A securities class-action lawsuit brought by the Oklahoma Law Enforcement Retirement System against Papa John's International has been dismissed by a New York federal judge.
The suit was brought over losses the pension fund incurred in 2018 as a result of Papa John's abrupt decline in market value, which followed media reports that Papa John executives sexually harassed employees, according to documents filed in U.S. District Court in New York.
After news of the sexual misconduct broke, the company's stock price fell 27% to $38.94 a share by Aug. 8, 2018, from $53.10 on July 18, 2018, according to court filings. The Oklahoma City-based $993 million pension fund bought 8,454 shares of Papa John's stock in a near two-year span from August 2016 to June 2018.
The federal securities class action was originally filed by a Papa John's shareholder in August 2018. The Oklahoma pension fund subsequently filed an amended complaint in February 2019, as the lead plaintiff on behalf of anyone who purchased Papa John's securities from February 2014 to July 2018.
The Oklahoma pension fund sued both the company and two of its former executives — John Schnatter and Steve Ritchie — for making materially false and misleading statements regarding its workplace culture that led to the precipitous drop in its stock price. The pension fund accused the company of touting its culture as "one of the best places to work" when in fact it "cultivated a crude and hostile work environment," according to the dismissal filed Monday.
The pension fund cited misrepresentations the company made in financial disclosures, news releases, earnings calls and in its code of ethics and business conduct. It also claimed the company and its executives failed to divulge the danger the business would suffer should the company's toxic culture come to light.
U.S. District Judge Kimba Wood dismissed the lawsuit on the grounds that it failed to show that Papa John's representations in public documents were material and actionable, saying they were merely "immaterial puffery."
Ms. Wood did, however, grant the pension fund the opportunity to replead its complaint within 45 days.