amendments. Although case law interpreting the notice provision (e)(1)(B) is sparse, an analysis undertaken by the Western District of Louisiana is instructive. As noted by that court, "[t]he notice

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provision is aimed at protecting the interests of nonparty class members from unfair or collusive settlements and to discourage the assertion of a class action to secure an unjust private settlement for the named plaintiffs who then dismiss the putative class claims." Robb v. Stericycle, Inc., 2005 WL 2304475 (W.D.La. August 19, 2005)(citing Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 1797, p. 65 (2005)) attached to

Declaration of Lawrence M. Rolnick dated December 20, 2005 ("Rolnick Dec.") as Exhibit F. The Robb court went on to note: Many courts reasoned, when applying the old rule, that if the rights of the nonparty class members could not possibly be prejudiced by a dismissal, notice of the proposed dismissal was unnecessary. That was often found to be the case when the proposed dismissal was without prejudice, there was no sign of a collusive settlement, and there was no danger that the statute of limitations would expire before new or separate actions could be brought. See Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 1797, pp. 19799 (2005). Those concepts appear to be reflected in the current version of the rule, which requires notice only for those class members who "would be bound" by the settlement, voluntary dismissal, or compromise. Robb v. Stericycle, Inc., 2005 WL 2304475 at 8. Thus, the rule requires notice to the class only if the voluntary dismissal will bind the class through claim or issue preclusion, which is not applicable in this case.

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1. DATE OF CONFERENCE AND APPEARANCES OF COUNSEL Conference Scheduled for January 5, 2005 at 2:30 p.m. 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., ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED REPRESENTED BY: Lawrence M. Rolnick, Esq. Gavin J. Rooney, Esq. Marcela A. Kirberger, Esq. Emily A. Kaller, Esq. Lowenstein Sandler, P.C. 65 Livingston Avenue Roseland, New Jersey 07068 (973) 597-2468 Marc Bradley Kramer, Esq. 150 John F. Kennedy Parkway, #100 Short Hills, New Jersey 07078 (973) 847-5924 Defendants: QUOVADX, INC. JEFFREY M. KRAUSS FRED L. BROWN JAMES B. HOOVER CHARLES J. ROESSLEIN JAMES A. GILBERT Represented by:

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Adam Philip Stapen, Esq. John Alonzo Hutchings, Esq. Dill, Dill, Carr, Stonbraker & Hutchings, PC 455 Sherman Street, #300 Denver, Colorado 80203 (303) 777-3737 John Peter Stigi, III Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 (650) 493-9300 LORINE R. SWEENEY GARY T. SCHERPING Represented by: Craig Richard Welling, Esq. Frederik J. Baumann, Esq. Rothgerber, Johnson & Lyons, LLP-Denver United States District Court Box 11 1200 Seventeenth Street One Tabor Center, #3000 Denver, Colorado 80202-5855 John Peter Stigi, III Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 (650) 493-9300

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2. a.

STATEMENT OF CLAIMS AND DEFENSES 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 made by the Defendants in a Form S-4 Registration Statement (the "Registration Statement") filed 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 Quovadx ("Quovadx" or the "Company") common stock in connection with the Exchange Offer. The 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, Quovadx's financial results for the third quarter of 2003. On October 22, 2003, Quovadx announced the execution of a historic software, training, maintenance and support agreement with an Indian Conglomerate, InfoTech Network Group ("InfoTech"), pursuant to which Quovadx would realize gains of $7.6 million (the "InfoTech Contract").
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Quovadx further announced that it had already recognized $4.6 million of the total amount of the InfoTech Contract during the third quarter of 2003 and expected to recognize the remainder over the next four quarters. On the same day, Quovadx announced its "highest quarterly revenue" in the 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 of 2003. On November 12, 2003 Quovadx filed 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 filed 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 2003 third quarter financial results and revise its previously

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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 2003-third quarter 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 accounting irregularities in connection with the InfoTech Contract, the price of Quovadx's stock steadily declined. On May 17, the date this suit was brought, the price of Quovadx stock was $1.03 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

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the Exchange Offer with Rogue Wave. Indeed, Quovadx's false 2003-third quarter financial results 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.

b.

Defendants

See Defendants' Scheduling Order

3.

UNDISPUTED FACTS

See Statement of Undisputed Facts attached as Exhibit B.

4.

COMPUTATION OF DAMAGES For a detailed statement of Lead Plaintiffs' computation of

damages, see Plaintiffs' Statement of Damages Attached as Exhibit A.

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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 efficiencies 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 al., Moore's ManualFederal Practice and Procedure § 14A.23[5][f] (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 post-judgment claims handling administration procedures. With respect to the "depreciation in value" of the Quovadx stock between the Registration Statement's effective date and the date on

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which this action was filed, the Lead Plaintiffs contend that this was caused by the misstatements and omissions in the Company's Registration Statement relating to the InfoTech transaction. Defendants claim the

"depreciation" was caused by factors other than the misstatements and omissions in Quovadx's Registration Statement. Clearly this matter

involves a disputed issue of fact over subject matter which requires expert testimony.

5. REPORT OF PRECONFERENCE MEETING UNDER FED. R. CIV. P. 26(f)

DISCOVERY

AND

The parties have exchanged document discovery. Counsel for Lead Plaintiffs participated in a telephone conference with counsel for Defendant Quovadx on December 22, 2005 and did anticipate that the parties would confer prior to filing a joint Scheduling Order. Lead Plaintiffs advised the Defendants of their proposed discovery plan in the Motion for Voluntary Dismissal filed on December 23, 2005. As Quovadx had submitted the prior proposed Scheduling Order, it was not clear to Lead Plaintiffs that Quovadx intended for Lead Plaintiffs to draft the proposed order. When no proposed order was forthcoming from Quovadx, Lead Plaintiffs began drafting a proposed Scheduling Order and were in the process of finalizing the

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proposed draft Scheduling Order for submission to Defendants when the Defendants filed their independent Scheduling Order. Based on a review of Defendants' Scheduling Order, Lead Plaintiffs have amended their Scheduling Order in an attempt to address the issues raised by Defendants. 6. CASE PLAN AND SCHEDULE

a. Pleadings

Deadline for Joinder of Parties and Amendment of

Lead Plaintiffs currently have pending a Motion for Voluntary Dismissal of the Individuals Defendants and do not anticipate the need to join additional parties at this time. b. (1) Notice to Members of Plaintiff Class: As set forth more fully

above and in its Motion for Voluntary Dismissal, Lead Plaintiffs do not believe that notice to the class is necessary at this time. In the event, the Court finds that notice to the class is required in order to effectuate the voluntary dismissal, Lead Plaintiffs request in the alternative that the claims against the Individual Defendants be severed and the case bifurcated to permit the claims against the Individual Defendants to be adjudicated with the claims in the Section 10b-5 case.

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b.

(2) Discovery Cut-off Date:

In the event Lead Plaintiffs' Motion

for Voluntary Dismissal of the Individual Defendants and pending motion for Partial Summary Judgment is granted, Lead Plaintiff does not anticipate that further fact discovery will be necessary in order to prosecute its case.

c.

Dispositive Motion Deadline: Lead Plaintiffs filed a Motion for

Partial Summary Judgment on liability on December 1, 2005 which is currently pending before the Court. Defendants have advised that they do not intend to oppose this Motion for Partial Summary Judgment with respect to the claims against the Company. Nor are they opposing the Motion for Voluntary Dismissal of the Individual Defendants. In the event the claims against the Individual

Defendants are not dismissed, Defendants' opposition with respect to the liability of the Individual defendants is currently due on January 20, 2006. Defendants have indicated that they will move for partial summary judgment with respect to damages no later than February 3, 2006. Based on Defendants' asserted intention to raise a defense to damages based upon causation, Lead Plaintiffs do not believe that a motion for summary judgment can be determined with respect to damages prior to the parties having engaged in expert testimony.

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d.

Expert Witness Disclosure:

.

In

the

event

Lead

Plaintiffs' Motion for Voluntary Dismissal of the Individual Defendants is granted, Lead Plaintiffs propose as follows: 1. 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.e, its assertion that some portion of the drop in Quovadx, Inc's stock price was attributable to factors other than the misstatements and omissions in its Registration Statement. 2. Proposed Limitations on Use or Number of Expert

Witnesses: Each separately represented party may designate up to two experts. 3. Designation of Experts: The parties shall designate experts

and provide opposing counsel and any pro se party with all information specified in Fed. R. Civ. P. 26(a)(2) on or before March 15, 2006. 4. Rebuttal Experts: The parties shall designate all rebuttal

experts and provide opposing counsel and any pro se party with all information specified in Fed. R. Civ. P. 26(a)(2) on or March 30, 2006.

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5.

Notwithstanding the provisions of Fed. R. Civ. P. 26(a)(2)(B),

no exception to the requirements of the rule will be allowed by stipulation of the parties unless the stipulation is approved by the court. e. Deposition Schedule: In the event Lead Plaintiffs' Motion for

Voluntary Dismissal of the Individual Defendants and Motion for Partial Summary Judgment are granted, Lead Plaintiffs anticipate that there will be no need to conduct fact depositions. Expert depositions shall be conducted on or before April 30, 2006. In the event the Court severs the claims against the Individual Defendants, Lead Plaintiffs anticipate that the deposition schedule with respect to the claims against the Individual Defendants will be coordinated with the Section 10b-5 case. f. Interrogatory Schedule: In the event Lead Plaintiffs' Motion for

Voluntary Dismissal of the Individual Defendants and Motion for Partial Summary Judgment are granted, Lead Plaintiffs do not anticipate that there will be a need for the parties to serve further interrogatories. g. Schedule for Request for Production of Documents: In the event

Lead Plaintiffs' Motion for Voluntary Dismissal of the Individual Defendants and Motion for Partial Summary Judgment are granted, Lead Plaintiffs do not anticipate that there will be a need for the parties to serve further requests for production of documents.

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h.

Discovery Limitations:

In the event Lead Plaintiffs' Motion for

Voluntary Dismissal of the Individual Defendants is granted, Lead Plaintiffs do not anticipate that there will be a need for the parties to conduct further fact discovery. 7. Compliance with Fed. R. Civ. P. 26(f): The parties have

complied with Fed. R. Civ. P. 26(f) by participating in a mediation before Retired Judge Layn R. Phillips on December 13, 2005. Lead Plaintiff and Defendants were unable to resolve their differences at that time. 8. Other Scheduling Issues: Lead Plaintiffs agree with Defendants that

in the event the Court grants Lead Plaintiffs' motion to dismiss the claims against the Individual Defendants, the remaining issues in this case can be tried in five days. 9. Amendments to Scheduling Order: The parties understand that the

Scheduling Order may be altered or amended only upon a showing of good cause.

DATED this ___ day of ___________ 2006. BY THE COURT: _________________________________ HONORABLE RICHARD P. MATSCH Senior United States District Judge

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Submitted by: _/s/ Lawrence M. Rolnick Lawrence M. Rolnick, Esq. LOWENSTEIN SANDLER P.C. 65 Livingston Avenue Roseland, NJ 07068-1791 Tel. 973.597.2450 Fax. 973.597.2451 Lead Plaintiffs' Counsel

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