Free Brief in Support of Motion - District Court of Colorado - Colorado

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 1 of 35

IN THE 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

LEAD COUNSEL'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR AWARD OF ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES

LOWENSTEIN SANDLER PC 65 Livingston Avenue Roseland, New Jersey 07068 973-597-2500 Attorneys for Lead Plaintiffs Of Counsel: Lawrence M. Rolnick, Esq.

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 2 of 35

TABLE OF CONTENTS TABLE OF CONTENTS................................................................................................................. i TABLE OF AUTHORITIES ......................................................................................................... iii INTRODUCTION ...........................................................................................................................1 I. LEAD COUNSEL SHOULD BE AWARDED ATTORNEY FEES BASED ON A PERCENTAGE OF THE RECOVERY OBTAINED THROUGH THE SETTLEMENT..........................................................................................................................2 A. Lead Counsel is Entitled to a Fee From the Common Fund......................................................2 B. Fees in Common Fund Cases Should Awarded Based on a Percentage of the Recovery. ...................................................................................................................................3 1. The Supreme Court Has Repeatedly Held that Fees Paid From Common Fund Cases Are Properly Calculated Based on a Percentage of the Recovery. ............3 2. A Reasonable Percentage of the Fund Is the Preferred Method of Awarding Attorneys' Fees in Common Fund Cases.......................................................................4 3. Lead Counsel Should be Awarded Interest on the Attorneys Fees Awarded. ................8 II. THE REASONABLENESS OF LEAD COUNSEL'S REQUESTED FEE, WHICH IS A PERCENTAGE OF THE COMMON FUND, IS CONFIRMED BY AN ANALYSIS OF THE JOHNSON FACTORS. ..........................................................................9 A. Lead Counsel Obtained an Excellent Recovery for the Class. ................................................10 B. Lead Counsel Committed Large Amounts of Time and Resources to the Present Action.......................................................................................................................................11 C. This Action Raised Difficult Questions of Fact and Law........................................................14 D. Lead Counsel Employed the Highest Level of Skill in Reaching an Excellent Outcome for the Class. ............................................................................................................................16 E. The Resources Required for this Action Precluded Other Employment by Lead Counsel. ...................................................................................................................................17 F. Customary Fees for Similar Work Warrants a Fee Award of 25% of the Class Recovery. .................................................................................................................................17 G. Lead Counsel Undertook Significant Risks By Undertaking the Action on Contingent Fee Basis. .................................................................................................................................18

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 3 of 35

H. Time Limitation Imposed by the Client or Circumstances......................................................20 I. Lead Counsel's Experience, Reputation and Ability Warrants a Fee Award of 25% of the Class Recovery...................................................................................................................20 J. The Risks Involved in This Action Rendered it Undesirable. .................................................21 K. The Nature and Length of the Professional Relationship with the Client. ..............................22 L. Awards in Similar Cases..........................................................................................................22 III. Lead Counsel's Expenses Are Reasonable and Were Necessarily Incurred in the Prosecution of the Action.........................................................................................................24 CONCLUSION..............................................................................................................................27

- ii -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 4 of 35

TABLE OF AUTHORITIES CASES Abrams v. Lightolier, Inc., 50 F.3d 1204 (3d Cir. 1995) ...................................................24 In re Agent Orange "Prod. Liability Litigation, 611 F. Supp. 1296 (E.D.N.Y. 1985)...................................................................................................................6 In re America Bank Note Holographics, 127 F. Supp. 2d 418 (S.D.N.Y. 2001) ....................................................................................................................................5 Angres v. Smallworldwide PLC, No. 99-K-1254 (D. Colo. June 7, 2003) ........................23 Associated Builders & Contractors, Inc. v. Orleans Parish School Board, 919 F.2d 374 (5th Cir. 1990) .............................................................................................24 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985) ................................3 Blum v. Stenson, 465 U.S. 886 (1984) ...........................................................................3, 17 Boeing Co. v. Van Gemert, 444 U.S. 472 (1980).............................................................2, 3 Bratcher v. Bray-Doyle Independent School District, No. 42, 8 F.3d 722 (10th Cir. 1993)..................................................................................................................24 Brown v. Phillips Petroleum Co., 838 F.2d 451 (10th Cir. 1988) ..................................4, 9, 10, 11 Camden I Condo. Association v. Dunkle, 946 F.2d 768 (11th Cir. 1991) ...........................6 Central Bank, NA. v. First Interstate Bank, NA., 511 U.S. 164 (1994) .............................20 Central R. R. & Banking Co. v. Pettus, 113 U.S. 116 (1885)..............................................3 In re Combustion, Inc., 968 F. Supp. 1116 (W.D. La. 1997) ............................................22 In re Cont'l Ill. Security Litigation, 962 F.2d 566 (7th Cir. 1992).....................................18 In re Coram Healthcare Corp. Security Litigation, No. 95-N-2074 (D. Colo. Jan. 24, 1997) ...........................................................................................................23 Cosgrove v. Sullivan, 759 F. Supp. 166 (S.D.N.Y. 1991) .................................................12 Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y. 1968) ........................................................2 Edmonds v. United States, 658 F. Supp. 1126 (D.S.C. 1987)............................................16 - iii -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 5 of 35

In re Einstein Noah Bagel Corp. Security Litigation, No. 97-N-1614 (D. Colo. June 4, 1999) ............................................................................................................23 Florin v. Nationsbank, NA., 34 F.3d 560 (7th Cir. 1994) ....................................................5 In re GMC Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir. 1995)........................................................................................................5 Gottlieb v. Wiles, 150 F.R.D. 174 (D. Colo. 1993), rev'd on other grounds sub nom Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994)........................................4, 10, 24 Harman v. Lyphomed, Inc., 945 F.2d 969 (7th Cir. 1991) ................................................21 In re Harrah's Entm't, No. 95-3925, 1998 U.S. Dist. LEXIS 18774 (E.D. La. Nov. 25, 1998) .............................................................................................................11 Harris v. Marhoefer, 24 F.3d 16 (9th Cir. 1994)...............................................................24 Hensley v. Eckerhart, 461 U.S. 424 (1983) .......................................................................10 In re Ikon Office Solutions, Inc., 194 F.R.D. 166 (E.D. Pa. 2000) .............................13, 14, 22 In re Intelcom Group, Inc. Security Litigation, No. 95-D-1166 (D. Colo. Mar. 21, 1997)....................................................................................................................23 Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) ..........................9, 11 Johnston v. Comerica Mortgage Corp., 83 F.3d 241 (8th Cir. 1996) ............................5, 6 Jones v. Central Soya Co., 748 F.2d 586 (11th Cir. 1984)................................................19 In re King Res. Co. Security Litigation, 420 F. Supp. 610 (D. Colo. 1976) ......................10 Kirchoff v. Flynn, 786 F.2d 320 (7th Cir. 1986) ............................................................6, 18 In re Lease Oil Antitrust Litigation, 186 F.R.D. 403 (S.D. Tex. 1999).............................23 Lindy Brothers Builders v. America Radiator & Standard Sanitary Corp., 540 F.2d 102 (3d Cir. 1976).............................................................................................3, 4 Maley v. Del Global Technologies Corp., 186 F. Supp. 2d 358 (S.D.N.Y. 2002) ..............................................................................................................................5, 13 Miller v. Woodmoor Corp., No. 74-F-988, 1978 U.S. Dist. LEXIS 15234 (D. Colo. Sept. 28, 1978) ...................................................................................................14 - iv -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 6 of 35

Mills v. Electrical Automobile-Lite Co., 396 U.S. 375 (1970) ............................................2 In re Northwestern Corp. Security Litigation, No. 03-4049 (D.S.D. Jan. 14, 2005) ..................................................................................................................................13 Phemister v. Harcourt Brace Jovanovich, Inc., No. 77C39, 1984 U.S. Dist. LEXIS 23595 (N.D. Ill. Sept. 14, 1984) ............................................................................18 Piambino v. Bailey, 610 F.2d 1306 (5th Cir. 1980)...........................................................19 In re Prudential-Bache Energy Income P'ships Security Litigation, No. 888, 1994 WL 202394 (E.D. La. May 18, 1994)........................................................17, 18, 19 In re Prudential Security Ltd. P'ships Litigation, 912 F. Supp. 97 (S.D.N.Y. 1996) .................................................................................................................22 Queen Uno Ltd. P'ship. v. Coeur D'Alene Mines Corp., No. 97-WY-1431CB (D. Colo. Aug. 11, 1999) .............................................................................................23 In re RJR Nabisco Sec. Litig., M.D.L. No. 818, 1992 U.S. Dist. LEXIS 12702, (S.D.N.Y. Aug. 24, 1992) ......................................................................................13 Rasner v. FirstWorld Committee, Inc., No. 00-K-1376 (D. Colo. Jan. 19, 2005) ..................................................................................................................................23 Rawlings v. Prudential-Bache Props., 9 F.3d 513 (6th Cir. 1993)......................................5 In re Resort Income Investors, Inc. Secs. Litigation, No. 97-B-1665 (D. Colo. Mar. 13, 1998)..........................................................................................................23 Ressler v. Jacobson, 149 F.R.D. 651 (M.D. Fla. 1992).....................................................19 In re Rite Aid Corp. Secs. Litigation, 146 F. Supp. 2d 706 (E.D. Pa. 2001), vacated on other grounds, 396 F.3d 294 (3d Cir. 2005)............................................12, 16, 22 Schaffer v. Evolving Systems, Inc., No. 98-WY-1338-CB (D. Colo. Oct. 4, 1999) ..................................................................................................................................23 Schwartz v. Celestial Seasonings, Inc., No. 95-K-1045 (D. Colo. Apr. 25, 2000) ..................................................................................................................................23 Shaw v. Toshiba America Information System, 91 F. Supp. 2d 942 (E.D. Tex. 2000) ............................................................................................................................6

-v-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 7 of 35

The Sorkin, LLC v. Fischer Imaging Corp., No. 03-cv-00631, 2005 U.S. Dist. LEXIS 19934 (D. Col. 2005) ....................................................................................19 Sprague v. Ticonic National Bank, 307 U.S. 161 (1939) ................................................2, 3 In re Sumitomo Copper Litigation, 74 F. Supp. 2d 393 (S.D.N.Y. 1999) .........................22 In re Sunbeam Secs. Litigation, 176 F. Supp. 2d 1323 (S.D. Fla. 2001) ...........................22 In re Superior Beverage/Glass Container Consolidated Pretrial, 133 F.R.D. 119 (N.D. Ill. 1990)................................................................................................13 Swedish Hospital Corp. v. Shalala, 1 F.3d 1261 (D.C. Cir. 1993)......................................6 In re Synthroid Marketing Litigation, 264 F.3d 712 (7th Cir. 2001).................................18 In re Thirteen Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire Litigation, 56 F.3d 295 (1st Cir. 1995) ....................................................................5, 6 Trustees v. Greenough, 105 U.S. 527 (1882) ..................................................................2, 3 Uselton v. Commercial Lovelace Motor Freight, 9 F.3d 849 (10th Cir. 1993) ................................................................................................................................4, 9 Vaszlavik v. Storage Technology Corp., No. 95-B-2525, 2000 U.S. Dist. LEXIS 21140 (D. Colo. Mar. 9, 2000) ..............................................................................23 Walters v. Atlanta, 652 F. Supp. 755 (N.D. Ga. 1985) ......................................................19 In re Warfarin Sodium Antitrust Litigation, 212 F.R.D. 231 (D. Del. 2002), aff'd, 391 F.3d 516 (3d Cir. 2004) .....................................................................................16 In re Wash. Public Power Supply System Security Litigation, 19 F.3d 1291 (9th Cir. 1994)......................................................................................................................6 Weiss v. Mercedes-Benz of N America, 899 F. Supp. 1297 (D.N.J. 1995) ........................13 Wolf v. E.A. Breitenbach, No. 95-D-2572 (D. Colo. May 29, 1997).................................23 In re Xcel Energy, Inc., 364 F. Supp. 2d 980 (D. Minn. 2005) .........................................12 STATUTES 15 U.S.C. § 78u-4(a)(6) .......................................................................................................5

- vi -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 8 of 35

TREATISES 1 Alba Conte, Attorney Fee Awards § 2.02, at 31-32 (2d ed. 1993) (same).................3, 13, 21 ARTICLES & REPORTS Charles Silver, CLASS ACTIONS IN THE GULF SOUTH SYMPOSIUM. Due Process and the Lodestar Method: You Can't Get There From Here, 74 Tul. L. Rev. 1809, 1819-20 (2000) (footnotes omitted) ................................................................................................................................7 Elaine Buckberg, Todd Foster, and Stephanie Plancich, Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 8 (NERA Feb. 2004) ..................................................................................................................................11 John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L. Rev. 669, 724-25 (1986) ...............................8 Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237 (October 8, 1985) .........................................................................................3, 4, 5 Thomas E. Willging, Laural L. Hooper & Robert J. Niemic, Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules, at 69....................................................................22

- vii -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 9 of 35

Pursuant to the Court's Order of February 8, 2007 (Doc. # 256), Lowenstein Sandler PC and Marc B. Kramer, Esq. (collectively, "Lead Counsel") hereby submit this Memorandum of Law in support of its Motion for an Award of Attorneys' Fees and Reimbursement of Expenses for consideration at a future hearing to be set if the Court should it approve the settlement at the May 4, 2007 hearing. INTRODUCTION Lead Counsel negotiated an excellent settlement with Quovadx, Inc. ("Quovadx"). The $7.8 million Settlement Fund represents a recovery of approximately 85.6% of the total damages, after applying the statutorily required mitigation, assuming complete participation by the Class and excluding any deductions for negative loss causation. Lead Counsel seeks a fee of 25% of the Class' recovery, which given the result is well within the range of reasonable fees, and is below the average fee approved by other courts where the results obtained are below that achieved here. Importantly, Lead Counsel's fee

request is also consistent with the fee agreement between Lead Counsel and Lead Plaintiffs, which was submitted to the Court prior to the Court's approval of Lead Counsel. (Doc. # 95-5). Lead Counsel also seeks reimbursement of out-of-pocket

expenses of $176,813.34. Rolnick Decl. ¶ 7. As explained below and in the Declaration of Lawrence M. Rolnick, Esq. in Support of Lead Counsel's Application for an Award of Attorneys' Fees and Reimbursement of Expenses ("Rolnick Decl."), filed herewith, the fee requested is fair and reasonable, particularly in view of the excellent result obtained for the Class. In response to more than 4,619 notices sent to potential Class Members and 3,124 notices sent to brokerage firms, banks, institutions and nominees, there are no objections to Lead

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 10 of 35

Counsel's fee and expense request.1 See Declaration of Anya Verkhovskaya ¶¶ 4-5 (Doc # 257). Therefore, Lead Counsel respectfully requests that the Court approve this motion for an award of attorneys' fees and reimbursement of expenses. I. LEAD COUNSEL SHOULD BE AWARDED ATTORNEY FEES BASED ON A PERCENTAGE OF THE RECOVERY OBTAINED THROUGH THE SETTLEMENT. ___________ _ A. Lead Counsel is Entitled to a Fee From the Common Fund.

Courts have long recognized that attorneys who represent a class and achieve a benefit for class members are entitled to be compensated for their services, and that where a class plaintiff successfully recovers a fund, the costs of litigation should be spread among the fund's beneficiaries. Under this "common fund" doctrine, established more than a century ago in Trustees v. Greenough, 105 U.S. 527 (1882), attorneys who obtain a recovery for a class in the form of a common fund are entitled to an award of fees and expenses from that fund as compensation for their work. See Boeing Co. v. Van Gemert, 444 U.S. 472 (1980); Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970); Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (1939). Courts also recognize that in addition to providing just compensation, awards of attorneys' fees from common funds also serve to encourage skilled counsel to represent those who seek redress for damages inflicted on entire classes of persons and to discourage future misconduct of a similar nature. See, e.g., Dolgow v. Anderson, 43 F.R.D. 472, 481-84 (E.D.N.Y. 1968). Indeed, the Supreme No objections were received from any person, except for William S. Karn's "Motion for Admission of Appearance Of Objecting Share Owner and Motion for Hearing on Alleged Title USC 1 Violation and Motion For Ruling on Constitutionality Of Class Action" (Doc. #238) and his "Motion for Allowance Of HTML Format Filing By Objecting Share Owner." (Doc. #239). The Court already denied both of Mr. Karn's motions. (Doc. # 240). Moreover, he is not a member of the Class and therefore lacks standing to file an objection. (Doc. # 258).
1

-2-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 11 of 35

Court has emphasized that private securities actions, such as the instant action, provide a "most effective weapon in the enforcement of the securities laws and are a necessary supplement to [SEC] action." Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 310 (1985) (internal quotations omitted). B. Fees in Common Fund Cases Should Awarded Based on a Percentage of the Recovery. 1. The Supreme Court Has Repeatedly Held that Fees Paid From Common Fund Cases Are Properly Calculated Based on a Percentage of the Recovery.

The Supreme Court has consistently held that where a common fund has been created for the benefit of a class, as a result of counsel's efforts, the award of counsel's fee should be determined on a percentage-of-the-fund basis. See, e.g., Greenough, 105 U.S. at 532; Cent. R. R. & Banking Co. v. Pettus, 113 U.S. 116, 124-25 (1885); Sprague, 307 U.S. at 166-67; Boeing, 444 U.S. at 478-79. Indeed, by 1984 this notion was so well established that the Supreme Court needed no more than a footnote to make this point in Blum v. Stenson, 465 U.S. 886, 900 n.16 (1984) ("[U]nder the `common fund doctrine,' a reasonable fee is based on a percentage of the fund bestowed on the class."). See also Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 242 (October 8, 1985) (hereinafter the "Task Force Report") (fee awards in common fund cases have historically been computed based upon a percentage of the fund); 1 Alba Conte, Attorney Fee Awards § 2.02, at 31-32 (2d ed. 1993) (same). Moreover, in the wake of the Supreme Court's decisions in Boeing, 444 U.S. 472, and Blum, 465 U.S. 886, which reaffirmed the appropriateness of the percentage method in common fund cases, Judge Aldisert of the Third Circuit convened a task force of prominent judges and practitioners in 1984 to reconsider Lindy Bros. Builders v. Am.

-3-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 12 of 35

Radiator & Standard Sanitary Corp., 540 F.2d 102, 116-18 (3d Cir. 1976) (en banc) ("Lindy II"). It did so because "a number of difficulties [had] been encountered in applying the [lodestar method]." Task Force Report, 108 F.R.D. at 238. The Task Force, headed by Professor Arthur Miller of Harvard Law School, identified at least nine perceived deficiencies of the Lindy II "lodestar" approach, and found that there was a "widespread belief' that these deficiencies "either offset or exceed [the] benefits" of the lodestar method. Task Force Report, 108 F.R.D. at 246. Accordingly, the Task Force concluded that although Lindy II continued to have merit in statutory fee-shifting cases, and should be followed in such cases, fee awards in common fund cases should be based on a percentage of recovery. Task Force Report, 108 F.R.D. at 254-59. 2. A Reasonable Percentage of the Fund Is the Preferred Method of Awarding Attorneys' Fees in Common Fund Cases.

In Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir. 1988), the Tenth Circuit affirmed the propriety of awarding attorneys' fees on a percentage basis in a common fund case.2 Cases following Brown confirm a "preference" in the Tenth Circuit for the percentage method. In Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994), the court stated: In our circuit, following Brown and Uselton, either [the percentage or lodestar] method is permissible in common fund cases; however, Uselton implies a preference for the percentage of the fund method. Id. at 483.3

See Brown, 838 F.2d at 454-55. See also Uselton v. Commercial Lovelace Motor Freight, 9 F.3d 849, 853 (10th Cir. 1993).
3

2

-4-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 13 of 35

Moreover, the Private Securities Litigation Reform Act of 1995 ("PSLRA") has made the percentage method the standard for determining whether attorneys' fees are reasonable. See 15 U.S.C. § 78u-4(a)(6). The PSLRA states that "[t]otal attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount" recovered for the class. 15 U.S.C. §78u-4(a)(6). Courts have concluded that, by drafting the PSLRA in such a manner, Congress expressed a preference for the percentage, as opposed to the lodestar, method of determining attorneys' fees in securities class actions. See Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358, 370 (S.D.N.Y. 2002); In re Am. Bank Note Holographics, 127 F. Supp. 2d 418, 430 (S.D.N.Y. 2001). Pursuant to the PSLRA, Lead Counsel was selected by Lead Plaintiff and sought the requisite approval from the Court. Lead Plaintiff is an experienced institutional investor of the sort envisioned by Congress in the PSLRA. Lead Plaintiff negotiated a contingent fee arrangement with counsel that was submitted to the Court before the appointment as Lead Counsel. Accordingly, the contingent fee arrangement is consistent with the new procedural regime imposed by the PSLRA. In addition, supporting authority for the percentage method in other circuits and by commentators is overwhelming. Since the issuance of the Task Force Report in 1985, virtually every circuit court has joined the United States Supreme Court in approving use of the percentage-of-the-fund method in common fund cases. See, e.g., In re Thirteen Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 307 (1st Cir. 1995); In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 821-22 (3d Cir. 1995); Rawlings v. Prudential-Bache Props., 9 F.3d 513, 515-17 (6th Cir. 1993); Florin v. Nationsbank, NA., 34 F.3d 560, 564-65 (7th Cir. 1994); Johnston v. -5-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 14 of 35

Comerica Mortgage Corp., 83 F.3d 241, 246 (8th Cir. 1996); In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1296 (9th Cir. 1994); Camden I Condo. Ass'n v. Dunkle, 946 F.2d 768, 774 (11th Cir. 1991) ("After reviewing Blum, the [Third Circuit] Task Force Report, and . . . cases from other circuits, we believe that the percentage of the fund approach is the better reasoned in a common fund case."); Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C. Cir. 1993) (percentage of the fund recovered is the only permissible measure of awarding fees in common fund cases). As these and many other courts have noted, the percentage method directly aligns the interests of the class and its counsel and provides a powerful incentive for efficient prosecution, thereby benefiting both litigants and the judicial system. For example, in Kirchoff v. Flynn, 786 F.2d 320, 325 (7th Cir. 1986), the Seventh Circuit succinctly summarized some of the benefits of the percentage method: The contingent fee uses private incentives rather than careful monitoring to align the interests of lawyer and client. The lawyer gains only to the extent his client gains.... The unscrupulous lawyer paid by the hour may be willing to settle for a lower recovery coupled with a payment for more hours. Contingent fees eliminate this incentive and also ensure a reasonable proportion between the recovery and the fees assessed to defendants. Conversely, numerous courts have criticized the lodestar method for encouraging plaintiffs' attorneys to needlessly drag out complex litigation for years in order to run up "lodestar" hours, even when their clients' and the class's interests would be much better served by an earlier, more efficient, settlement of a case based on arms-length negotiations conducted by experienced counsel.4

4

See, e.g., In re Agent Orange "Prod. Liab. Litig, 611 F. Supp. 1296, 1306 (E.D.N.Y. 1985) (criticizing lodestar approach as one that "tends to encourage excess discovery, delays and late settlements, while it discourages rapid, efficient and cheaper resolution of -6-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 15 of 35

One of the nation's foremost scholars in the field of class actions and attorneys' fees, Professor Charles Silver of the University of Texas School of Law, has also concluded that -- among its many other benefits -- the percentage method is also far superior to the lodestar method in aligning the interests of class counsel with the interests of absent class members. Indeed, as Professor Silver notes: The consensus that the contingent percentage approach creates a closer harmony of interests between class counsel and absent plaintiffs than the lodestar method is strikingly broad. It includes leading academics, researchers at the RAND Institute for Civil Justice, and many judges, including those who contributed to the Manual for Complex Litigation, the Report of the Federal Courts Study Committee, and the report of the Third Circuit Task Force. Indeed, it is difficult to find anyone who contends otherwise. No one writing in the field today is defending the lodestar on the ground that it minimizes conflicts between class counsel and absent claimants. In view of this, it is as clear as it possibly can be that judges should not apply the lodestar method in common fund class actions. The Due Process Clause requires them to minimize conflicts between absent claimants and their representatives. The contingent percentage approach accomplishes this. Charles Silver, CLASS ACTIONS IN THE GULF SOUTH SYMPOSIUM. Due Process and the Lodestar Method: You Can't Get There From Here, 74 Tul. L. Rev. 1809, 1819-20 (2000) (footnotes omitted).

litigation") (Weinstein, C.J.), aff'd in part and rev `d in part on other grounds, 818 F.2d 226 (2d Cir. 1987); GMC, 55 F.3d at 821 (noting that lodestar method has been criticized for giving plaintiffs' counsel "the incentive to delay settlement in order to run up fees"); Thirteen Appeals, 56 F.3d at 307 (lodestar method creates "`a disincentive for the early settlement of cases'") (internal citation omitted); Shaw v. Toshiba Am. Info. Sys., 91 F. Supp. 2d 942, 964 (E.D. Tex. 2000) ("Again, simply put, the lodestar method rewards plodding mediocrity and penalizes expedient success."). -7-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 16 of 35

Indeed, Professor John C. Coffee, a distinguished scholar in the field, argues that a percentage of the recovery is the only reasonable method of awarding fees in common fund cases: If one wishes to economize on the judicial time that is today invested in monitoring class and derivative litigation, the highest priority should be given to those reforms that restrict collusion and are essentially self-policing. The percentage of the recovery fee award formula is such a "deregulatory" reform because it relies on incentives rather than costly monitoring. Ultimately, this "deregulatory" approach is the only alternative. John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L. Rev. 669, 724-25 (1986). 3. Lead Counsel Should be Awarded Interest on the Attorneys Fees Awarded.

Lead Counsel also requests that the Court award it interest on the attorneys fees awarded from the time period that the Settlement Fund was created at the rate of interest earned by the Settlement Fund. In or about January 2007, the Settlement Fund was funded and placed into an interest-bearing account. To allow a small amount of the interest which has been accruing since January to the benefit Lead Counsel is proper under these circumstances. Indeed, Lead Counsel has devoted substantial hours to

prosecuting this case for approximately three years, which if this were a fee-based client, would have yielded significant fees years ago. This outcome would fairly recognize the lost time value of money by incurring substantial fees on a contingency basis. Moreover, Lead Counsel is not requesting that interest accrue from the date it undertook

-8-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 17 of 35

representation approximately three years ago, but merely from date that the Settlement Fund was placed into an interest-bearing account. II. THE REASONABLENESS OF LEAD COUNSEL'S REQUESTED FEE, WHICH IS A PERCENTAGE OF THE COMMON FUND, IS CONFIRMED BY AN ANALYSIS OF THE JOHNSON FACTORS. __ The Tenth Circuit has recognized that in determining the appropriate percentage of attorneys' fees in common fund cases, the court should be informed by an analysis of the factors articulated by the Fifth Circuit in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). See Brown, 838 F.2d at 454-55, Uselton, 9 F.3d at 853. These factors are commonly referred to as the Johnson factors. As shown below, application of the Johnson factors as a cross-check amply supports the fairness and reasonableness of the percentage fee requested. The twelve Johnson factors are: (1) The time and labor required. . . . (2) The novelty and difficulty of the questions. . .. (3) The skill requisite to perform the legal service properly.... (4) The preclusion of other employment by the attorney due to acceptance of the case. . . . (5) The customary fee [for similar work in the community].... (6) Whether the fee is fixed or contingent. . . . (7) Time limitations imposed by the client or the circumstances.. . . (8) The amount involved and the results obtained. . . . (9) The experience, reputation, and ability of the attorneys.... (10) The "undesirability" of the case... . (11) The nature and length of the professional relationship with the client.... [and] (12) Awards in similar cases. Johnson, 488 F.2d at 717-19. The relevance of each of the Johnson factors will vary in any particular case and, rather than requiring a rigid application of each factor, the Tenth Circuit has left it to the lower court's discretion to apply those factors in view of the circumstances of a particular case. See Brown, 838 F.2d at 456; see also Uselton, 9 F.3d

-9-

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 18 of 35

at 853 ("applicability and weight" of the Johnson factors will "undoubtedly be different" in common fund and statutory fee determinations). As discussed below, consideration of the applicable Johnson factors confirms the reasonableness of the fee requested here. A. Lead Counsel Obtained an Excellent Recovery for the Class.

While listed as the eighth Johnson factor, Lead Counsel discusses this factor first because, as many courts recognize, the result achieved for the class is the most important factor in determining an appropriate fee award. See Hensley v. Eckerhart, 461 U.S. 424, 436 (1983) ("most critical factor is the degree of success obtained"); Brown, 838 F.2d at 456 (in a common fund case the results obtained may be given greater weight); Gottlieb v. Wiles, 150 F.R.D. 174, 181 (D. Colo. 1993) (proper focus in awarding fees is amount of restitution made to class), rev'd on other grounds sub nom, Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994); In re King Res. Co. Sec. Litig., 420 F. Supp. 610, 630 (D. Colo. 1976) ("the amount of the recovery, and end result achieved are of primary importance, for these are the true benefit to the client"). A Settlement Fund of $7.8 million has been obtained through the diligent efforts of Lead Counsel without the necessity and risk of prolonged litigation, trial and appeals. It represents a recovery of 85.6% of the total damages, after applying the statutorily required mitigation, assuming complete participation by the Class and excluding any deductions for negative loss causation.5 Rolnick Del. ¶ 2. The exceptional nature of this settlement is supported by a review of recoveries in other securities class action settlements. Indeed, in a recent study by National Economic Research Associates states

The 85.6% estimated recovery of damages is calculated as follows: $7.8 million (settlement amount) x 100 / $9,107,239 (amount of damages opined by the Class expert after applying the statutorily required mitigation and without accounting for any negative loss causation) = 85.6%. - 10 -

5

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 19 of 35

that in 2003, the median percentage of investor losses recovered in shareholder class action settlements was 2.8%, up from 2.7% in 2002. See Elaine Buckberg, Todd Foster, and Stephanie Plancich, Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 8 (NERA Feb. 2004), Rolnick Decl. Ex. 1. Thus, when measured against the results in comparable cases, Lead Counsel obtained an excellent recovery for Class Members -- a result that fully supports the 25% fee award contained in the contingency fee agreement submitted to the Court before its approval of Lead Counsel. B. Lead Counsel Committed Large Amounts of Time and Resources to the Present Action.

While the time and labor required to successfully prosecute this action and obtain the outstanding settlement for the benefit of the Class fully justifies the requested fee, the Tenth Circuit has found this Johnson factor to be of considerably less importance in a common fund case. Although the Johnson factors are relevant in determining a reasonable fee in a common fund case, the inherent differences between statutory fee and common fund cases could justify a trial judge's decision to assign different relative weights to those factors in the two types of cases. For example, the first factor -- time and labor required -- is an essential touchstone for recovery in a statutory fee case where reasonableness is measured in part by reference to the lodestar analysis. In a common fund case, however, although time and labor required are appropriate considerations, the ninth Johnson factor -- the amount involved and the results obtained -- may be given greater weight when, as in this case, the trial judge determines that the recovery was highly contingent and that the efforts of counsel were instrumental in realizing recovery on behalf of the class.6

6

Brown, 838 F.2d at 456. See also In re Harrah's Entm't, No. 95-3925, 1998 U.S. Dist. LEXIS 18774, at *15 (E.D. La. Nov. 25, 1998) ("Because counsel prosecuted this action on a contingent fee basis, the Court would rather focus on results obtained."), Rolnick Decl., Ex. 17. - 11 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 20 of 35

Lead Counsel vigorously prosecuted this case on behalf of the Class.

Lead

Counsel performed an extensive factual investigation; reviewed and analyzed approximately 350,000 pages of documents obtained from Quovadx and third parties to establish the facts of the fraud; obtained certification of the Class; moved for and obtained partial summary judgment as to all affirmative misstatements, including the improper recognition of revenue from a transaction involving Infotech, Network Group ("Infotech") in Quovadx's Registration Statement; moved for partial summary judgment to establish Quovadx's liability for all material omissions in the Registration Statement; moved to amend the complaint to add allegations pertaining Quovadx's recognition of revenue for two additional transactions; moved to compel Quovadx's production of documents concerning the Audit Committee's investigation of the company's relationship with InfoTech and submit to a 30(b)(6) deposition regarding same; participated in a mediation; served expert reports; and negotiated a settlement that results in an excellent recovery of approximately 85.6% of the total damages, after applying the statutorily required mitigation, assuming complete participation by the Class and excluding any deductions for negative loss causation. Rolnick Decl. ¶¶ 2 and 8. In total, Lead Counsel has devoted 3,948.32 hours to this action with a resulting lodestar of $1,460,660.50. Rolnick Decl. ¶ 19. The requested fee represents a multiple of only 1.3 times Lead Counsel's lodestar. The multiplier reflected here falls within the range of multipliers found reasonable for cross-check purposes by courts in common fund cases and is fully justified here given the effort required, the risks faced and overcome, and the results achieved.7

7

See, e.g., In re Rite Aid Corp. Sec. Litig., 146 F. Supp. 2d 706, 735-36 (E.D. Pa. 2001) (25% fee representing 10.73 multiplier), vacated on other grounds, 396 F.3d 294 (3d Cir. - 12 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 21 of 35

Moreover, reliance on the amount of attorney time in determining the fee award has been substantially abandoned in common fund cases because it encourages delay, inefficiency, and recalcitrance toward early settlement. For example, in a recent case involving an earnings restatement of a South Dakota-based utility, and a shareholder recovery of $49 million, Chief Judge Lawrence Piersol awarded a 24.25% fee in a case that settled while the initial motion to dismiss was pending. "The Court finds that Plaintiffs' counsel competently and vigorously represented the class and proceeded expeditiously to reach a resolution of this action." In re Northwestern Corp. Sec. Litig., No. 03-4049 (D.S.D. Jan. 14, 2005), Rolnick Decl., Ex. 2. In addition, as the court noted in In re Superior Beverage/Glass Container Consol. Pretrial, 133 F.R.D. 119, 131 (N.D. Ill. 1990): "There should be no arbitrary ceiling on multipliers." This is especially true here when a lodestar/multiplier analysis is used merely as a cross-check on reasonableness. See In re Ikon Office Solutions, Inc., 194 F.R.D. 166, 196 (E.D. Pa. 2000) ("The court will not reduce the requested award simply for the sake of doing so when every other factor ordinarily considered weighs in favor of approving class counsel's request of thirty percent."); 1 Alba Conte, Attorney Fee Awards §2.06, at 39 (2d ed. 1993) ("When a large common fund has been recovered and the hours are relatively small, some courts reach a reasonable fee determination based on large multiples of 5 or 10 times the lodestar."). 2005); In re Xcel Energy, Inc., 364 F. Supp. 2d 980, 999 (D. Minn. 2005) (awarded 25% fee of $80 million settlement representing a 4.7 multiplier); Maley, 186 F. Supp. 2d at 371 ("it clearly appears that the modest multiplier of 4.65 is fair and reasonable"). In re RJR Nabisco Sec. Litig., M.D.L. No. 818, 1992 U.S. Dist. LEXIS 12702, at *22, (S.D.N.Y. Aug. 24, 1992) (approving fees of over $17.7 million, notwithstanding objection that such an award of fees represented a multiplier of six), Rolnick Del., Ex. 18; Weiss v. MercedesBenz of N Am., 899 F. Supp. 1297, 1304 (D.N.J. 1995) (awarding fee resulting in 9.3 multiplier); Cosgrove v. Sullivan, 759 F. Supp. 166, 167 n.1 (S.D.N.Y. 1991) (multiplier of 8.74). - 13 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 22 of 35

C.

This Action Raised Difficult Questions of Fact and Law.

The novelty and difficulty of the issues in a case is a significant factor to be considered in making a fee award. Courts have long recognized that securities class actions present inherently complex and novel issues. Retired Judge Finesilver noted in Miller v. Woodmoor Corp.: The benefit to the class must also be viewed in its relationship to the complexity, magnitude, and novelty of the case.... Despite years of litigation, the area of securities law has gained little predictability. There are few "routine" or "simple" securities actions. Courts are continually modifying and/or reversing prior decisions in an attempt to interpret the securities law in such a way as to follow the spirit of the law while adapting to new situations which arise. Indeed, many facets of securities law have taken drastically new directions during the pendency of this action.8 Judge Finesilver's comments ring even more true today. The adoption of the PSLRA has made the successful prosecution of securities cases even more complex and uncertain. See Ikon, 194 F.R.D. at 194 ("securities actions have become more difficult from a plaintiff's perspective in the wake of the PSLRA"). The present action raises difficult questions of fact and law, such that when Lead Counsel undertook this representation, there was no assurance that significant portions of the case would survive motions for summary judgment, trial and appeal. That there were difficult questions of fact and law is highlighted by the fact that Quovadx vigorously opposed Lead Plaintiffs' motion for partial summary judgment with respect to liability for omissions in the Registration Statement. The difficulty of the questions posed caused this
8

Miller v. Woodmoor Corp., No. 74-F-988, 1978 U.S. Dist. Lexis 15234, at *11-12 (D. Colo. Sept. 28, 1978), Rolnick Decl. Ex. 19. - 14 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 23 of 35

Court to deny the motion and instead wait to hear testimony at trial from key witnesses. Thus, were this case put before a jury, Lead Plaintiffs would be required to set forth factually complex proofs, including the highly complex transactions with Infotech. Lead Plaintiffs would also need to convince the jury that monies paid by Quovadx to InfoTech under an undisclosed separate but simultaneous out-sourcing agreement was connected with its licensing agreement, and that this reciprocal arrangement generated improper revenue reported by Quovadx in its financial statements. Lead Plaintiffs would also need prove that the revenue was reversed for reasons unrelated to the fact that Infotech was a poor credit risk and that letters of credit were improperly drawn. Assuming Lead Plaintiffs were able to prove all omissions-based liability, they still would have had to confront complex expert testimony by Quovadx that most of the damages suffered by the Class were not caused by any misleading statements, but instead by market factors unrelated to the fraud. In fact, Quovadx's expert argued that a

substantial portion of Quovadx's price decline was caused by industry-wide effects, restatement of the Company's fourth quarter revenues and its delisting notification from NASDAQ. The Class expert vigorously disputed Quovadx's negative loss causation analysis, and opined among other things that Quovadx's expert: employed an unreliable event study because serial correlation was present; improperly allocated stock price declines using an allocation methodology; and used a peer index that contradicted his own event study. Thus, the dispute over negative loss causation and the role of omissions in the negative loss causation analysis involved highly complex issues of law and fact. Despite the difficulty of the issues raised, Lead Counsel secured an outstanding recovery for the Class. As a result, this factor supports the requested award.

- 15 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 24 of 35

D.

Lead Counsel Employed the Highest Level of Skill in Reaching an Excellent Outcome for the Class.

Lead Counsel effectively prosecuted this action, culminating in an excellent recovery for the Class. See In re Warfarin Sodium Antitrust Litig., 212 F.R.D. 231, 261 (D. Del. 2002) (class counsel showed their effectiveness through the favorable cash recovery obtained), aff'd, 391 F.3d 516 (3d Cir. 2004). As the court recognized in Edmonds v. United States, 658 F. Supp. 1126, 1137 (D.S.C. 1987), "prosecution and management of a complex national class action requires unique legal skills and abilities." Those skills were called upon here. Lead Counsel undertook a review of

approximately 350,000 Quovadx and third party documents, which required a high level of skill to decipher probative documents to prove the Class' Section 11 claim. Lead Counsel also applied its skills and significant resources when moving for partial summary judgment twice, once pertaining to false statements in the Registration Statement and once pertaining to omissions in the Registration Statement. In addition, Lead Counsel moved to amend the complaint to add allegations pertaining Quovadx's recognition of revenue for two additional transactions, as well as moved to compel Quovadx's production of documents concerning the Audit Committee's investigation of the company's relationship with InfoTech and submit to a 30(b)(6) deposition regarding same. Lead Counsel are highly skilled and specialized attorneys who possess substantial experience in the prosecution of complex securities class actions. That experience and the Lead Counsel's diligence, determination and hard work resulted in an excellent recovery for the Class. See Rite Aid, 146 F. Supp. 2d at 735 (in awarding 25% of a $193 million settlement fund, the court noted the skill and efficiency of plaintiffs' counsel and the outstanding results).

- 16 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 25 of 35

E.

The Resources Required for this Action Precluded Other Employment by Lead Counsel.

When Lead Counsel undertook to represent the Lead Plaintiffs in this action, it was with the expectation that they would have to devote a significant amount of time and effort, and advance large sums in out-of-pocket expenses, to its prosecution. The

dedication of time needed to successfully prosecute this action consumed significant resources of Lead Counsel on many occasions, and precluded them from working on other matters. The vast proportion of legal work done by Lead Counsel is on a billable basis, not a contingency-fee basis. There is no doubt that Lead Counsel would have performed billable work if it had not devoted its attention to this matter. Rolnick Decl. 16. The time spent by Lead Counsel on this case was at the expense of the time that counsel could have devoted to billable matters. F. Customary Fees for Similar Work Warrants a Fee Award of 25% of the Class Recovery.

In local, regional and national markets, complex commercial cases require a contingent fee between 30 and 40 percent of the gross recovery (even more when the attorney must bear the litigation expenses). As Justices Brennan and Marshall observed in their concurring opinion in Blum: "In tort suits, an attorney might receive one-third of whatever amount the plaintiff recovers. In those cases, therefore, the fee is directly proportional to the recovery." Blum, 465 U.S. at 903 (internal quotations and citation omitted). See also In re Prudential-Bache Energy Income P'ships Sec. Litig., No. 888, 1994 WL 202394, at *2 (E.D. La. May 18, 1994) ("Were this not a class action, attorney's

- 17 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 26 of 35

fees would range between 30% and 40%, the percentages commonly contracted for in contingency cases.") (hereinafter, "Prudential I"), Rolnick, Ex. Decl. 3.9 Circuit courts and scholars have encouraged the "mimic the market" approach in setting fees in common fund class action cases. The Seventh Circuit has consistently taken this approach. See In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 568 (7th Cir. 1992) ("[I]t is not the function of judges in fee litigation to determine the equivalent of the medieval just price. It is to determine what the lawyer would receive if he were selling his services in the market rather than being paid by court order."); In re Synthroid Mktg. Litig., 264 F.3d 712, 718 (7th Cir. 2001) ("[W]hen deciding on appropriate fee levels in common-fund cases, courts must do their best to award counsel the market price for legal services, in light of the risk of nonpayment and the normal rate of compensation in the market at the time."). Thus, the customary contingent fee in the marketplace supports a fee award of 25% of the Class recovery. G. Lead Counsel Undertook Significant Risks By Undertaking the Action on Contingent Fee Basis.

Lead Counsel undertook this matter on a contingent fee basis, assuming a substantial risk that they would devote a significant amount of time and incur substantial expenses in prosecuting this action without any assurance of being compensated for their efforts. The contingent nature of Lead Counsel's fees should be given substantial weight See also Phemister v. Harcourt Brace Jovanovich, Inc., No. 77 C 39, 1984 U.S. Dist. LEXIS 23595, at *40-41 (N.D. Ill. Sept. 14, 1984) ("Contingent fee arrangements in nonclass action damage lawsuits use the simple method of paying the attorney a percentage of what is recovered for the client. The more the recovery, the more the fee. The percentages agreed on vary, with one-third being particularly common."), Rolnick Decl, Ex. 20; Kirchoff, 786 F.2d at 323 (observing that "40% is the customary fee in tort litigation" and noting, with approval, contract providing for one-third contingent fee if litigation settled prior to trial). - 18 9

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 27 of 35

in assessing the requested fee award.10 Courts across the country have consistently recognized that the risk of receiving little or no recovery is a major factor in awarding attorneys' fees. For example, in awarding counsel's attorneys' fees in Prudential I the court noted the risks that plaintiffs' counsel had taken: Although today it might appear that risk was not great based on Prudential Securities' global settlement with the Securities and Exchange Commission, such was not the case when the action was commenced and throughout most of the litigation. Counsel's contingent fee risk is an important factor in determining the fee award. Success is never guaranteed and counsel faced serious risks since both trial and judicial review are unpredictable. Counsel advanced all of the costs of litigation, a not insubstantial amount, and bore the additional risk of unsuccessful prosecution. Prudential I, 1994 WL 202394, at *6. Indeed, the risk of no recovery in complex cases of this type is very real, as attorneys can expend thousands of hours and receive no remuneration whatsoever despite their diligence and expertise. Since the passage of the PSLRA, many cases have been dismissed at the pleading stage in response to defendants' arguments that the complaints do not meet the rigorous PSLRA's pleading standards, which makes these cases even riskier for lead counsel to undertake. Cf. The Sorkin, LLC v. Fischer Imaging Corp., No. 03-cv-00631, 2005 U.S. Dist. LEXIS 19934 (D. Col. 2005) (Matsch, R.) (dismissing § 10(b) securities claim for failing to satisfy the requisite level of particularity required by the PSLRA), Rolnick Decl. Ex.5. Moreover, a successful settlement does not even

guarantee recoupment of all time and expenses incurred.

See Jones v. Cent. Soya Co., 748 F.2d 586, 591 (11th Cir. 1984); Piambino v. Bailey, 610 F.2d 1306, 1328 (5th Cir. 1980); Walters v. Atlanta, 652 F. Supp. 755, 759 (N.D. Ga. 1985); Ressler v. Jacobson, 149 F.R.D. 651, 656 (M.D. Fla. 1992). - 19 -

10

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 28 of 35

The risks of contingent litigation also are highlighted by the fact that a dramatic change in the law can result in the dismissal of a claim after a great deal of time and effort have been expended on the case. For example, the United Stated Supreme Court

eliminated aiding and abetting liability under § 10(b) of the Securities Exchange Act of 1934. See Cent. Bank, NA. v. First Interstate Bank, NA., 511 U.S. 164 (1994). As a result, many courts dismissed long pending cases that otherwise stated a proper cause of action at the time they were brought. Because the fee in this matter was entirely contingent, the only certainty was that there would be no fee without a successful result and that such a result would be realized only after considerable and difficult effort. Lead Counsel has received no compensation during the course of this action and has committed substantial resources of both time and money to the vigorous and successful prosecution of this action for the benefit of the Class. The contingent nature of Lead Counsel's representation strongly favors the

requested fee award of 25% of the Class recovery. In addition, that is the amount negotiated with Lead Plaintiff and submitted by counsel to the Court before its approval as Lead Counsel. (Doc. # 95-5). H. Time Limitation Imposed by the Client or Circumstances.

This factor does not pertain to this action. I. Lead Counsel's Experience, Reputation and Ability Warrants a Fee Award of 25% of the Class Recovery.

Lead Counsel's fee should reflect the degree of experience, competence and effort necessary to prosecute the action to a successful conclusion. Lead Counsel is well known in the field of securities class actions and complex litigation. Its success in securities class action lawsuits, as well as other lawsuits, is set forth as Exhibit 21 to the Rolnick

- 20 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 29 of 35

Declaration. Moreover, Lead Counsel's efforts in diligently protecting the Class's interest and bringing this action to a successful conclusion are the best indicator of the ability of the attorneys involved.11 J. The Risks Involved in This Action Rendered it Undesirable.

The risks Lead Counsel faced must be assessed as they existed at the time they undertook the action and not in light of the recovery ultimately achieved. See, e.g., Harman v. Lyphomed, Inc., 945 F.2d 969, 974 (7th Cir. 1991) (the riskiness of a case must be judged ex ante not ex post). The issues presented in this case rendered it inherently risky if not "undesirable" from the start, including that at the start detailed proofs were required as to Quovadx's misstatements and omissions in the Registration Statement. With respect to damages, significant risks existed from the start that Quovadx might be able to show that a portion of the company's decline in share price was the result of factors other than misstatements and omissions in the Registration Statement. Thus, the "undesirability" factor supports the requested fee percentage.

11

Professor Conte acknowledged the propriety of adequate fees in common fund cases to encourage lawyers to prosecute such cases. [C]ourts have been careful to award a fully compensable reasonable fee based on the underlying economic inducement for class action lawyers to pursue potentially expensive or complex common fund class litigation. These lawyers assume the risk of no compensation unless they successfully confer common fund benefits on the class, based on their reasonable expectation that they will share in the recovery in a fair proportion, in contrast to receiving a fee based initially on time-expended criteria that fail to give the results obtained factor primary consideration. 1 Alba Conte, Attorney Fee Awards § 1.09, at 16 (2d ed. 1993) (emphasis in original). - 21 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 30 of 35

K.

The Nature and Length of the Professional Relationship with the Client.

Lead Counsel are regular outside counsel to Lead Plaintiffs and have represented them for more than ten years on more than fifty matters. L. Awards in Similar Cases.

The requested fee percentage also falls below the average of fee awards in a study of security class actions conducted in 1996 by National Economic Research Associates, an economics consulting firm. Using data from 433 shareholder class actions, the study reports on the issue of attorneys' fees: "Regardless of case size, fees average approximately 32 percent of the settlement." Rolnick Decl., Ex. 3. These figures are in accord with a Federal Judicial Center study that found in federal class actions generally (including non-securities actions) median attorney fee awards were in the range of 27% to 30%. See Thomas E. Willging, Laural L. Hooper & Robert J. Niemic, Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules, at 69 (Federal Judicial Center 1996), Rolnick Decl., Ex. 4. Furthermore, there are numerous recent published fee awards where courts have awarded fees equal to or above the fees requested here. See, e.g., Rite Aid, 146 F. Supp. 2d at 735-36 (25% fee awarded in $193 million settlement); In re Sunbeam Sec. Litig., 176 F. Supp. 2d 1323, 1345 (S.D. Fla. 2001) (25% fee awarded); Ikon, 194 F.R.D. at 197 (30% of net settlement of $111 million awarded); In re Sumitomo Copper Litig., 74 F. Supp. 2d 393 (S.D.N.Y. 1999) (27% fee awarded in $116 million settlement); In re Prudential Sec. Ltd. P'ships Litig., 912 F. Supp. 97 (S.D.N.Y. 1996) (27% fee on $110 million settlement); In re Combustion, Inc., 968 F. Supp. 1116 (W.D. La. 1997) (fee of

- 22 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 31 of 35

36% of $127 million settlement); In re Lease Oil Antitrust Litig., 186 F.R.D. 403 (S.D. Tex. 1999) (fee of 25% of $190 million settlement). The requested fee percentage is also less than percentages awarded in other securities class action cases from within this district. See Rasner v. FirstWorld Comm., Inc., No. 00-K-1376 (D. Colo. Jan. 19, 2005) (fee equal to 33% of recovery plus expenses), Rolnick Decl., Ex. 5; Angres v. Smallworldwide PLC, No. 99-K-1254 (D. Colo. June 7, 2003) (awarding fees of 33-1/3% of the recovery fund), Rolnick Decl., Ex. 6; Vaszlavik v. Storage Tech. Corp., No. 95-B-2525, 2000 U.S. Dist. LEXIS 21140, *4 (D. Colo. Mar. 9, 2000) (awarding 30% fee, noting, "[f]ees for class action settlements generally range from 20% - 50%" and "class action fee awards are typically 30% of the fund created by the settlement"), Rolnick Decl., Ex. 16; Schwartz v. Celestial Seasonings, Inc., No. 95-K-1045 (D. Colo. Apr. 25, 2000) (awarding fees of 33-1/3% of the settlement fund), Rolnick Decl., Ex. 7; In re Intelcom Group, Inc. Sec. Litig., No. 95-D-1166 (D. Colo. Mar. 21, 1997) (awarding fees of 33-1/3% of the recovery), Rolnick Decl., Ex. 8; Schaffer v. Evolving Systems, Inc., No. 98-WY-1338-CB (D. Colo. Oct. 4, 1999) (fee equal to 30% of recovery plus expenses), Rolnick Decl., Ex. 9; Queen Uno Ltd. P'ship. v. Coeur D'Alene Mines Corp., No. 97-WY-1431-CB (D. Colo. Aug. 11, 1999) (fee of 30% plus expenses), Rolnick Decl., Ex. 10; In re Einstein Noah Bagel Corp. Sec. Litig., No. 97-N-1614 (D. Colo. June 4, 1999) (fee equal to 30% of recovery plus expenses), Rolnick Decl., Ex. 11; In re Coram Healthcare Corp. Sec. Litig., No. 95-N-2074 (D. Colo. Jan. 24, 1997) (fee equal to 30% of recovery plus expenses), Rolnick Decl., Ex. 12; In re Resort Income Investors, Inc. Sec. Litig., No. 97-B-1665 (D. Colo. Mar. 13, 1998) (fee equal to 30% of recovery plus expenses), Rolnick Decl., Ex. 13; and Wolf v. E.A. Breitenbach, No. 95-D-2572 (D. Colo. May 29, 1997) (fee equal to 30% of recovery plus expenses), - 23 -

Case 1:04-cv-01006-RPM

Document 261

Filed 04/24/2007

Page 32 of 35

Rolnick Decl., Ex. 14. Simply stated, Lead Counsel's fee request is perfectly in line with awards in similar complex actions. III. LEAD COUNSEL'S EXPENSES ARE REASONABLE AND WERE NECESSARILY INCURRED IN THE PROSECUTION OF THE ACTION. Lead Counsel requests reimbursement of expenses incurred in connection with the prosecution of the action, as well as interest earned for the same time period and at the same rate as that earned on the Settlement Fund. Expenses are compensable in a common fund case if the particular costs are of the type typically billed by attorneys to paying clients in the marketplace.12 The categories of expenses for which counsel seek

reimbursement here are the type routinely charged to paying clients and, therefore, should be reimbursed from the common fund. Lead Counsel have incurred costs and expenses in an aggregate amount of $176,813.34 in prosecuting this action on behalf of the Class. Rolnick Decl. ¶¶ 7, 20-21. These expenses are itemized in Lead Counsel's declaration submitted herewith. A

significant component of Lead Counsel's expenses was the cost of outside, independent experts who were necessary to establish Quovadx's improper recognition of recognition of revenue in its financial statements, as well as to rebut Quovadx's damages defense -i.e., that the significant drop in its share price was due to market-related facto