"(O) ne of their attorneys said they would conduct a smear campaign against the company and me unless we paid them what he was asking for", Schnatter said in the letter.
Schnatter resigned from his company on July 12 after taking flack for using the n-word during a training session on workplace behavior.
John Schnatter says a media agency tried to extort after he used the n-word during a conference call with them in May.
He added: "I will not allow either my good name or the good name of the company I founded and love to be unfairly tainted".
"Papa John's is not an individual". The marketing firm did not respond to requests for comment.
"They wanted $6 million to make it go away", Schnatter said during an interview with WLKY. The words were, 'If I don't get my [expletive] money, I'm going to bury the founder. "I'm like, 'I'm not paying you $6 million, '" he told the radio station. "The disparaging and outrageous comments about Wasserman and Laundry Service that have been covered are completely false and we have a centralized PR strategy to go on the record and refute them".More news: Amazon Prime Day 2018's Best Gaming Deals
Schnatter, who started the company in 1984, has sparked controversy before.
Schnatter also offered an apology telling WLKY that he was repeating something someone else said and was "provoked". "They pushed me and it upset me, and I just said, 'Listen, other people have used that word".
"We know we can do better and I'm confident that we will", CEO Steve Ritchie said in May.
A representative for Schnatter declined to comment on whether he was considering legal action.
"As previously announced, Mr Schnatter is no longer a spokesperson for the company or the brand, ' Papa John's previously said in a statement". He stepped down as CEO in December after criticizing National Football League players for kneeling during the national anthem, blaming the outcry surrounding their protests for slowing sales growth at Papa John's, at the time an NFL sponsor and advertiser.
According to Fox Business, Schnatter was telling executives during the call that KFC founder Colonel Harland Sanders had 'called black people (the n-word)' without scrutiny.