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Sep 6, 2018

Papa John's founder accuses CEO of plotting to remove him

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Papa John’s International Inc. (PZZA.O) founder John Schnatter accused Chief Executive Officer Steve Ritchie of plotting to oust him from the company in order to save his own job, according to a lawsuit that was unsealed on Thursday.

When Ritchie learned Schnatter was seeking personnel changes because of the company’s lagging performance, the chief executive “launched a false and defamatory campaign against Mr. Schnatter, falsely accusing him of racism,’’ to hang on to his position, the founder’s lawyers said in a Delaware Chancery Court suit. The complaint was originally filed under seal on Aug. 31.

The lawsuit is part of Schnatter’s bid to return to power at the embattled pizza chain, which is struggling with declining sales and controversies related to the founder’s miscues. According to news reports, Schnatter used a racial slur and descriptions of violence against minorities on a media-agency call. The businessman acknowledged using the slur, but said it was taken out of context. The company has stopped using Schnatter in its advertising and he resigned as board chairman.

Schnatter said he felt compelled to file suit against Ritchie and other board members to stop the “irreparable harm” that the current management team was doing to the chain.

After the pizza chain reported weaker-than-expected quarterly earnings last month, Schnatter published a blistering critique of the company’s leadership. The chain punched back, noting the bad publicity from Schnatter’s actions has hurt performance. North American same-store sales fell 10.5 per cent in July.

‘Without Merit’

“John Schnatter’s latest allegations are entirely without merit, and we will vigorously defend against these baseless claims,’’ Papa John’s said Thursday in an emailed statement.

The 56-year-old Schnatter claims Ritchie began orchestrating a campaign against him after Schnatter gave his board colleagues a list of executives that should go, including Ritchie, because of poor results, according to a letter he wrote to franchisees last month.

Ritchie’s efforts were motivated by “the sad and simple reason that Mr. Ritchie learned that he was going to lose his job,’’ Schnatter said in the suit. “Mr. Ritchie placed his own self-interest and desire to salvage his own employment over the best interests of the company.’’

Schnatter also took aim at a special board committee investigating the “toxic senior-management culture’’ at Papa John’s, saying it’s riddled with conflicts since some of the directors in the group are accused of improprieties.

He also contends in the unsealed suit that internal whistleblowers are being harassed by members of Ritchie’s executive team. A sealed copy of a letter he sent to the company’s human-resources department about retaliation against employees who report inappropriate executive behavior is included in the Delaware case’s docket.

In the letter to franchisees, Schnatter said Papa John’s human-relations managers have “detailed evidence of sexual misconduct, harassment and intimidation by virtually everyone in (Ritchie’s) inner circle.”

Schnatter also takes issue with an anti-takeover defense the company’s board put in place to protect itself from a hostile takeover that the founder says unfairly targets him. Schnatter currently owns a 30 percent stake in the company.

“There was no credible threat to the company’’ when the board adopted the rights plan, which would kick in if Schnatter were to increase his stake in the company or any other investor were to buy 15 percent of the common shares, according to the suit.

The defense is flawed, Schnatter’s lawyers contend, because it covers discussions between shareholders about proxy solicitations or opposition to board proposals. They argue that conversations on these topics can trigger the pill, something that’s never been approved under Delaware corporate law