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Papa John’s sued by shareholder over executives’ behavior

  • Author: Chris Dolmetsch, Bloomberg
  • Updated: August 30, 2018
  • Published August 30, 2018

A Papa John's International Inc. shareholder sued the struggling pizza chain, claiming it misled investors by failing to disclose inappropriate behavior by its executives, including founder John Schnatter.

The pizza chain is facing slowing sales following Schnatter's resignation as chairman last month over the use of a racial slur. Papa John's shares have fallen 18 percent this year and 39 percent in the past 12 months. They fell 58 cents to $45.96 at 2:38 p.m. in New York trading.

Joanne E. Danker sued Thursday in Manhattan federal court, alleging that Louisville, Kentucky-based Papa John's failed to tell investors that executives had engaged in sexual harassment and other inappropriate conduct — and that company policies were inadequate to prevent the behavior.

"The forgoing conduct 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," Danker said in the complaint.

Papa John's shares spiked last week after Reuters reported the company hired Bank of American Corp. and Lazard Ltd. to help find ways to stabilize its operations.

Schnatter came under pressure after a July report that he used a racial slur and descriptions of violence against minorities on a call with a media agency. He acknowledged making the comments but said they were taken out of context. Last week, he took out a full-page ad in the company's hometown newspaper urging employees to join him in a bid to bring in new leadership.

Madeline Chadwick, a spokeswoman for Papa John's, declined to comment on the suit, as did Terry Fahn, a representative for Schnatter.

Papa John's board adopted a poison pill last month designed to prevent Schnatter from adding to his roughly 30 percent stake in a bid to gain majority control. A company spokeswoman didn't immediately respond to a request seeking comment on the lawsuit, which also names Schnatter, Chief Executive Officer Steve M. Ritchie and former Chief Financial Officer Lance F. Tucker as defendants.

Danker is seeking to represent a class of all shareholders who were damaged by a "precipitous decline" in the market value of the company's shares.