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Papa John’s Beats Investor Suit on ‘Toxic’ Workplace Culture (1)

Feb. 3, 2021, 8:43 PMUpdated: Feb. 3, 2021, 9:42 PM

Papa John’s International Inc. successfully fought off a would-be class suit alleging it misled investors about a “toxic workplace culture” after a federal judge in New York dismissed the case with prejudice Wednesday.

The pizza chain’s investors relied on “essentially” the same facts they alleged in an earlier complaint that the court already tossed out, the U.S. District Court for the Southern District of New York said. None of the challenged statements are actionable, Judge Kimba M. Wood’s opinion said.

Investors accused Papa John’s of “misleadingly” touting the company’s culture, despite executives enabling a “bro” atmosphere and sexually harassing employees. “The rise of the #MeToo movement” made it “likely that their wrongdoing would come to light and harm the Company’s reputation,” the investors alleged.

Nothing in the complaint or the investors’ briefs changes the court’s previous ruling that statements in Papa John’s Code of Ethics and Business Conduct are “quintessential puffery,” Wood said. The challenged portions of the company code are “vague, broad, and merely aspirational.”

“Positive assertions about the Company’s culture in its” Securities and Exchange Commission “filings, press releases, and earnings conference calls are inactionable as immaterial puffery,” too, the opinion said. Those statements didn’t “assert or imply” that “executives had never engaged in misconduct or would not be implicated in the #MeToo movement.”

The risk disclosures in the company’s SEC filings aren’t misleading, either, Wood said. “Even drawing all inferences in favor of” the investors, their allegations “still fail to show” that risks of #MeToo consequences, harassment and other labor-related litigation, and fallout from failure to manage those incidents had “already materialized” when Papa John’s made its SEC filings.

The complaint “fails—again—to specify when the Company failed to comply with labor laws (and what these labor laws were), when the Company’s executives engaged in misconduct, and when their harassing behavior became widely known (including to those individuals who had the power to fire them),” the opinion said.

Nor have the investors properly alleged that Papa John’s had “an affirmative duty to disclose information about workplace sexual misconduct,” Wood said. The investors didn’t adequately plead “that there was a ‘known’ uncertainty that would trigger disclosure,” or that it was reasonably likely that the company’s culture would have a material effect on its financial conditions.

The investors asked for leave to amend, but they already had two chances to do so, the opinion said. They “failed to cure the deficiencies that the Court identified,” and there’s “no reason to believe” their next complaint could solve those problems.

Hogan Lovells US LLP represented Papa John’s. Robbins Geller Rudman & Dowd LLP represented the investors as lead counsel.

The case is Okla. Law Enf’t Ret. Sys. v. Papa John’s Int’l Inc., 2021 BL 36632, S.D.N.Y., No. 1:18-cv-07927, 2/3/21.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com