Papa Johns 2012 Annual Report Download - page 86

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17. Litigation, Commitments and Contingencies
Litigation
The Company is involved in a number of lawsuits, claims, investigations and proceedings, including
those specifically identified below, consisting of intellectual property, employment, consumer,
commercial and other matters arising in the ordinary course of business. In accordance with ASC 450
“Contingencies,” the Company has made accruals with respect to these matters, where appropriate, which
are reflected in the Company’s financial statements. We review these provisions at least quarterly and
adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel
and other information and events pertaining to a particular case.
Agne v. Papa John’s International, Inc. et al. is a class action filed on May 28, 2010 in the United States
District Court for the Western District of Washington seeking damages for violations of the Telephone
Consumer Protection Act and Washington State telemarketing laws alleging, among other things that
several Papa John’s franchisees retained a vendor to send unsolicited commercial text message offers
primarily in Washington and Oregon. The court granted plaintiff’s motion for class certification in
November 2012; we filed a petition for permission to appeal the court’s ruling on class certification to the
United States Court of Appeals for the Ninth Circuit.
On February 13, 2013, the parties tentatively agreed to the financial terms of a settlement of the litigation,
with additional terms to be finalized, subject to Court approval. A reasonable estimate of the total cost of
the settlement has been provided for in these financial statements. Actual costs will be impacted by the
claimant participation rate, but we do not expect actual costs to be materially different from our estimates.
We expect the majority of the settlement payments to be made during the next 12 months.
Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc. is a conditionally certified collective
action filed in August 2009 in the United States District Court, Eastern District of Missouri, alleging that
delivery drivers were reimbursed for mileage and expenses in violation of the Fair Labor Standards Act.
Approximately 3,900 drivers out of a potential class size of 28,800 have opted into the action. A motion
to certify five additional state classes is pending and could result in another 14,000 plaintiffs if granted.
We intend to vigorously defend against all claims in this lawsuit. However, given the inherent
uncertainties of litigation, the outcome of this case cannot be predicted and the amount of any potential
loss cannot be reasonably estimated. A negative outcome in this case could have a material adverse effect
on the Company.
Leases
We lease office, retail and commissary space under operating leases, which have an average term of five
years and provide for at least one renewal. Certain leases further provide that the lease payments may be
increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index.
PJUK, our subsidiary located in the United Kingdom, leases certain retail space, which is primarily
subleased to our franchisees. We also lease the tractors and trailers used by our distribution subsidiary,
PJFS, for an average period of seven years. Total lease expense was $28.7 million in 2012, $25.7 million
in 2011 and $24.5 million in 2010, net of sublease payments received.
We subleased certain sites to our Papa John’s franchisees located in the United Kingdom in 2012, 2011
and 2010 and received payments of $3.8 million, $3.7 million and $3.1 million, respectively, which are
netted with international operating expenses.