In an opinion yesterday, Judge Wood dismissed a securities fraud case against Papa John’s that arose from two articles in Forbes in 2018 (see here and here), describing (among other things) an allegedly “toxic” culture of workplace sexual harassment. The stock price dropped after the articles were published, and the theory of the complaint was that investors had been deceived by various public statements portraying a different culture—such as the company Code of Ethics stating that Papa John’s was governed by “principles of honesty, fairness, mutual respect, trustworthiness, courage and personal and professional commitment.”
Judge Wood had dismissed an earlier version of the complaint, and in yesterday’s opinion, concluded that the amended version still failed to state a claim because the statements at issue were “vague, broad, and merely aspirational.” The amended complaint emphasized for the first time that the Code promised that employees who violated its terms would be subject to “corrective action,” but Judge Wood concluded that this statement was still not specific enough:
Like the . . . other statements in the Code, this statement is also vague, broad, and merely aspirational: it makes no promises as to what Papa John’s would do to prevent or respond to workplace sexual harassment, and Plaintiff does not allege that Papa John’s highlighted its code when the workplace misconduct was brought to light by Forbes to reassure investors that its executives would not be impacted by similar allegations.
In light of these circumstances, no reasonable investor could have relied on the Code’s vague assurances in making investment decisions.