A shareholder has sued Papa John’s International Inc., its founder, John Schnatter, CEO Steve Ritchie and former chief financial officer Lance Tucker, over what she says are misleading statements that inflated stock prices, resulting in her and other shareholders buying overpriced shares.
The plaintiff, Joanne Danker, is seeking class action status for the suit on behalf of anyone who acquired Papa John’s securities between February 25, 2014, and July 19, 2018.
That period covers the time between Papa John’s announcement of its operating results for the year ended December 31, 2013 and when an article in Forbes was published alleging widespread sexual misconduct and a toxic management culture that led to poor business decisions at the chain.
Meanwhile, Schnatter himself has sued Papa John’s, its board of directors and Ritchie, “seeking immediate assistance from the Court [of Delaware, where Papa John’s International, Inc. is registered] to stop the irreparable harm those individuals are causing due to their repeated, and ongoing, breaches of the duties of loyalty and care they owe to the Company,” according to a statement from Sitrick and Company, a public relations firm in Los Angeles working with Schnatter’s lawyers, Glaser Weil LLP.
The court documents for that case were not yet available and a Sitrick spokesperson did not respond to a request for further clarification.
The complaint from Danker points out that the individuals named in the lawsuit signed off on earnings reports that acknowledged the importance of the brand’s reputation and its code of ethics committing them to “providing a workplace for its team members that is free of harassment or other intimidating, hostile or offensive behavior…”
During that time, “Papa John’s executives, including Defendant Schnatter, had engaged in a pattern of sexual harassment and other inappropriate workplace conduct at the Company,” the lawsuit says, citing the allegations in the Forbes piece.
The suit also says the company’s code of ethics was insufficient to prevent conduct that “would foreseeably have a negative impact on Papa John’s business and operations, and expose Papa John’s to reputational harm, heightened regulatory scrutiny and legal liability.”
The suit states that once information about that conduct was revealed, share prices did indeed fall — by 4.84 percent on July 11, the day after revelations in Forbes that Schnatter had used inappropriate language during a meeting in May, and 4.85 percent on July 20, the day after Forbes published its exposé.
“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of Papa John’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the suit states. It is seeking damages for everyone who acquired shares in the company at what the suit claims were inflated prices.
Papa John’s shares hit a high of $89.17 on Dec. 16, 2016. They opened Friday at $46.03.
A Papa John’s spokesman said they had just received the lawsuit and did not have a response at this time. Tucker, who was contacted through Jack In the Box, where he is now CFO, did not respond at press time. Schnatter had no comment on the lawsuit against him.
These lawsuits are the latest chapter in a saga dating back to a Nov. 1 earnings call in which Schnatter, then CEO, blamed declining sales in part on the National Football League’s failure to quell silent protests by some of its players during the playing of the National Anthem. He stepped down as CEO at the end of the year and became chairman of the board, and was replaced by Ritchie, who had been president since July of 2015.
Tension escalated after Forbes revealed Schnatter’s comments in the May meeting. Schnatter acknowledged making the comments and resigned as chairman of the board, although he is still a director and the company’s largest shareholder, owning around 30 percent of shares.
Schnatter then said his resignation was a mistake as the company moved to evict him from his offices at Papa John’s Louisville, Ky., headquarters and remove his name and image from marketing materials.
He has since sued the company and set up his own web site, savepapajohns.com to tell his side of the story, including accusing current management of incompetence.
Papa John’s board, meanwhile, has fired back allegations that Schnatter continues to harm the company, and adopted a so-called “poison pill” in an attempt to prevent Schnatter from taking over the company.
Contact Bret Thorn at [email protected]
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