Papa John’s Drama Sees Founder Sue Namesake Brand

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Papa John's logo with founder John Schnatter

While Papa John’s isn’t the first brand challenged by a break with its namesake founder, the saga of Papa John’s has taken a particularly awkward turn as its former Chairman and CEO, John Schnatter, has sued his namesake pizza chain after being frozen out by the company he founded.

Schnatter is seeking documents related to his ouster as chairman earlier this month and is accusing the board of acting negligently or staging a possible “coup,” according to CNBC. He resigned his post as chairman earlier this month after news broke of a PR counseling session in which he used the “n” word in what he said was a hypothetical usage in the context of the training.

The company’s directors adopted a “poison pill” measure to attempt to keep Schnatter, the company’s largest shareholder, at arm’s length—and limited in how much harm he could do.

“Instead of standing behind the founder and working with news media to explain what actually occurred, the Company followed its usual, and flawed, manner of dealing with false and mistaken reporting as to comments made by Mr. Schnatter,” the lawsuit alleged. Schnatter maintained that, among other things, the company is hiding relevant documents about the controversy.

Schnatter said he suspected that the independent members of Papa John’s board and company advisors had it out for him and that the board similarly failed to back him when he made the comments that first got him in hot water, last fall, blaming the NFL’s national-anthem policy in part for Papa John’s declining pizza sales. Schnatter resigned as CEO last December in the midst of that controversy and as the brand continued to struggle with sales results.

All of these events are “hammering” Papa John’s pizza sales, CNBC said, as the chain struggles to remain No. 3 in the global pizza industry, after Domino’s and Pizza Hut and in a battle with Little Caesar’s for the next spot. The season of rancor has exposed an “apparent lack of internal controls” at Papa John’s, CNBC maintained; has alienated many Papa John’s customers who don’t like being reminded continually of Schnatter’s more extreme comments or even of his conservative political views; and “also left the company vulneable to takeover.”

Meanwhile, Papa John’s stock has been hammered, down more than 33% since Schnatter’s November 1st analyst call in which he complained about the NFL, and same-store sales of its pizza have stagnated. CMO Brandon Rhoten exited as well.

“What was a serious situation now seems to be descending into an ongoing farce with allegations and claims flying around all over the place,” Neil Saunders, managing director of GlobalData, told CNBC. “This is not good for the brand, and it is not good for the business, which is distracted by fighting fires rather than on more important activities.”

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