Papa John's Founder Sues Company's Board and CEO in Delaware

(Bloomberg) -- Papa John’s International Inc. founder John Schnatter escalated his legal battle with the pizza chain, suing the board of directors and Chief Executive Officer Steve M. Ritchie to “stop the irreparable harm” to the company that he said they’re causing.

The complaint, filed Thursday in Delaware Chancery Court, is sealed. Terry Fahn, a spokesman for Schnatter with Sitrick & Co., said in a statement the suit asks the court for immediate assistance to stop the damage the directors and Ritchie are doing “due to their repeated, and ongoing, breaches of the duties of loyalty and care they owe to the company.”

“John Schnatter will do anything to distract attention from the harm caused by his inappropriate words,” the company said in an e-mailed statement. “John Schnatter’s latest allegations are entirely without merit, and we will vigorously defend against these baseless claims.”

Legal activity surrounding the pizza chain has increased this week as the founder’s dispute with the company intensifies. Schnatter faces a deposition by Papa John’s lawyers beginning Sept. 7 in a suit he filed in the same Delaware court seeking internal files related to directors’ handling of his ouster from the company.

Also on Thursday, a shareholder filed a class-action complaint against the company for allegedly misleading investors about Schnatter’s behavior and failure to prevent inappropriate workplace conduct that hurt the company’s business and its reputation.

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The legal battle is all part of Schnatter’s bid for new leadership at the pizza chain, which is struggling with declining sales and controversies related to his comments. The 56-year-old came under pressure after a July news report that he used a racial slur and descriptions of violence against minorities on a call with a media agency. He admitted to the comments but said they were taken out of context.

Earlier this month, after the pizza chain reported weaker-than-expected quarterly earnings, Schnatter published a blistering critique of the company’s leadership, including Ritchie’s. The chain punched back, noting that Schnatter’s controversy is weighing down performance, with North American same-store sales falling 10.5 percent in July. The chain had to give financial assistance to franchisees who’ve been hurt by Schnatter’s statements “to mitigate closings,” it said.

On July 22, the company’s board adopted a poison pill designed to prevent Schnatter from adding to his roughly 30 percent stake in a bid to gain majority control.

Shares of the pizza chain fell 0.2 percent to $46.03 at 11:50 a.m. in New York trading. The stock had already declined 18 percent this year through Thursday’s close.

--With assistance from Christopher Yasiejko and Jonathan Roeder.

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editors responsible for this story: Heather Smith at hsmith26@bloomberg.net, Joe Schneider

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