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John Schnatter accuses Papa John’s leaders of breaching duty

2nd lawsuit calls for injunction against eviction, ‘poison pill’ and other board actions

John Schnatter, in a second lawsuit against the pizza company he founded, has accused Papa John’s International Inc.’s upper management of pushing him out and bullying employees who support him.

Schnatter’s lawyers in the suit, which was released to the public late Thursday with two sections redacted, accused Steve Ritchie, the president and CEO of the Louisville, Ky.-based company, and board members with breach of fiduciary duty in putting their own interests above the company.

The lawsuit asks the Court of Chancery of the State of Delaware, where Papa John’s is incorporated, to keep the board’s special committee, comprised of all of its members except for Schnatter, from retaliating against employees for reporting inappropriate behavior, from investigating allegations of inappropriate behavior leveled at committee members and from evicting Schnatter from offices he has subleased at the chain’s Louisville headquarters.

The suit also asks that the “poison pill” that the board adopted be invalidated, that a move to terminate Schnatter’s role as the chain’s spokesperson be rescinded, and that Ritchie be prevented from issuing any public statements relating to Schnatter.

The suit cites a letter dated Aug. 17, 2018, that it says Schnatter submitted to Papa John’s human resources department, but which had not been made public.

The letter allegedly brought to the board’s attention accusations that “numerous individuals” have told Schnatter “of serious and ongoing wrongdoing by the company’s CEO, Mr. Steve Ritchie, many members of his senior leadership team and the company’s general counsel, Ms. Caroline Oyler, and allegations that also relate to members of the special committee.” The letter includes claims that one board member “has made highly sexual comments about another board member [which] renders both of them incapable of objectively and dispassionately completing an investigation into those matters.”

The lawsuit said the committee didn’t take the accusations seriously.

“Instead of addressing soberly and seriously the issues raised in the H.R. letter, the special committee issued a statement in full-throated support of Mr. Ritchie and his management team without properly investigating a single piece of evidence provided to them,” it said.

A request for a copy of the letter was declined by the public relations firm of Schnatter’s lawyers, Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP.

Schnatter first sued the board in July, two weeks after he stepped down as chairman, requesting documents that he believed would prove that he was pushed out as chairman unfairly. A court date for that suit has been set for Oct. 1, according to the new lawsuit, which says the company can’t wait that long.

“Simply put, the ability of the company to repair itself and properly function may not last until Oct. 1,” the suit states.

Schnatter resigned as chairman on July 11, after it was made public that he had used racist language in a May conference call. 

Since then, Schnatter said his resignation was a mistake and he has been lobbying to be reinstated while also launching a publicity campaign on his own website,

Papa John’s management, for its part, moved swiftly, forming a special committee, comprised of everyone on the board of directors except for Schnatter, to investigate policies related to Papa John’s corporate culture and issues related to diversity and inclusion.

It also moved to evict Schnatter from his offices and to terminate the “Agreement for Service as Founder,” which allows Schnatter, who remains the company’s largest shareholder with about 30 percent of shares, to attend major corporate events, visit franchises, participate in meetings with management and investors and act “as advertising and brand spokesperson for the company.”

The new lawsuit alleges that the special committee is in breach of its fiduciary duty for terminating those two agreements within three hours of being formed.

“The board could not have possibly met its obligations to consider all information reasonably available before invalidly terminating those agreements,” it said.

The suit also accuses Papa John’s new head of diversity and inclusion, Victoria Russell, of retaliating against whistle blowers, saying her “conduct ranged from overt intimidation to thinly veiled threats and reprisals, including that the employee would be terminated.”

It said the so-called “poison pill” adopted by the board to make hostile takeovers more difficult, was in breach of fiduciary duty because it was adopted “without identifying any real threat to corporate effectiveness.”

Papa John’s did not respond to a request for comment, but in the past it has placed the blame of the company’s poor performance on Schnatter, who sparked controversy last November by blaming declining sales on the National Football League’s failure to quell silent protests by some of its players during the playing of the national anthem.

Schnatter eventually stepped down as CEO, but remained chairman of the board, and his hand-picked successor, Ritchie, who was already president, became CEO.

In a statement released in late August, Papa John’s board said it had instructed Schnatter not to bring up the NFL controversy in the earnings call and blamed him for damaging the company.

Schnatter, for his part, has said Ritchie and the board are blaming him for the company’s poor performance to cover up their own failings.

For the most recent quarter, ended July 1, the chain’s domestic same-store sale fell 6.1 percent, but the company’s performance worsened in July in the aftermath of Schnatter’s departure. The company said same-store sales for the period from July 2 to July 29 were down 10.5 percent.

Papa’s John’s is the nation’s third largest pizza delivery company with 5,212 units worldwide as of April 1. It operates in all 50 states and 45 other nations and territories.

Contact Bret Thorn at [email protected] 

Follow him on Twitter: @foodwriterdiary

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