In the Court of Chancery of the State of Delaware
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EFiled: Oct 30 2018 04:30PM EDT Transaction ID 62611919 Case No. 2018-0542-AGB IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE JOHN SCHNATTER ) ) Plaintiff, ) ) v. ) C.A. No. 2018-0542-AGB ) PAPA JOHN’S INTERNATIONAL, INC., ) ) Defendant. ) PLAINTIFF’S ANSWERING POST-TRIAL BRIEF BAYARD, P.A. Of Counsel: Peter B. Ladig (#3513) Garland A. Kelley Brett M. McCartney (#5208) Glaser Weil LLP Elizabeth A. Powers (#5522) 10250 Constellation Blvd. 600 N. King Street, Suite 400 19th Floor P.O. Box 25130 Los Angeles, California 90067 Wilmington, Delaware 19801 (310) 553-3000 (302) 655-5000 October 30, 2018 Attorneys for John Schnatter TABLE OF CONTENTS Page PRELIMINARY STATEMENT ............................................................................... 1 STATEMENT OF FACTS ........................................................................................ 4 A. Mr. Schnatter Creates Papa John’s And Grows The Company Into A Global Brand .................................................................................................... 4 B. The Company Blames Mr. Schnatter For Its Economic Struggles ....... 5 C. The Directors Focus On Ousting Mr. Schnatter ................................... 9 D. The Special Committee Is Formed To Conduct An Independent Investigation ..................................................................................................14 E. Mr. Schnatter Is Forced To Make A Demand On The Board For Information He Is Entitled To Receive As A Director ..................................16 1. Mr. Schnatter’s Demand Seeks Documents Necessary to Inform Himself as a Director and to Investigate Potential Mismanagement. .16 2. The Company Refuses Mr. Schnatter’s Demand, Forcing the Filing of this Lawsuit. .........................................................................19 F. Mr. Schnatter Sues To Enjoin The Special Committee From Fiduciary Breaches .........................................................................................................21 G. The Company Produces Some Documents On The Eve Of Trial ......22 ARGUMENT ........................................................................................................... 24 I. AT TRIAL MR. SCHNATTER ESTABLISHED HIS RIGHT TO INSPECT THE COMPANY’S BOOKS AND RECORDS PURSUANT TO 8 Del. C. § 220(d) ............................................................................................................. 24 A. Mr. Schnatter Established A Prima Facie Right To The Requested Books and Records ........................................................................................24 B. The Company Cannot Meet Its Burden In Demonstrating That Mr. Schnatter’s Purposes Are Improper ...............................................................24 1. Mr. Schnatter’s purposes are reasonably related to his role as a director and are not personal in nature ................................................27 2. Mr. Schnatter’s testimony supports, and certainly does not undermine, his stated purposes............................................................29 3. The Injunctive Relief Action does not impair Mr. Schnatter’s purposes in pursuing the Company’s books and records ....................35 II. THE DOCUMENTS AT ISSUE ................................................................... 39 III. MR. SCHNATTER NEEDS THE BOOKS AND RECORDS SOUGHT IN HIS DEMAND TO INFORM HIMSELF AND INVESTIGATE POTENTIAL MISMANAGEMENT ............................................................ 40 A. The Directors’ Personal Emails Discussing Company Business Are Books And Records Of The Company ..........................................................42 B. The Demand Seeks Information Reasonably Related To Mr. Schnatter’s Proper Purposes And His Position As A Director Of The Company ........................................................................................................49 1. The Director Requests ...............................................................49 2. The Special Committee Requests .............................................50 3. The Sexual Harassment Request ...............................................51 4. The Laundry Service Communications Request ......................52 5. The Settlement Agreements Request ........................................53 IV. THE COMPANY’S REQUEST FOR THE IMPOSITION OF CONDITIONS UPON MR. SCHNATTER’S RECEIPT OF BOOKS AND RECORDS IS MERITLESS ......................................................................... 53 CONCLUSION ........................................................................................................ 56 ii TABLE OF AUTHORITIES Page(s) Cases Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752 (Del. Ch. Feb. 2, 2016) .......................................................... 46, 47 Bizzari v. Suburban Waste Servs., Inc., 2016 WL 4540292 (Del. Ch. Aug. 30, 2016) ................................... 24, 25, 28, 36 Carapico v. Philadelphia Stock Exchange, Inc., 791 A.2d 787 (Del. Ch. 2000) ............................................................................ 43 Carlson v. Hallinan, 925 A.2d 506 (Del. Ch. 2006) ...................................................................... 41, 54 Chammas v. Navlink, Inc., 2016 WL 767714 (Del. Ch. Feb. 1, 2016) ........................................ 45, 46, 48, 54 CM & M Grp., Inc. v. Carroll, 453 A.2d 788 (Del. 1982) ................................................................................... 41 Dobler v. Montgomery Cellular Holding Co., Inc., 2001 WL 1334182 (Del. Ch. Oct. 19, 2001) .......................................... 43, 46, 47 Gunther v. 5i Scis., Inc., C.A. No. 5800-CC (Del. Ch. Nov. 23, 2010) ......................................... 28, 29, 41 Henshaw v. Am. Cement Corp., 252 A.2d 125 (Del. Ch. 1969) .......................................................... 25, 26, 54, 55 Holdgreiwe v. Nostalgia Network, Inc., 1993 WL 144604 (Del. Ch. Apr. 29, 1993) ...................................... 26, 35, 54, 55 Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., C.A. No. 7779-CS (Del. Ch. May 20, 2013) .......................................... 44, 45, 46 JPMorgan Chase & Co. v. American Century Companies, Inc., 2013 WL 1668393 (Del. Ch. Apr. 13, 2013) ...................................................... 34 iii Kalisman v. Friedman, 2013 WL 1668205 (Del. Ch. Apr. 17, 2013) ...................................................... 41 Khanna v. Covad Commc’ns Grp., Inc., 2004 WL 187274 (Del. Ch. Jan 23, 2004) .......................................................... 44 Lavin v. West Corp., 2017 WL 6728702 (Del. Ch. Dec. 29, 2017)...................................................... 46 In re Lululemon Athletica 220 Litigation, 2015 WL 1957196 (Del. Ch. Apr. 30, 2015) .......................................... 44, 45, 48 Martin v. D.B. Martin Co., 88 A. 612 (Del. Ch. 1913) .................................................................................. 42 Mudrick Capital Management, L.P. v. Globalstar, Inc., 2018 WL 3625680 (Del. Ch. July 30, 2018) ...................................................... 47 Norman v. US MobilComm, Inc., 2006 WL 1229115 (Del. Ch. Apr. 28, 2006) ...................................................... 25 Obeid v. Gemini Real Estate Advisors, LLC, 2018 WL 2714784 (Del. Ch. June 5, 2018) .................................................. 38, 41 Schoon v. Troy Corp., 2006 WL 1851481 (Del. Ch. June 27, 2006) ...................................................... 41 Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563 (Del. 1997) ................................................................................... 25 Skouras v. Admiralty Enters., 386 A.2d 674 (Del. Ch. 1978) ............................................................................ 43 Wal-Mart Stores, Inc. v. Indiana Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264 (Del. 2014) ................................................................................... 49 Weinstein Enter., Inc. v. Orloff, 870 A.2d 499 (Del. 2005) ................................................................................... 43 Statutes 8 Del. C. § 220(d) ..............................................................................................passim iv PRELIMINARY STATEMENT John Schnatter is a director of Papa John’s International, Inc. (“Papa John’s” or the “Company”). He made a demand under 8 Del. C. § 220(d) to inspect the Company’s books and records. The Company refused that demand, putting the burden on the Company to prove that his stated purposes in his demand, at deposition and at trial, were untrue. The Company presented no affirmative evidence at trial. It did not carry its burden. Mr. Schnatter suspicions about what happened at the Company may be proven wrong after production of documents, but he did not have to prove he is right, at this stage, to merit inspection. In lieu of presenting evidence, the Company has used the litigation as another opportunity to try to embarrass Mr. Schnatter. The Company uses its Opening Post-Trial Brief to directly call Mr. Schnatter “confused,” “misguided” and “coy,” and to not so subtly imply that he is a liar. Of course, when you have the burden at trial and strategically choose not to present evidence, your only defense is to denigrate your opponent. The Company’s pejoratives, loose citation to the record and questionable, at best, application of legal precedent reveal the infirmity in its legal position. Even a cursory inspection of the factual and legal sources