DOVER, Del. (AP) - A Delaware judge ruled Tuesday that the embattled founder of the Papa John’s pizza chain is entitled to corporate records that the company has refused to turn over to him.
John Schnatter sued Papa John’s International Inc. last year, claiming he needs the records to inform himself in order to fulfill his fiduciary duties to the company, and to ensure that other directors are doing the same.
The company argued that Schnatter, who was pressured to resign as chairman last summer, wanted the records to further his personal self-interests. It said much of the information he sought would be available to him in a separate lawsuit he filed alleging wrongdoing by other board members and CEO Steve Ritchie.
The two sides eventually resolved disputes over 13 of 17 categories of documents.
Chancellor Andre Bouchard ruled Tuesday that the company failed to prove that Schnatter’s purpose for seeking to inspect the remaining four categories of documents was improper.
“Mr. Schnatter sought access to those documents after the unexplained and heavy-handed behavior of various company insiders - including members of the board and some in management - who may have placed their own self-interests ahead of the best interests of the company, its shareholders, employees and franchisees,” Schnatter’s attorney, Garland Kelley, said in a prepared statement.
Madeline Chadwick, a Papa John’s spokeswoman, said in an email that the company was pleased that Bouchard found that Schnatter’s remaining document requests were overbroad, and that he limited the scope of those requests.
“Papa John’s has already provided and will continue to provide John Schnatter with all materials that he is entitled to receive,” the email read.
The documents in question involve internal company communications from Oct. 31, 2017 through July 15 of last year. That period covers the public controversy over remarks Schnatter made in a Nov. 1, 2017 conference call claiming that the National Football League’s mishandling of player protests during the national anthem had hurt sales at the Louisville, Kentucky-based pizza company, which was a league sponsor. Schnatter, who founded the company in 1984, resigned as CEO amid the fallout.
The time span also covers the formation of a special board committee in July 2018 to address a Forbes article regarding Schnatter’s use of a racial slur during a May 2018 media training exercise about diversity with the company’s new marketing agency. According to court records, the exercise was scheduled after Schnatter objected to being paired in advertisements with rap singer Kanye West because West used the N-word in his lyrics. Following publication of the Forbes’ article, Schnatter was pressured to resign as chairman, a decision he now regrets.
Attorneys for the company argued that Schnatter was not properly seeking corporate records as a director, but was upset over his treatment and was trying to get records he hopes “will clear him and his reputation.”
After holding a one-day trial and a post-trial hearing last year, Bouchard concluded Tuesday that Schnatter had stated a proper purpose for seeking the company’s records.
“To be sure, there is a personal element to the concerns Schnatter testified about because they also pertain to his reputation as an individual,” Bouchard wrote. “But that fact does not negate that these concerns are legitimate corporate concerns, particularly given that Schnatter’s image and standing has been inextricably intertwined with the company’s public persona for decades.”
Bouchard noted, however that Schnatter’s request for records “referring or relating” to him was overbroad. He narrowed the request to communications reflecting any consideration of changing Schnatter’s relationship with the company, including assessments of his behavior or performance during the specified time period.
Schnatter, meanwhile, agreed to limit the potential records custodians to Ritchie, other directors, and the company’s general counsel. Overruling the company’s objections, Bouchard said the records to which Schnatter is entitled include emails and text messages about his relationship with the company that were sent by those individuals from personal accounts and electronic devices.
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