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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

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.

Civil Action No. 1:04 -cv- 01006-RPM ORAL ARGUMENT REQUESTED DOCUMENT ELECTRONICALLY FILED

_____________________________________________________________________________ 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 MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION FOR CLASS CERTIFICATION _____________________________________________________________________________

LOWENSTEIN SANDLER
Attorneys at Law 65 Livingston Avenue Roseland, New Jersey 07068 973.597.2500 Lead Counsel for Plaintiffs Of Counsel: Lawrence M. Rolnick, Esq. On the Brief: Marcela A. Kirberger, Esq.

PC

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES.......................................................................................................ii PRELIMINARY STATEMENT .................................................................................................1 STATEMENT OF FACTS..........................................................................................................3 PROCEDURAL HISTORY ........................................................................................................7 LEGAL ARGUMENT ................................................................................................................8 I. THIS ACTION SHOULD BE CERTIFIED AS A CLASS ACTION ...................8 A. B. C. The Requirements of Fed. R. Civ. P. 23 Are Well Established And Are Well Suited For The Present Action ...........................................8 The Requirements of Fed. R. Civ. P. 23 (a) are Satisfied Here ................10 The Requirements Of Fed. R. Civ. P. 23(b)(3) Have Been Met...............16

CONCLUSION.........................................................................................................................19

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TABLE OF AUTHORITIES Cases Page

Adamson v. Bowen, 855 F.2d 668 (10th Cir. 1988)...................................................................12 Amchem Prods. V. Windsor, 521 U.S. 591 (1997) ....................................................................17 Anderson v. City of Albuquerque, 690 F. 2d 796 (10th Cir. 1982)............................................12 Antonson v. Robertson, 141 F.R.D. 501 (D. Ka. 1991).......................................................... 8, 10 Bertulli v. Indep. Ass'n of Cont'l Pilots, 242 F. 3d 290 (5th Cir. 2001).........................................3 Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) ........................................................................3 Colo. Cross-Disability Coalition v. Taco Bell Corp., 184 F.R.D. 354 (D. Colo. 1999) ...............10 Cook v. Rockwell Int'l Corp., 151 F.R.D. 378 (D. Colo. 1993)........................................... 10, 11, 13 Daigle v. Shell Oil Co., 133 F.R.D. 600 (D. Colo. 1990) ...........................................................12 Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980) .................................................8 Dolgow v. Anderson, 43 F.R.D. 472, 484-85 (E.D.N.Y. 1968), rev'd on other grounds, 438 F.2d 825 (2d Cir. 1970)...........................................................................................17 Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) .....................................................................3 Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968) .....................................................................9, 18 Genden v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 114 F.R.D. 48 .....................................16 Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981) ...............................................................................8 Heller v. Quovadx, et al., Civil Action No. 04-M-06665 (RPM)..............................................2, 7 In re Intelcom Group Sec. Litig., 169 F.R.D. 142 (D. Colo. 1996)........................................ 9, 10, 11 Kesler v. Hynes & Howes Real Estate, Inc., 66 F.R.D. 43 (S. D. Iowa, 1975)..............................3 Lerner v. Haimsohn, 126 F.R.D. 64 (D. Colo. 1989) ...................................................................9 McEwen v. Digitran Syst., Inc., 160 F.R.D. 631 (D. Utah 1994)................................................13

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Milonas v. Williams, 691 F. 2d 931 (10th Cir. 1982).................................................................11 Penn v. San Juan Hosp., Inc., 528 F. 2d 1181 (10th Cir. 1975) ..................................................13 Queen Uno Ltd. P'ship v. Coeur D'Alene Mines Corp., 183 F.R.D. 687 (D. Colo. 1998) .... 10, 12, 14, 16 In re Ribozyme Pharms., Inc. Sec. Litig., 205 F.R.D. 572 (D. Colo. 2001) ........................... 9, 12, 16, 18 Schwartz v. Celestial Seasonings, 178 F. R.D. 545 (D. Colo. 1998)...................................... 9, 10, 11, 12, 13, 14, 16, 18 Smith v. MCI Telecom. Corp., 124 F.R.D. 665 (D. Kan. 1989) .................................................14 Special Situations v. Quovadx, et al., Civil Docket Number 1:04-cv-01006-RPM ......................7 In re Storage Tech. Corp. Sec. Litig., 113 F.R.D. 113 (D. Colo. 1986) .................................. 9, 14 T. J. Raney & Sons, Inc. v. Ft. Cobb, Okla. Irrigation Fuel Auth., 717 F.2d 1330 (10th Cir. 1983).........................................................................................9 Statutes 15 U.S.C. §§77k and 77o ............................................................................................................1 Miscellaneous 7A Charles Wright & Arthur Miller, Federal Practice and Procedure §1778, at 528 (2d ed. 1986).......................................................................................................16 1 Herbert Newberg & Alba Conte, Newberg on Class Actions § 3.10, at 3-51 (4th ed. 2002) ................................................................................................................11 Newberg on Class Actions, Section 3.13 at 166-67....................................................................12 In re Endotronics, 1988 WL 9250, at 7 (D. Minn. Jan. 28, 1988) ...............................................18

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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., (collectively "Special Situations" or "Lead Plaintiffs") respectfully submit this brief in support of their Motion for Class certification and for their appointment as Class Representative. PRELIMINARY STATEMENT This is an action against Quovadx, Inc. ("Quovadx" or the "Company") and certain of its officers and directors (collectively, "Defendants") seeking remedies under §§ 11 and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§77k and 77o, for materially false and misleading statements 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 the exchange offer with Rogue Wave Software, Inc. ("Rogue Wave") (the "Exchange Offer"). Lead Plaintiffs seek certification of a class of similarly situated investors, other than Defendants, who acquired Quovadx common stock in connection with the Exchange Offer for all of the outstanding shares of Rogue Wave, which became effective on or about December 19, 2003, and were harmed by the materially false and misleading statements contained in the Registration Statement .1 Plaintiffs allege that Defendants violated Section 11 because the Registration Statement filed by Quovadx with the SEC contained a misrepresentation of material fact regarding the Company's 2003 third-quarter financial results which rendered the Registration

1

Excluded from the proposed Class are Defendants, members of the immediate family of each of the Individual Defendants, any entity in which any Defendant has or had a controlling interest, present and former directors, officers and employees of Quovadx. All present and former Quovadx officers, directors and employees who were employed by, or were directors of Rogue Wave at the time of acquisition of Rogue Wave by Quovadx are not excluded from the proposed Class. Where stated in this footnote, the term "Defendants" shall be interpreted to include all defendants named in the First Amended Class Action Complaint filed on or about July 26, 2005, the term "Individual Defendants" shall be interpreted to include all the individual defendants named in the First Amended Class Action Complaint filed on or about July 26, 2005.

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Statement false and misleading.2 Indeed, on March 15, 2003, Quovadx announced that it was restating its 2003 third quarter financial results and removing all the revenue it had recognized in connection with its contract with InfoTech Network Group ("InfoTech") because it had not been able to collect payment from the Indian company. Quovadx also announced it would revise its previously announced preliminary 2003 fourth quarter and full year financial results. Following this announcement the price of Quovadx stock drastically dropped, continuing to decline steadily as the Company issued frequent press releases in connection with its investigation of the restatement of the financials and accounting irregularities. The price of Quovadx stock dropped 79% from $4.91 on December 19, 2003, the date the acquisition of Rogue Wave was consummated, to $1.03 on May 17, 2004, the date this suit was brought (the "Class period"). This action is virtually identical in all relevant respects to other securities cases that have been certified as class actions in this and other courts throughout the United States. No unusual or difficult issues are presented. In addition, as established below, this action meets all of the requirements for class certification as set forth in Fed. R. Civ. P. 23(a), i.e., numerosity, commonality, typicality and adequacy of representation, and 23 (b)(3), i.e., common issues of law and fact predominate, and class action is the most superior and efficient procedure to deal with the claims presented. Furthermore, this Court has already certified the Section 10(b) Class in a parallel case against Quovadx, which sought certification based on exactly the same fraudulent conduct by Defendants as alleged in the Section 11 suit.3 Accordingly, this Court should certify this case to proceed on a class action basis and appoint Lead Plaintiffs as Representatives of the Class.

2

3

In addition to Lead Plaintiffs' Section 11 claim against Defendants, Plaintiffs alleged in the Complaint that Defendants Sweeney and Scherping violated Section 15 of the 1933 Act by causing Quovadx to engage in the unlawful acts and conduct alleged in the Complaint through their influence and control over the Company. On April 13, 2005 this Court entered an Order granting Plaintiff David Heller's Motion To Certify Class in Heller v. Quovadx, et al., Civil Action No. 04-M-06665(RPM), in the District of Colorado, a parallel class action against Quovadx for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. -2-

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STATEMENT OF FACTS 4 On October 22, 2003, Quovadx issued a press release announcing a historic software, training, maintenance and support agreement with an Indian conglomerate, InfoTech Network Group ("InfoTech"), pursuant to which Quovadx would realize revenues of $7.6 million (the "InfoTech Contract"). See Declaration of Marcela A. Kirberger ("Kirberger Decl."), Ex. 1 (First Amended Class Action Complaint ("Compl.")) ¶ 28. 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. Id. In a separate press release also issued on October 22, 2003, the Company reported its "highest quarterly revenue" in the Company's history, and record software revenue of $7.8 million. Id., ¶ 29. The release further stated that the "total revenue for the third quarter of 2003 was $19.9 million, up 33% from $15.0 million from the same period [the previous year]." Id. A few days later, on November 4, 2003, the Company announced its intention to acquire Rogue Wave Software ("Rogue Wave") in a cash and stock transaction valued at $71 million."5 Id., ¶ 30. On November 3, 2003, a day before the announcement to acquire Rogue Wave was made, Quovadx filed its Form 10-Q for the quarter ending September 30, 2003. That Form 10-Q, containing the financial statements of Quovadx for the third quarter of 2003, was signed by defendants Sweeney and Scherping, who certified that it fully complied with the requirements
4

5

It is well established that a court considering a motion for class certification must accept the substantive allegations of the complaint, and may not examine the underlying merits of the claims. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974); Blackie v. Barrack, 524 F.2d 891, 901 n. 17 (9th Cir. 1975) (the "court is bound to take the substantive allegations of the complaint as true"); Bertulli v. Indep. Ass'n of Cont'l Pilots, 242 F. 3d 290, 297 n. 29 (5th Cir. 2001) ("We do not consider the merits of a case when reviewing class certification."); Kesler v. Hynes & Howes Real Estate, Inc., 66 F.R.D. 43, 48 (S. D. Iowa, 1975) ("In determining the propriety of a class action, the question is not whether the plaintiff[s] . . . will prevail on the merits, but rather whether the requirements of Rule 23 are met."). Here, the Court has already denied Defendants' motion to dismiss. On September 14, 2004, the Court concluded that Plaintiffs had stated a cause of action under Sections 11 and 15 of the Securities Act of 1933. Merger negotiations between Rogue Wave and Quovadx had spanned from July to November of 2003. Kirberger Decl. Ex. 4, ¶¶ 31-41. -3-

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of the Securities Exchange Act of 1934, and that the information contained presented, in all material respects, the financial condition and results of Quovadx's operations. Id., ¶ 37. The financial statements for Quovadx for the third quarter of 2003 incorporated in the Form 10-Q represented that revenues for that quarter were $19.9 million. Those amounts included $4.6 million in revenues attributable to purported sales to InfoTech. The very next day, on November 4, 2003, Quovadx issued a press release announcing the acquisition of Rogue Wave. The acquisition, which was structured as an

exchange offer whereby Quovadx would acquire all of the outstanding stock of Rogue Wave for $4.09 in cash and 0.5292 of a share of Quovadx common stock for each share of Rogue Wave common stock. Id., ¶ 41. Based on the average closing price of Quovadx stock for the five trading days ending on October 21, 2003, the aggregate consideration was valued at $6.85 a share. Id. Thus, based upon its then current value, Quovadx common shares were utilized as partial "currency" to acquire the Rogue Wave common shares. Accordingly, the higher the price of Quovadx common shares, the fewer shares the Company would have to part with. 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. Id., ¶ 43. On December 10, 2003, Quovadx filed a Second Amendment to the Registration Statement on Form S-4 in connection with the Exchange Offer which became effective on December 19, 2003. The Registration Statement included Quovadx's financial results for the third quarter of fiscal year 2003 -- which included the purported InfoTech revenue -- and which later on the Company admitted were materially misstated. All of the Individual Defendants6 signed the Registration Statement. Id., ¶¶ 42-43. On December 19, 2003, Quovadx completed

6

Lorine R. Sweeney, Gary T. Shcerping, Jeffrey M. Krauss, Fred L. Brown, J. Andrew Cowherd, James B. Hoover, Charles J. Roesslein, and James A. Gilbert are collectively referred to as the "Individual Defendants." -4-

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the acquisition of all of the outstanding shares of Rogue Wave. The total purchase price for the acquisition was $79.1 million, including 5,656,670 shares of Quovadx common stock, exchange of stock options valued at $3.4 million, cash of $8.0 million net of cash acquired and $3.9 million in merger-related costs. Id., ¶ 44. On March 15, 2004, Quovadx announced that it would delay the filing of its annual report on Form 10-K for the year ended December 31, 2003. According to Quovadx, this delay was necessary because it had to restate its 2003 third quarter financial results and revise its previously announced preliminary 2003 fourth quarter and full year financial results. Id., ¶ 46. The March 15 press release explained that the restatement was caused by the Company's "unsuccessful" efforts to collect funds from letters of credit opened by InfoTech and, as a result, the Company had to restate and remove all revenue from sales to InfoTech from the Company's published financial reports for fiscal year 2003. Id. As a result of the restatement of the third quarter-2003, "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." Id. In addition, "[n]et loss calculated in accordance with generally accepted accounting principles (GAAP) for the quarter was, at the time of the restatement] $(5.3) million or $(0.17) per share compared to the originally reported GAAP net loss of $(1.1) million or $(0.03) per share. Deferred revenue was reduced by $3.0 million." Id. Also on March 15, the Company hosted a call for investors where Sweeney, blasting insinuations of management wrongdoing, reassured investors and analysts that because InfoTech had issued new letters of credit, the funds would be collected. Id., ¶ 48. As a result of the March 15 announcement, the price of Quovadx stock fell approximately 29%, closing at $3.58 per share on March 16, 2003. The Company, however, continued to reassure the investing public that while it had to remove all revenue associated with these contracts from its published financial reports for 2003, it still expected to book such revenue in 2004. Id., ¶ 49. However, this reassurance turned out to be equally false. On April 12, 2004, the Company issued a press release announcing it had retained the firm of Hogan & Hartson L.L.P. -5-

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to conduct a special review of the InfoTech relationship as a result of a formal SEC investigation into the March 15 restatement. Id., ¶ 52. That same day, Quovadx announced the resignation of defendants Sweeney and Scherping. Id. Following the April 12 announcements, Quovadx's stock price suffered a sharp drop, closing at $2.09 per share. Id., ¶ 54. On May 13, 2004, the Company issued a press release in connection with its investigation into the InfoTech problem. The Company confirmed that it had received "no payments from InfoTech under the distribution agreement executed on September 8, 2003" pursuant to which Quovadx had shipped InfoTech $14.1 million worth of software products. Id., ¶ 56. The Company further disclosed that "[p]rior to the distribution agreement with Quovadx, [InfoTech] had not been a software distributor or sold software." In addition, the Company was not able to determine "that the purported line of credit maintained by InfoTech at a bank in India now exists or has existed, that such line of credit was secured by liquid assets, or that it was capable of backing letters of credit to be established by InfoTech to secure payment under the distribution agreement." Id. The press release also revealed that "Quovadx no longer expect[ed] such letters of credit, or any other credit facilities established by InfoTech, to be a source of payment by InfoTech." Finally, the audit committee investigation confirmed that Quovadx's former management had induced InfoTech to enter into the distribution agreement by paying the Indian company $2.46 million, and that "InfoTech would not have entered into the distribution agreement without concurrently entering into the outsourcing agreement." The investigation uncovered an additional inducement to InfoTech to enter into the distribution agreement in exchange for an additional $10 million in outsourcing services to be purchased yearly by Quovadx. Id. In a shocking revelation, the report exposed that certain payments to InfoTech totaling $2.9 million were made "for the purpose of enabling InfoTech to establish the letters of credit required to secure InfoTech's payment obligations under the distribution agreement." Id. In essence, the audit committee investigation confirmed that the InfoTech deal had been 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 -6-

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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. Thereafter, in a press release on May 14, 2004, the Company announced that it had "severed relations with its former president and CEO Lorine Sweeney and CFO Gary Scherping" and further, had discontinued severance payment to these former executives and demanded the return of monies already paid as severance, compensation and bonuses. Id., ¶ 58. Following this announcement, Quovadx stock fell to $1.00 a share. The Company's Registration Statement on Form S-4, signed by each Individual Defendant and filed with the SEC, incorporated the Company's financial results for the third quarter of 2003, results which the Company later admitted were materially misstated. The price of Quovadx stock dropped 79% from $4.91 on December 19, 2003, the date the acquisition of Rogue Wave was consummated, to $1.03 on May 17, 2004, the date this suit was brought. Id., ¶ 59. PROCEDURAL HISTORY Currently pending before this Court are two parallel actions against Quovadx, Heller v. Quovadx, et al., Civil Docket Number 1:04-cv-00665-RPM (the "Heller Action" or the "Section 10 (b) Action") and Special Situations v. Quovadx, et al., Civil Docket Number 1:04cv-01006-RPM (the "Special Situations Action" or the "Section 11 Action"). The Heller Action is a securities fraud class action against Quovadx for violations of the Securities Exchange Act of 1934 (the "Exchange Act"). Plaintiffs there allege that the Defendants violated Sections 10(b) and 20(a) of the 1934 Act by fraudulently recognizing revenues from a contract with InfoTech Network Group before having realized it and knowing that collection of payment was not probable. The Special Situations Action is a securities class action against Quovadx for Plaintiffs here allege that

violations of the Securities Act of 1933 (the "Securities Act").

Defendants violated Sections 11 and 15 of the Securities Act by filing a materially false and misleading Registration Statement on Form S-4 pursuant to which the Exchange Offer with

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Rogue Wave took place -- the Registration Statement incorporated by reference Form 10-Q which included false and overstated revenues for the third quarter of 2003 which the Company subsequently restated. Heller was appointed Lead Plaintiff in the Section 10(b) Action by Order of the Court dated September 8, 2004. Thereafter, on April 12, 2005, the Section 10 (b) Class was certified by the Court. consolidated basis. On June 29, 2005, and more than seven months after its initial application, Special Situations was appointed Lead Plaintiff in the Section 11 Action. See Kirberger Decl., Ex. 2 (Order Appointing Special Situations as Lead Counsel for the Class). During that time, Special Situations produced extensive discovery in response to requests by the competing Lead Plaintiff Movant, Ronald Dean Hallman. Among the discovery provided, Special Situations made its Managing Director, Austin Marxe, available for a full-day deposition in New York City in December 2005 and produced voluminous documents regarding its corporate organization, operations and investments. On July 26, 2005, Special Situations filed its First Amended Class Action Complaint and on August 1, 2005, the Court entered an Order approving Special Situations' selection of Lowenstein Sandler PC as Lead Counsel. LEGAL ARGUMENT I. A. THIS ACTION SHOULD BE CERTIFIED AS A CLASS ACTION The Requirements of Fed. R. Civ. P. 23 Are Well Established And Are Well Suited For The Present Action The historical purpose behind class action litigation has been to vindicate the rights of numerous individuals with similar, albeit small, claims. Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 338 (1980); Gulf Oil Co. v. Bernard, 452 U.S. 89, 99-100 n. 11 (1981); Antonson v. Robertson, 141 F.R.D. 501, 509 (D. Ka. 1991). The two matters have since been proceeding with discovery on a

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Violations of the federal securities laws inflict economic injury on large numbers of persons who are frequently geographically dispersed. While the aggregate losses can be astronomical, the loss suffered by each individual is generally limited and, given the cost, pursuing individual litigation against well-financed adversaries is not a feasible alternative. Accordingly, numerous courts have recognized that class actions are a necessary and effective vehicle for resolution of securities law claims. Esplin v. Hirschi, 402 F.2d 94, 99 (10th Cir. 1968). See also, In re Ribozyme Pharms., Inc. Sec. Litig., 205 F.R.D. 572, 577 (D. Colo. 2001) (observing that "in general class actions are the favored method of litigating securities fraud actions in which numerous plaintiffs are involved"); Schwartz v. Celestial Seasonings, 178 F. R.D. 545, 550 (D. Colo. 1998); In re Storage Tech. Corp. Sec. Litig., 113 F.R.D. 113, 115 (D. Colo. 1986). In fact, "the Tenth Circuit has endorsed class actions as an appropriate means to resolve claims under the federal securities laws." Lerner v. Haimsohn, 126 F.R.D. 64, 65 (D. Colo. 1989) (citing T. J. Raney & Sons, Inc. v. Ft. Cobb, Okla. Irrigation Fuel Auth., 717 F.2d 1330 (10th Cir. 1983). In addition, because the class certification decision is not irreversible, and may be altered if later events so warrant, courts in the Tenth Circuit are quite liberal in granting class certification "when that decision is made at an early stage." Ribozyme, 205 F.R.D. at 576 (citing Esplin, 402 F. 2d at 99). See also Cook v. Rockwell Int'l Corp., 151 F.R.D. 378, 381 (D. Colo. 1993)); Schwartz, 178 F.R.D. at 550; In re Intelcom Group Sec. Litig., 169 F.R.D. 142, 145 (D. Colo. 1996). To obtain class certification, a plaintiff must establish the four requirements of Fed. R. Civ. P. 23(a). These are (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. See Ribozyme, 205 F.R.D. at 577. Under Fed. R. Civ. P. 23 (b) (3) a plaintiff must also show that: (a) common questions of law or fact predominate, and (b) a class action is superior to other methods of adjudication. Id. As illustrated in detail below, the Complaint asserts the type of securities claims which courts routinely certify as a class action. See, e.g., Schwartz v. Celestial Seasonings, Inc., 178 F.R.D. 545 (D. Colo. 1998). Indeed, Lead Plaintiffs seek to protect the interests of individuals who acquired Quovadx securities through -9-

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the Exchange Offer with Rogue Wave at artificially inflated prices, and who were damaged thereby. These prices were inflated by the materially false and misleading representations in the Registration Statement pursuant to which the Exchange Offer was consummated. Moreover, the Lead Plaintiffs are informed about the claims and duties as the proposed Class Representatives and have taken and will continue to take an active role in the prosecution of this case. B. The Requirements of Fed. R. Civ. P. 23 (a) are Satisfied Here 1. The Class Is So Numerous That Joinder Of All Members Is Impracticable

To satisfy this requirement, the class representatives need only show that it is difficult or inconvenient to join all the members of the class. See Schwartz, 178 F.R.D. at 550. (citing Cook v. Rockwell Int'l Corp., 151 F.R.D. 378, 382 (D. Colo. 1993). Factors relevant in assessing the impracticability of joining all class members include the number and geographical dispersion of persons in the class, the nature of the action, the size of the individual claims, and the inconvenience of trying individual suits. See In re Intelcom Group, Inc. Sec. Litig., 169 F.R.D. 142, 147 (D. Colo. 1996) (observing that the fact that over "29 million shares of IntelCom common stock were traded on the American Stock Exchange" - - although the exact number of shares of class members could not be determined without discovery -- was another factor that established numerosity). In determining whether a proposed class meets the numerosity requirement under Fed. R. Civ. P. 23(a)(1), the precise number of class members need not be shown and the court may make "common sense" assumptions in finding that joinder is impracticable. See Colo. Cross-Disability Coalition v. Taco Bell Corp., 184 F.R.D. 354, 358 (D. Colo. 1999). In fact, courts generally assume that the numerosity requirement is met in cases involving nationallytraded securities. See Queen Uno Ltd. P'ship v. Coeur D'Alene Mines Corp., 183 F.R.D. 687, 691 (D. Colo. 1998); Intelcom, 169 F.R.D. at 148; Antonson, 141 F.R.D. at 505. The numerosity requirement is satisfied here. The First Amended Class Action Complaint has defined the Class as "all persons and entities, other than Defendants, who

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acquired Quovadx common stock in connection with Quovadx's Exchange Offer for all of the outstanding shares of Rogue Wave [] which became effective on or about December 19, 2003." Compl., ¶ 2. Although the exact size is not yet known, as of March 12, 2004, Quovadx had approximately 39.4 million shares of common stock issued and outstanding which were actively traded on Nasdaq. Plaintiffs believe there are thousands of Class members who acquired

Quovadx common stock through the Exchange Offer.7 i. There Are Significant Common Issues Of Law And Fact

Rule 23(a)(2) requires the existence of common questions of law or fact. The analysis, however, "does not require that all the questions of law or fact raised by the dispute be common; nor does it establish any quantitative or qualitative test of commonality." Cook, 151 F.R.D. at 384. In addition, "[t]he claims of the class members need not be identical for there to be commonality; either common questions of law or fact will suffice." Schwartz, 178 F.R.D. at 551. (citation omitted). Indeed, the commonality requirement is satisfied as long as the class claims arise out of the same legal or factual theory.
8

See Intelcom, 169 F.R.D. at 148. As such,

"factual differences in the claims of the individual class members should not result in a denial of class certification where common questions of law exist." Id. (finding that commonality existed because the "claims involve[d] a common scheme affecting the entire class which is the hallmark of securities fraud actions that are certified as class actions."). See also Milonas v. Williams, 691 F. 2d 931, 938 (10 th Cir. 1982). In other words, commonality will be found if the defendant has engaged in a "course of conduct that affects a group of persons and gives rise to a cause of action." 1 Herbert Newberg & Alba Conte, Newberg on Class Actions § 3.10, at 3-51 (4th ed. 2002).

7 8

Information concerning the precise number of class members may be readily obtained through discovery. See Newberg § 3.10, at 3-49 to 3-50 (observing that the "test or standard for meeting the Rule 23(a)(2) prerequisite is qualitative rather than quantitative -- that is, there need be only a single issue common to all members of the class"). -11-

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Common issues of fact and law permeate all of the claims brought on behalf of all Class members here. These overriding questions include: a. whether the federal securities laws, specifically, the provisions of the 1933 Securities Act, were violated by Defendants' acts as alleged in the Complaint; whether the Defendants misstated Quovadx's financial results for the third quarter of 2003, which results were included in the Registration Statement on Form S-4 filed with the SEC in connection with the exchange offer for the shares of Rogue Wave; whether Defendants participated directly or indirectly in the course of conduct complained of in the Complaint; and the extent of damages sustained by Class members and the appropriate measure of damages.

b.

c. d. Compl. ¶ 27.

Such common questions are routinely found to be sufficient to establish commonality by courts in the Tenth Circuit. See Ribozyme, 205 F.R.D. at 578; Queen Uno, 183 F.R.D. at 691; Schwartz, 178 F.R.D. at 551. As such, commonality is plainly satisfied here. ii. Plaintiffs' Claims are Typical Of The Class Claims

Rule 23(a)(3) requires that the claims of the representative plaintiff be typical of the claims of the class. In other words, typicality is demonstrated where the members of the class are victims of the same course of conduct. Daigle v. Shell Oil Co., 133 F.R.D. 600, 604 (D. Colo. 1990). Typicality is satisfied when the representative plaintiffs' claims arise from the same event, practice or course of conduct that provides the basis of class claims and are grounded in the same legal or remedial theory. Adamson v. Bowen, 855 F.2d 668, 676 (10th Cir. 1988). The rationale behind this prong is that a plaintiff whose claims are typical will, in pursuing her own self-interest, "advance the interests of class members accordingly." Newberg on Class Actions, Section 3.13 at 166-67. Typicality does not require that the claims of the class members be identical to those of the representative plaintiff. Anderson v. City of Albuquerque, 690 F. 2d 796, 800 (10th

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Cir. 1982). Accord, Schwartz, 178 F.R.D. at 551. According to the Tenth Circuit, "the typicality requirement is ordinarily not argued . . . [I]t is to be recognized that there may be varying fact situations among individual members of the class and this is all right so long as the claims of the plaintiffs and the other class members are based on the same legal or remedial theory." Penn v. San Juan Hosp., Inc., 528 F. 2d 1181, 1189 (10th Cir. 1975). "So long as there is a nexus between the class representatives' claims or defenses and the common questions of fact or law which unite the class, the typicality requirement is satisfied." Cook, 151 F.R.D. at 385. See also McEwen v. Digitran Syst., Inc., 160 F.R.D. 631, 636 (D. Utah 1994) (observing that the Tenth Circuit has found that the typicality prong of Rule 23(a) is met despite "differences among the situations of individual class members `so long as the claims of the plaintiff and the other class members are based on the same legal or remedial theory.") (quoting Penn at 1189). Here, the typicality requirement is met since Lead Plaintiffs' claims arise out of the same set of operative facts and rests on the same legal theories as those of the absent Class members. The Complaint alleges that Defendants committed the same type of unlawful acts by the same methods against the entire Class. In fact, all Class members were misled by the same false information, by the same common course of conduct on the part of the Defendants and will utilize the same evidence to prove their case. Lead Plaintiffs, like the absent Class members, acquired shares of Quovadx through the Exchange Offer with Rogue Wave consummated on December 19, 2003 pursuant to and traceable to a false and misleading Registration Statement. See Kirberger Decl., Ex. 1 (Certification of Named Plaintiffs Pursuant to Federal Securities Laws, attached to First Amended Class Action Complaint). 9 Plaintiffs suffered losses because of the material misrepresentations in Quovadx's Form 10-Q for the 2003 third quarter results
9

Lead Plaintiffs did not acquire their shares of Quovadx stock through the Exchange Offer for Rogue Wave shares either at the direction of counsel or in order to participate in any private action arising under the PSLRA. Lead Plaintiffs acquired this stock due to prior holdings of Rogue Wave stock, which shares Special Situations acquired as part of its normal research and investment activities. As a result of the Exchange Offer between Quovadx and Rogue Wave, Special Situations acquired 366,896 shares of Quovadx stock. Special Situations continues to hold these 366,896 shares today. See Id. -13-

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incorporated in the Registration Statement. Quovadx's financial results for the third quarter of fiscal year 2003 (1) materially overstated Quovadx's revenues, net income and earnings per share; and (2) recognized fabricated revenue from contracts between the Company and InfoTech in violation of GAAP. See Compl., ¶ 45. As such, Lead Plaintiffs will pursue vigorously the claims for violations of the securities laws and will thereby advance the claims of each of the Class members. Accordingly, there is no conflict or antagonism here between the interests of the Lead Plaintiffs and those of the Class members, and the typicality requirement is met. iii. Plaintiffs will Fairly And Adequately Represent The Class

The adequacy of representation prong of Rule 23(a) (4) has two components: (1) whether the class representatives have common interests with class members; and (2) whether they will vigorously prosecute the action through qualified and experienced counsel. See Smith v. MCI Telecom. Corp., 124 F.R.D. 665, 676 (D. Kan. 1989); Queen Uno, 183 F.R.D. at 694, Schwartz, 178 F.R.D. at 552 (finding that plaintiffs were familiar with the claims asserted in the case and understood "the nature of the Defendants' alleged deception"-- which resulted in the artificial inflation of the company's stock price); In re Storage Tech. Corp. Sec. Litig., 113 F.R.D. 113, 117 (D. Colo. 1986) (explaining that adequacy requires that the plaintiffs are familiar with the status of the litigation, understand the legal theories involved, are able to pay the costs involved, "diligently pursue their claims, and [] their interests are not antagonistic to the interests of the class."). In this case, Lead Plaintiffs are well suited to represent the Class. As previously explained, the Lead Plaintiffs' interests are the same as those of the absent Class members, and there are no conflicts between Lead Plaintiffs and the Class. Lead Plaintiffs have been actively involved in this litigation and regularly communicate with Lead Counsel regarding the status of the litigation and strategy in the case. In addition, Lead Plaintiffs are very familiar with the underlying facts and claims asserted in the litigation and are willing to serve as a representative

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party on behalf of the Class and to devote the time necessary to vigorously and effectively prosecute this action. See Declaration of Austin Marxe in Support of Lead Plaintiffs' Motion For Class Certification, ¶¶ 9-10. Indeed, Special Situations has retained its regular securities counsel, Lowenstein Sandler PC to represent its interest and the interest of the class in the present action. Lowenstein Sandler is a firm of the highest professional reputation and has represented Special Situations in more than seventy (70) transactional and litigation matters pertinent to Special Situations' securities investments, including the prosecution of non-class action securities claims against Suprema Specialties, Inc., Interplay Entertainment Corporation and Attunity, Ltd. The action against Suprema Specialties, Inc. is currently pending before the United States Court of Appeals for the Third Circuit and raises significant issues of first impression. Apart from its past work for Special Situations, Lowenstein Sandler has extensive experience in litigating securities class actions. See Kirberger Decl., Ex. 3 (Lowenstein Lawrence M.

Sandler's Securities Litigation and Enforcement Practice Group Narrative).

Rolnick, Esq. is a Member of the Firm and chair of Lowenstein's Securities Litigation and Enforcement Practice Group. See Kirberger Decl., Ex. 4 (Resume of Lawrence M. Rolnick). Mr. Rolnick has had substantial experience in litigating securities cases, both as private actions and as securities actions. Furthermore, the interests of the Lead Plaintiffs' and absent Class Members' are aligned since both have suffered losses as a result of their acquisition of Quovadx shares pursuant to the Exchange Offer with Rogue Wave. Therefore, they have been injured by the identical wrongful conduct of the Defendants and it is in Lead Plaintiffs' interest to vigorously prosecute this action on behalf of the Class. Finally, as previously noted, Lead Plaintiffs have engaged qualified, experienced and capable counsel for this type of litigation. Lead Counsel, Lowenstein Sandler PC is highly qualified and experienced in complex class litigation, including securities class actions, and have the ability and willingness to vigorously prosecute this action. Indeed, Lead Counsel has already vigorously pursued and obtained Lead Plaintiff status for Special Situations and initiated -15-

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discovery in connection with Plaintiffs' claims against Defendants. In sum, Lead Plaintiffs are adequate representatives and will continue to vigorously represent the Class in this case, with the assistance of able and effective counsel. C. The Requirements Of Fed. R. Civ. P. 23(b)(3) Have Been Met Plaintiffs have also met the requirements of Fed. R. Civ. P. 23(b)(3) because common questions of law and fact predominate over individual questions, and a class action is superior to other available methods for the fair and efficient adjudication of this controversy. 1. Common Issues Predominate

In order to be certified as a class action, in addition to satisfying the prongs of Rule 23(a), a suit must also meet one of the three conditions of Rule 23(b). In the present case, Plaintiffs meet the requisites of Rule 23(b)(3) which requires a finding that questions of law or fact common to all class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. See Fed. R. Civ. P. 23 (b) (3). When common questions represent a significant aspect of a case and they can be resolved in a single action, class action status is appropriate. See 7A Charles Wright & Arthur Miller, Federal Practice and Procedure §1778, at 528 (2d ed. 1986). As with the commonality and typicality inquiries, the predominance inquiry is directed toward the issue of liability. Indeed, "[w]hen determining whether common questions predominate, courts `focus on the liability issue . . . and if the liability issue is common to the class, common questions are held to predominate over individual questions.'" Genden v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 114 F.R.D. 48; 52 (S.D.N.Y. 1987) (citation omitted); Schwartz 178 F.R.D. at 554 (observing that the "central issue[]" in the action was whether Defendants had engaged in fraudulent conduct "by omitting to disclose and/or misrepresenting material facts"); Queen Uno, 183 F.R.D. at 695; Ribozyme 205 F.R.D. at 579.

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An examination of the liability issues in the case at bar confirms that common legal and factual questions predominate over individual ones. As stated before, in connection with the commonality requirement of Rule 23(a)(2), the common and predominant question here is whether Defendants violated Section 11 of the Securities Act by incorporating in the Registration Statement materially false financial results for the third quarter of 2003. These false and misleading representation was directed at the Class members and the financial markets in general. There are no significant, let alone predominant, individual issues of law or fact here. The complaint specifically pleads materially false and misleading financial results incorporated in the Registration Statement filed by Quovadx in connection with the Exchange Offer with Rogue Wave. Compl., ¶ 45. Other critical issues include whether Defendants participated directly or indirectly in the course of conduct complained of in the Complaint and the appropriate measure of damages suffered by the Class members. Therefore, any individual issue relating to Plaintiffs and the Class are de minimis in comparison. Where, as in this case, Lead Plaintiffs allege a common nucleus of

misrepresentations, common questions predominate over any differences between individual Class members. See, e.g., Amchem Prods. V. Windsor, 521 U.S. 591, 625 (1997)

("Predominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws.") 2. A Class Action Is Superior To Individual Actions In The Securities Fraud Context

In this case, the class action vehicle is not only the superior method of prosecution, it is the only viable means of proceeding since those who have been injured "are in a poor position to seek legal redress, either because they do not know enough or because such redress is disproportionately expensive." Dolgow v. Anderson, 43 F.R.D. 472, 484-85

(E.D.N.Y. 1968), rev'd on other grounds, 438 F.2d 825 (2d Cir. 1970). In addition, the class action device is particularly appropriate for addressing claims for violations of the securities laws. Indeed, class certification represents a vastly superior method of adjudicating the claims of

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numerous aggrieved investors under the federal securities laws, as opposed to the onerous maintenance of multiple individual actions. See Ribozyme, 205 F.R.D. at 579 (observing that because securities fraud actions usually involve plaintiffs geographically spread out, were it not for the class action device, the costs of maintaining such suits would be prohibitive). Accord, In re Endotronics, 1988 WL 9250, at * 7 (D. Minn. Jan. 28, 1988) (noting that "the claims of individual investors often are too small to warrant separate lawsuits"). The utility of, and the necessity for, class action treatment in this case is selfevident. Thousands of individuals have been injured, but few have been damaged to a degree that would make it economically viable for them to prosecute an action solely on their own behalf. Moreover, absent a class action, this Court would be faced with the daunting task of presiding over the litigation of hundreds and even thousands of individual lawsuits. The parties would also face the enormous cost of litigating numerous individual cases. Judicial resources are more efficiently used by resolving the common issues alleged in one action. When common questions of law and fact predominate over questions affecting individual members, a class action is superior to other available methods. See Schwartz, 178 F.R.D. at 554; see also Esplin, 402 F.2d at 101 [check this cite and quote?] (in a securities fraud case, a class action achieves economies of time, effort and expense, and promotes uniformity of decision as to persons similarly situated). In sum, the proposed Class is clearly defined, its members can be easily identified and provided notice, Class Counsel have years of experience in managing securities fraud class actions, and litigation in this forum is both appropriate and desirable. The requirements of Rule 23(b)(3) are, therefore, satisfied.

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CONCLUSION As demonstrated above, this action satisfies all prerequisites of Fed. R. Civ. P. 23(a) and (b) (3), and should be certified as a class action with Special Situations appointed as Class Representatives. Respectfully submitted, LOWENSTEIN SANDLER PC

Dated: October 27, 2005

By: s/Marcela A. Kirberger Lawrence M. Rolnick, Esq. Marcela A. Kirberger, Esq. 65 Livingston Avenue Roseland, NJ 07068-1791 Tel. 973.597.2500 Fax 973.597.2400 E-mail [email protected] Attorneys for Lead Plaintiffs

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