John Schnatter. Photo Credit: Kathy Hutchins/ShutterstockClaims Over Papa John's Founder John Schnatter Draw Investor Suit
The former chairman and CEO of the pizza chain resigned after reportedly using a racial slur during a conference call, but the new class action suit said additional reports about Schnatter's behavior also show the company's public statements about its corporate ethics were false and misleading.
August 30, 2018 at 04:48 PM
3 minute read
The original version of this story was published on New York Law Journal
A rash of negative publicity surrounding pizza chain Papa John's now-ousted founder and former board chairman John Schnatter has snowballed into a new securities class action filed in the U.S. District Court for the Southern District of New York Thursday.
The suit alleges the company failed to follow through on its own publicly stated code of ethics and behavior policies over the course of the class period going back to 2014. More even than Schnatter's well-publicized use of a racial epithet during an investor call back in May, the suit points to a recent Forbes story that detailed allegations of sexual harassment and executive incompetence by Schnatter and those around him, including his successor as CEO, Steve Ritchie.
Schnatter resigned as chairman of the company's board on July 12, after it became public he had used a racial slur during a conference call in May. The suit notes that Papa John's price fell nearly 5 percent after news of the incident became public.
On top of this, the Forbes report that investors claim showed a long-term disconnect between Schnatter and the company's public statements that resulted in material misrepresentations that resulted in securities violations.
The story, reporting on Schnatter's actions over the years as the company's founder and past CEO, claims he created a toxic culture where workers were spied on and inappropriate sexual conduct resulted in two separate confidential settlements against Schnatter over his behavior.
The story also claims Schnatter installed loyalists, who were largely unqualified, who helped him keep in place a “bro” culture at the company. The article specifically names the company's current chief development officer Timothy O'Hern, a childhood friend of Schnatter's, and current CEO Ritchie. Criticisms of Ritchie's qualifications and management style in the article are noted specifically in the complaint, including allegations that Ritchie's actions and decisions were potentially detrimental to Papa John's business.
The suit notes that after the Forbes piece ran on July 19, the company's stock price took another hit of nearly 5 percent.
“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 claims.
A spokeswoman for the pizza company said they were in the process of reviewing the suit, declining to comment further.
A spokesman for Schnatter's attorney, Glaser Weil Fink Howard Avchen & Shapiro name attorney Patricia Glaser, declined to comment ahead of review of the complaint.
The suit, which alleges two counts of securities violations against the company, Schnatter, Ritchie, and Lance Tucker, Papa John's former CFO, was brought on behalf of an investor by Pomerantz partner Jeremy Lieberman. He also did not respond to a request for comment.
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