In re National Instruments Securities Litigation

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------- X : 23cv10488 (DLC) IN RE NATIONAL INSTRUMENTS SECURITIES : LITIGATION : OPINION AND : ORDER --------------------------------------- X APPEARANCES: For lead plaintiff: Chad Johnson Noam Mandel Desiree Cummings Jonathan Zweig Jai Chandrasekhar Christopher T. Gilroy Alyssa H. Plascoff Robbins Geller Rudman & Dowd LLP 420 Lexington Avenue, Suite 1832 New York, NY 10170 Robert C. Finkel Joshua W. Ruthizer Wolf Popper LLP 845 Third Avenue, 12th Floor New York, NY 10022 For defendants: James F. Bennett J. Russell Jackson Jenny E. Braun Dowd Bennett LLP 7676 Forsyth Boulevard, Suite 1900 St. Louis, MO 63105 Andrew Ditchfield Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 DENISE COTE, District Judge: In 2022, National Instruments Corporation (“NI”) repurchased its stock from investors without disclosing that it had received an offer to buy the company. Investors who sold stock during that time allege that NI engaged in insider trading and violated the securities laws. The lead plaintiff has moved for class certification, to be appointed as class representative, and for Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) to be appointed as class counsel. For the reasons below, the lead plaintiff’s motion is granted with a modified class definition. Background NI produced automated test equipment and virtual instrumentation software. As explained below, it was acquired by Emerson Electric Co. (“Emerson”) in 2023. Defendant Eric Starkloff was the Chief Executive Officer, the President, and a member of NI’s Board of Directors (the “Board”). Defendant Michael McGrath was the Chairman of the Board. NI’s Board approved a stock repurchase program on January 19, 2022 (the “2022 Stock Repurchase Plan”). That program authorized NI to repurchase up to $250 million worth of common stock from shareholders, representing the largest stock repurchase in the company’s history. Stock repurchases occurred — 2 — each month from January through May. Beginning in March, all repurchases were pursuant to the 2022 Stock Repurchase Plan. Emerson began making overtures to acquire NI in May of 2022. On May 25, Emerson’s CEO emailed a letter to Starkloff that detailed an initial offer to purchase 100% of the outstanding common stock of NI for $48 in cash per common share. NI’s stock closed that day at $34.35 per share. The letter stated that Emerson was motivated to pursue a merger, was prepared to move quickly, and preferred to negotiate in private. On June 14, NI’s Board rejected Emerson’s offer, concluding that it “substantially undervalued” NI. In a letter of June 22, Emerson renewed its offer to acquire NI at $48 per share. That letter stated that acquiring NI was Emerson’s “highest strategic priority,” and that “with access to limited non-public information after signing an NDA, we could work with you to find additional value that would allow us to increase our Proposal.” NI’s Board and management again rejected the offer as “inadequate.” On August 2, NI advised Emerson that “[t]he Board remains unanimously of the view that your proposal is not in the best interests of NI and its shareholders.” No stock repurchases occurred in June or July, but NI resumed stock repurchases in August and September. Between — 3 — August 12 and September 26, NI repurchased 2,033,135 shares at an average price of $40.25. No more stock repurchases occurred in 2022. In a letter of November 3, having had no contact with NI since August 2, Emerson made an offer to purchase NI at $53 per share and reiterated its desire to move quickly. Emerson warned that it was willing to bring its offer directly to NI’s shareholders if NI continued in its refusal to engage. In response, NI established a working group of the Board to examine the proposal. On January 13, 2023, prior to the opening of trading, NI issued a press release announcing that its Board had initiated a review and evaluation of strategic options, including solicitation of interest from potential acquirors and other transaction partners, “some of whom have already approached the Company.” This statement did not mention Emerson or any of Emerson’s offers to acquire NI. NI’s stock price surged from the previous day’s close of $40.17 per share to a high of $47.95 per share on January 13. On January 17, prior to the opening of trading, Emerson issued a press release announcing that it had made an all-cash offer to purchase all the shares of NI at $53 per share. Emerson also stated that in response to an initial offer, NI had — 4 — chosen to conceal the offer from the investing public and had instead undertaken a large stock repurchase. On this news, NI’s stock price surged from a previous close of $46.97 per share to a high of $54.69 per share. Emerson completed its acquisition of NI on October 11, 2023. It purchased all of NI’s stock at a price of $60 per share. This putative class action was filed on November 30, 2023. The lead plaintiff asserts a cause of action for violations of § 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, as well as a cause of action for control person liability pursuant to § 20(a) of the Securities Exchange Act. On February 16, 2024, Wayne County Employees’ Retirement System was appointed as lead plaintiff. It filed the Amended Complaint on March 29. On April 26, the defendants moved to dismiss the Amended Complaint. An Opinion of September 6, 2024 granted the defendants’ motion to dismiss in part. In re Nat’l Instruments Corp. Sec. Litig., No. 23cv10488, 2024 WL 4108011 (S.D.N.Y. Sept. 6, 2024). That Opinion dismissed claims that various statements by the defendants were misleading by omission because they failed to disclose Emerson’s offers. Id. at *4-5. Remaining in the action is a claim that NI violated § 10(b) and Rule 10b-5 by — 5 — engaging in insider trading, having failed to either abstain from trading in NI’s securities or to disclose Emerson’s offers while repurchasing NI’s securities. Id. at *5-7. Also remaining in the action are claims of control person liability against Starkloff and McGrath, which stem from the alleged insider trading. Id. at *7. On May 2, 2025, the lead plaintiff moved to certify the following class: All persons who sold National Instruments common stock between August 12, 2022 and September 30, 2022, inclusive (the “Class Period”) and were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors, or assigns and any entity in which Defendants have or had a controlling interest. The motion also requests that the lead plaintiff be appointed as class representative and that Robbins Geller, which represents the lead plaintiff, be appointed as class counsel. Attached to the motion is an expert report by Dr. Matthew D. Cain. The defendants opposed the motion on June 16, attaching expert reports by Dr. David J. Denis and Dr. Shane Goodwin. Among other arguments, the defendants assert that the lead plaintiff has not sufficiently described a methodology for calculating damages on a classwide basis. The lead plaintiff filed a reply on July 28. Attached to that reply is another expert report by — 6 — Dr. Cain, which provides a more detailed description of a proposed methodology for calculating damages. Discussion I. Class Certification To qualify for class certification, the lead plaintiff must prove that the proposed class action satisfies the four elements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation. Fed. R. Civ. P. 23(a). In addition, the lead plaintiff must show that the proposed class action can proceed under one of the categories of Rule 23(b). Here, the lead plaintiff seeks certification of the class under Rule 23(b)(3). Thus, the lead plaintiff must show that common questions of law or fact predominate, that a class action is the superior method for bringing its claims, and that the proposed class is sufficiently ascertainable. Fed. R. Civ. P. 23(b)(3); In re Petrobras Sec., 862 F.3d 250, 260 (2d Cir. 2017). A party seeking to certify a class must “affirmatively demonstrate . . . compliance” with the requirements of Rule 23. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011). The district court must “make a definitive assessment of Rule 23 requirements, notwithstanding their overlap with merits issues, must resolve material factual disputes relevant to each Rule 23 requirement, and must find that each requirement is established — 7 — by at least a preponderance of the evidence.” In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 117 (2d Cir. 2013) (citation omitted). Stated differently, “the district judge must receive enough evidence, by affidavits, documents, or testimony, to be satisfied that each Rule 23 requirement has been met.” Shahriar v. Smith & Wollensky Rest. Grp., Inc., 659 F.3d 234, 251 (2d Cir. 2011) (citation omitted). The lead plaintiff has satisfied Rule 23(a)’s requirements, and the defendants do not argue otherwise. The numerosity requirement is satisfied, as the lead plaintiff has submitted evidence that over 400 institutions held NI stock during the proposed class period. As reflected in the discussion below, there are questions of law and fact common to the class. The lead plaintiff’s claims are also typical of those of the class, as it sold stock on September 22, 2022, during the class period that will be certified. Finally, the lead plaintiff and Robbins Geller adequately represent the class. The defendants also do not dispute that the requirements of superiority and ascertainability are satisfied. Adjudication of this dispute as a class action is appropriate because joinder is impracticable and, as the discussion below makes clear, class members are similarly situated. The class is also — 8 — ascertainable, as it consists of sellers of NI stock who can be identified through objective criteria. The defendants oppose class certification on the ground that the lead plaintiff has not satisfied Rule 23(b)(3)’s requirement of predominance. For a class to be certified pursuant to Rule 23(b)(3), the court must find that “the questions of law or fact common to class members predominate over any questions affecting only individual members.” Fed. R. Civ. P. 23(b)(3). In a securities fraud case, elements such as “materiality,” “loss causation and the falsity or misleading nature of the defendant’s alleged statements or omissions are common questions that need not be adjudicated before a class is certified.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 475 (2013). Instead, “[w]hether common questions of law or fact predominate in a securities fraud action often turns on the element of reliance.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 , 810 (2011). To obtain class certification, reliance must generally be proven via a method commonly applicable to the entire class. See id. at 810–11; In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 42 (2d Cir. 2006). Establishing predominance also requires showing that “damages are capable of measurement on a classwide basis.” Comcast Corp. v. Behrend, 569 U.S. 27, 34 (2013). — 9 — The predominance requirement is satisfied here. As explained below, predominance is presumed as to the element of reliance under the Affiliated Ute doctrine and damages are capable of measurement on a classwide basis. A. The Affiliated Ute Presumption Under the doctrine articulated in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), when a securities fraud claim is premised on an omission rather than a false statement, reliance on the omission can be presumed from its materiality. Id. at 153 . “All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important” in making their investment decisions. Id. at 153-54 . The Affiliated Ute presumption “applies in the context of an insider trading claim.” Simon DeBartolo Grp., L.P. v. Richard E. Jacobs Grp., Inc., 186 F.3d 157, 173 (2d Cir. 1999). Generally, “[o]missions are material when there is a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co., 19 F.4th 145, 151 (2d Cir. 2021) (citing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011)). When a contingent or — 10 — speculative event is at issue, such as the potential acquisition of a company, “materiality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.” Id. (citing Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)). Here, the lead plaintiff may rely on the Affiliated Ute presumption to show reliance. Based on the evidence submitted in connection with this motion, the defendants’ failure to disclose Emerson’s offers to acquire NI while repurchasing NI stock may have constituted a material omission. There was a meaningful possibility that Emerson would continue its efforts to acquire NI after it indicated serious interest in doing so in its letters of May 25 and June 22, and such acquisition efforts would have been significant to investors. In any event, Rule 23(b)(3) only “requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class.” Amgen Inc., 568 U.S. at 459 . Whether the defendants’ omissions are material is a question that is common to the entire class. See id. at 475 .1 1 Because the Affiliated Ute presumption applies, it is unnecessary to consider the lead plaintiff’s alternative argument that reliance can be presumed under the fraud-on-themarket doctrine of Basic Inc. v. Levinson, 485 U.S. 224 (1988). — 11 — The defendants argue that the lead plaintiff improperly relies on its pleadings rather than submitting evidence in support of the Affiliated Ute presumption. But both the lead plaintiff and the defendants have submitted expert reports that detail the factual history material to this motion, including the offers Emerson made on May 25 and June 22, with citations to documents produced in discovery and publicly available documents. The defendants also attempt to rebut the Affiliated Ute presumption by presenting evidence that, in their view, demonstrates that Emerson’s offers were not material during the proposed class period because “the prospects of a deal with Emerson were dead.” In support of that argument, Dr. Goodwin opines that the prospect of a deal was “negligible” at the beginning of the class period because the Board had twice rejected Emerson’s offer of an acquisition at $48 per share, and that disclosure of Emerson’s offers “would not have had a significant impact on NI’s stock price.” According to Dr. Goodwin, the prospects of a deal were only resurrected beginning on November 3, 2022, when Emerson brought a new offer to purchase NI stock at $53 and threatened to go public with its offer. — 12 — This argument does not defeat certification. The offers Emerson made on May 25 and June 22 to purchase NI stock at $48 per share could be found to reflect its serious interest in acquiring NI. A reasonable investor may well have concluded that $48 was only Emerson’s opening bid. The swift rejection of those early offers by NI’s Board does not prevent them from being found material. It remained entirely plausible that Emerson would return with an improved offer or take its offer public. That is what NI’s Board contemplated in June and July of 2022, when it concluded that the $48 offer “substantially undervalue[d]” NI and discussed “the potential for [Emerson] to change its offer.” The defendants also submit evidence that, after NI rejected Emerson’s second proposal, it consulted with counsel before lifting its trading restrictions in August 2022. That evidence may be relevant to a jury’s evaluation of materiality, but it does not render Emerson’s bids immaterial as a matter of law or impact the determination that materiality is a question common to the class. B. Methodology for Measuring Damages on a Classwide Basis As noted, in order to satisfy the predominance requirement of Rule 23(b)(3), it must be shown that “damages are capable of — 13 — measurement on a classwide basis.” Comcast, 569 U.S. at 34 . The Second Circuit has explained that Comcast held that a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance. Roach v. T.L. Cannon Corp., 778 F.3d 401, 407 (2d Cir. 2015). Even if a damages model is proposed at the class certification stage, “calculations need not be exact.” Waggoner v. Barclays PLC, 875 F.3d 79, 106 (2d Cir. 2017) (citing Comcast, 569 U.S. at 35 ). The lead plaintiff provided a general description of how it might measure damages in its opening papers, but a damages model is described in more specific terms in Dr. Cain’s July 28 report, which is attached to the plaintiff’s reply. That July 28 report has rendered many of the defendants’ arguments moot.2 The lead plaintiff has shown that damages can be measured on a classwide basis. Dr. Cain opines in his July 28 report that Emerson’s offer to purchase NI stock at $48 per share implied a stock valuation of at least that amount per share 2 Dr. Cain’s July 28 report was submitted at the deadline for opening expert reports. The defendants have not requested that it be stricken or requested to file a sur-reply. It is properly considered on this motion. — 14 — during the class period. According to Dr. Cain, the “but-for” stock price that would have existed had the relevant truth been exposed can be conservatively estimated as $48 per share during the class period, which implies that the artificial deflation at any time during the class period can be modeled as $48 minus the actual stock price. This provides a foundational model for determining damages that result from the asserted theory of injury, and it is sufficient to show that damages are capable of measurement on a classwide basis. The defendants argue that damages must be limited to profits they gained and losses they avoided. The traditional measure of damages in § 10(b) cases is out-of-pocket loss, which is the difference between the price at which a stock is bought or sold and the stock’s true value. See Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 168 (2d Cir. 1980); see also Acticon AG v. China N. E. Petroleum Holdings Ltd., 692 F.3d 34, 38-39 (2d Cir. 2012). The defendants rely, however, on a statutory limitation that applies to claims brought under § 20A of the Securities Exchange Act, 15 U.S.C. 78t-1(b)(1).3 The defendants 3 Section 20A “provides an express private right of action for those who trade contemporaneously with an inside trader,” premised on an “independent Securities Exchange Act violation.” Steginsky v. Xcelera Inc., 741 F.3d 365, 372 (2d Cir. 2014); see also Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332, 1337 (7th Cir. 1997) (explaining that “the purpose of section 20A was to — 15 — fail to establish that such a limitation applies here. Section 20A itself provides that “[n]othing in this section shall be construed to limit or condition the right of any person to bring an action to enforce a requirement of this chapter or the availability of any cause of action implied from a provision of this chapter.” Id. at 78t-1(b)(1). Moreover, the rationales for limiting insider trading damages to the defendants’ profits gained and losses avoided are largely inapplicable here. See Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 168-72 (2d Cir. 1980) (discussing, inter alia, the possibility of imposing draconian damages on a tippee).4 The defendants also make several arguments to suggest that some of their conduct benefited some class members, either during or after the class period. These arguments are largely speculative and do not impact the decision on class certification. Finally, the defendants complain that the lead plaintiff has not provided a damages model that contemplates a but-for extend the protections of the existing insider-trading prohibition to persons not in privity with the insider”). 4 Because damages are not limited to profits gained and losses avoided by the defendants, it is unnecessary to consider the defendants’ argument that NI did not gain any profit because share repurchases are functionally equivalent to dividends. — 16 — world in which NI did not disclose the offers it had received from Emerson, but also did not repurchase stock in August and September 2022. The defendants point out that this would not have constituted a violation of the securities laws. This argument fails. It is not necessary for a damages model to account for two but-for worlds at once, particularly when the damages model is only being offered to illustrate that damages are capable of measurement on a classwide basis. II. Class Definition The defendants argue that the lead plaintiff’s proposed class definition is overbroad because it includes individuals who did not sell NI stock contemporaneously with NI’s repurchases. As noted, the proposed class definition includes individuals who sold NI stock between August 12 and September 30, 2022. The defendants argue that a more accurate class definition would be limited to August 12-30 and September 12-28, the dates in August and September 2022 when NI’s repurchases occurred, inclusive of settlement dates. The defendants are correct. A duty of disclosure is owed “to all persons who during the same period” as the defendants traded stock on the open market. Shapiro v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 495 F.2d 228, 237 (2d Cir. 1974). In particular, the “duty of disclosure — 17 — is owed only to those investors trading contemporaneously with the insider; non-contemporaneous traders do not require the protection of the ‘disclose or abstain’ rule because they do not suffer the disadvantage of trading with someone who has superior access to information.” Wilson v. Comtech Telecommunications Corp., 648 F.2d 88 , 94–95 (2d Cir. 1981). Accordingly, the class will be certified for sellers of NI stock in the two discrete periods identified by the defendants. This has the effect of eliminating fourteen days from the lead plaintiff’s proposed class definition: twelve days between the two periods and two days at the end of the proposed period. III. Appointment of Class Counsel Pursuant to Rule 23(g), Fed. R. Civ. P., a court that certifies a class must appoint class counsel. In appointing class counsel, a court must consider (i) the work counsel has done in identifying or investigating potential claims in the action; (ii) counsel’s experience in handling class actions, other complex litigation, and the types of claims asserted in the action; (iii) counsel’s knowledge of the applicable law; and (iv) the resources that counsel will commit to representing the class. Fed. R. Civ. P. 23(g)(1)(A). The court may also consider “any other matter pertinent to counsel’s ability to fairly and adequately represent the interests of the class.” Fed. R. Civ. 18 P. 23 (g) (1) (B). Robbins Geller has shown that it has satisfies the requirements of Rule 23(q). Conclusion The lead plaintiff's May 2, 2025 motion for class certification is granted with the modification to the cliass definition described above. The following class is certified: All persons who soid National Instruments common stock between August 12, 2022 and August 30, 2022 and/or between September 12, 2022 and September 28, 2022, inclusive, and were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors, or assigns and any entity in which Defendants have or had a controlling interest. Lead plaintiff Wayne County Employees’ Retirement System is appointed as class representative. Robbins Geller is appointed as class counsel. Dated: New York, New York September 19, 2025 NISE COTE United States District Judge — 19 —