John Schnatter sues Papa John’s again

The lawsuit was filed under seal as shareholders sue the company and its founder.
Photograph by Scott Mitchell

John Schnatter has filed another lawsuit against Papa John’s, further intensifying a battle that has extended a controversy consuming the company since his resignation as chairman last month.

The lawsuit was filed Thursday in a court in Delaware for “violations of the duties of loyalty and care, causing irreparable harm.”

The lawsuit was filed under seal, and details of the action were not available.

“John Schnatter will do anything to distract attention from the harm caused by his inappropriate words,” Papa John’s said in an emailed statement Friday. “He continues to make reckless allegations in his attempt to regain control and serve his own interests. John Schnatter’s latest allegations are entirely without merit, and we will vigorously defend against these baseless claims.”

The Schnatter lawsuit comes as legal firms have started filing shareholder class action lawsuits against the company and its founder over the controversy, which has put the Louisville, Ky.-based pizza chain’s future in question.

Papa John’s stock price has been cut in half over the past year as the company’s same-store sales have struggled and Schnatter has courted controversy.

In November, Schnatter first plunged the chain into crisis when he appeared to blame NFL player protests during the national anthem for the league’s falling ratings and, in turn, his own company’s weakening same-store sales. Schnatter subsequently stepped down as CEO, turning over the reins to Steve Ritchie.

In July, Schnatter acknowledged using a racial slur during a conference call. He ultimately resigned as chairman, and the company subsequently ended his founder’s agreement and stopped using Schnatter in its advertising and marketing.

Schnatter, who owns 31% of Papa John’s shares and remains on the board, has engineered a campaign against the company and its existing management. He has started a website, Save Papa John’s, and has laid the blame for the company’s deteriorating sales entirely with Ritchie.

Same-store sales declined 6.1% in the second quarter in the U.S. and 10.1% in July. Papa John’s, which has already seen a net decline in unit count over the past year, has started providing royalty relief and other assistance to franchisees.

Schnatter has already sued Papa John’s and, in particular, a special committee formed to oversee the company’s response to the crisis, seeking documents related to the ending of his founder’s agreement. Schnatter has said he regrets stepping down as chairman and believes the company should have done more to defend him.

Schnatter's representatives indicated that the same judge presiding over the first lawsuit is likely to preside over the second one.

He has also indicated, both in letters and in legal filings, that he is “aware of misconduct at the company,” including allegations of sexual misconduct by members of senior management.

A story in Forbes last month detailed a toxic “bro culture” at Papa John’s involving senior management.

Papa John’s is conducting an independent investigation of its culture and diversity, overseen by the special committee.

But that story also indicated that Schnatter himself was the subject to a pair of confidential settlements over inappropriate behavior.  

Earlier this week, the special board committee took Schnatter to task for his own behavior in recent months, accusing the former CEO of repeatedly ignoring board directives while usurping management.

The board accused Schnatter of ignoring a board directive not to talk about the NFL player protests during the November earnings call. And it said that Schnatter began undermining Ritchie after it was concluded that the company would need to go in a new direction with its marketing, a direction that did not include Schnatter as its spokesman.

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