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Schnatter v. Papa John's Int'l, Inc.

Court of Chancery of Delaware

November 30, 2018, Submitted; January 15, 2019, Decided

C.A. No. 2018-0542-AGB

Opinion

MEMORANDUM OPINION

BOUCHARD, C.

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. In July 2018, Forbes reported that Schnatter used a racial slur during an internal diversity training exercise at the company in May 2018.

On the same day the Forbes article was published, the company's board asked Schnatter to resign as its Chairman, which he did. Over the next few days, the board also asked Schnatter to resign as a director of the company, which he declined to do. The board then established a special committee to investigate all of the company's relationships [*2]  with Schnatter. Within three hours of its formation, the special committee decided to terminate two agreements the company had with Schnatter.

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 seventeen categories of documents. 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 parties have resolved their disputes concerning thirteen of the seventeen categories of documents sought in Schnatter's demand. In this post-trial decision, the court concludes that the company failed to prove that Schnatter's purpose for seeking to inspect the remaining four categories of documents is improper and that he therefore is entitled to inspect these documents subject to certain limitations.

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2019 Del. Ch. LEXIS 18 *; 2019 WL 194634

JOHN SCHNATTER, Plaintiff, v. PAPA JOHN'S INTERNATIONAL, INC., Defendant.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

Subsequent History: Later proceeding at Schnatter v. Papa John's Int'l, Inc., 2019 Del. Ch. LEXIS 68 (Del. Ch., Feb. 25, 2019)

CORE TERMS

documents, inspection, special committee, communications, stockholder, Fiduciary, Requests, books and records, comments, investigate, mismanagement, fiduciary duty, member of the board, emails, parties, proper purpose, Founder's, terminate, Earnings, training exercise, Post-Trial, burden of proof, fulfilling, reasonably related, personal account, purposes, records, resign, director of the company, stated purpose

Business & Corporate Law, Record Inspection & Maintenance, Inspection Rights, Directors, Evidence, Burdens of Proof, Initial Burden of Persuasion, Preponderance of Evidence, Shareholders, Actions Against Corporations, Derivative Actions, Procedural Matters