WILMINGTON, Del. (Legal Newsline) – A Delaware court has ruled that Papa John International's founder and former chairman John Schnatter is entitled to inspect the company's documents in a matter relating to the company cutting ties with him.
Chancellor Andre Bouchard, on the bench of the Delaware Court of Chancery, issued a 49-page ruling on Jan. 15 in the action filed by Schnatter against Papa John's International Inc.
In his ruling, Bouchard stated that "the company has failed to prove that Schnatter’s purpose for making the demand is not reasonably related to his position as a director of the company," ordering the parties to confer the documents within five business days.
"In November 2017, John Schnatter, the founder of Papa John’s International Inc., criticized the National Football League’s handling of the dispute between NFL players and owners over national anthem protests during a call held to report the company’s earnings. Some in the media portrayed Schnatter’s comments about the NFL as racial in nature," Bouchard wrote.
"In July 2018, Forbes reported that Schnatter used a racial slur during an internal diversity training exercise at the company in May 2018.
Even though Schnatter resigned as chairman the same day as the publication of the Forbes article, the company also asked him to resign as of the company's director, which he declined.
As stated in the ruling, "the board then established a special committee to investigate all of the company’s relationships with Schnatter, and within only three hours after it was formed, "the special committee decided to terminate two agreements the company had with Schnatter."
Schnatter then made a demand to inspect documentation regarding the issues.
"In the wake of these events, Schnatter made a demand under 8 Del. C. § 220 in his capacity as a director of the company to inspect 17 categories of documents," Bouchard wrote.
"Perplexed about why the company made no effort to defend him as the founder and longstanding public face of the company from what he believes was unfair treatment by the media, and why the company instead seemed intent on abruptly cutting ties with him without investigating the matter, Schnatter questions whether his fellow directors fulfilled their fiduciary obligations."
The opinion stated the company had rejected his demand in July 2018, prompting him to file the action.
Delaware Court of Chancery Case number 2018-0542-AGB