Don't have an account? Request a trial

Papa John’s Investors Deliver Suit Over Ex-CEO’s Slur, Conduct

Aug. 30, 2018 2:05PM

  • Papa John’s misled investors about ex-CEO Schnatter’s conduct, complaint says
  • Company policies weren’t strong enough to prevent slur, harassment, investor says
Bloomberg Law News Jun 16, 2019
Aug 30, 2018
  •  Papa John’s misled investors about ex-CEO Schnatter’s conduct, complaint says
  •  Company policies weren’t strong enough to prevent slur, harassment, investor says

Papa John’s International Inc. faces a would-be class action from investors upset with the actions of its former CEO, John Schnatter.

A Papa John’s investor filed a putative class action against the pizza chain Aug. 30 for allegedly misleading shareholders about Schnatter’s conduct, not having adequate systems in place to prevent inappropriate workplace conduct, and negatively affecting the company’s business and reputation. Schnatter, who is also named as a defendant in the U.S. District Court for the Southern District of New York complaint, resigned from his position as chairman of the Papa John’s board in July after reports that he’d used a racial slur on a conference call.

Schnatter’s conduct hurt the company’s bottom line, the investor complaint alleged. Pizza sales slowed after Schnatter’s use of the slur became public, according to a Bloomberg report. The company’s stock price also declined by 4.84 percent, the complaint said.

A Forbes article describing Schnatter’s sexual harassment of employees, published the week after the slur incident surfaced, caused another stock drop, this time of 4.85 percent, according to the complaint.

The company’s code of ethics and business conduct was “inadequate” to prevent Schnatter from using racial slurs and sexually harassing employees, the complaint said. Papa John’s, Schnatter, and two other defendants — Steve Richie, current CEO and president; and Lance Tucker, chief financial officer who left the company for Jack in the Box Inc. in March — misled shareholders by not disclosing the reputational harm and legal liability Schnatter’s conduct posed, according to the complaint.

A Papa John’s representative declined to comment because the company was still reviewing the complaint. The company’s board of directors released a statement Aug. 29 criticizing Schnatter for “promoting his self-interest at the expense of all others in an attempt to regain control.”

Schnatter sued Papa John’s in late July in an attempt to regain his position at the company, according to a Bloomberg report.

The case is Danker v. Papa John’s Int’l Inc. , S.D.N.Y., No. 1:18-cv-07927, complaint filed 8/30/18 .

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

Jennifer Bennett

Associate Legal Editor