January 09, 2026|Franchise Frontlines
January 9, 2026 | United States District Court for the Western District of Missouri, Western Division | Slip Copy — Only the Westlaw citation is currently available (2026 WL 74738)
Executive Summary
In a slip-copy order available only on Westlaw (2026 WL 74738), Judge Greg Kays of the United States District Court for the Western District of Missouri, Western Division, denied a partial Rule 12(b)(6) motion to dismiss brought by franchisee Paws on the Pavement LLC and its owner, Lori Elam. Franchisor Three Dog Bakery, LLC sued its franchisee for breach of contract and for violations of the Missouri Uniform Trade Secrets Act and the federal Defend Trade Secrets Act after terminating the franchise for the franchisee’s failure to report sales, and the defendants moved to dismiss the two trade-secret counts and to dismiss Elam individually. The defendants argued that the termination was invalid because Three Dog Bakery had not given the ninety days’ notice required by Mo. Rev. Stat. § 407.405, so the franchisee retained its contractual rights to the marks and system and could not have misappropriated anything, and that Elam could not be personally liable because she signed the assignment agreement only as owner of the LLC. Three Dog Bakery responded that the notice statute gives franchisees a cause of action rather than a defense to a franchisor’s claims and that the assignment agreement was at least ambiguous as to Elam’s personal obligations. The court agreed with the franchisor on both points, holding on this record that Mo. Rev. Stat. § 407.410.2 creates a franchisee cause of action rather than an affirmative defense a franchisee may invoke to defeat the franchisor’s claims at the pleading stage, and that the ambiguity surrounding Elam’s signature raised a question of fact unsuitable for resolution on a motion to dismiss.
Relevant Background
As alleged in the complaint, Three Dog Bakery entered into a franchise agreement in December 2014 with three non-parties — Jean Kessinger, Lesslie Kessinger, and Les Paws, Inc. — to operate a bakery specializing in dog treats in Mount Juliet, Tennessee, using Three Dog Bakery’s licensed marks, proprietary recipes, and business system. In November 2021, those original franchisees assigned and transferred the franchise to Paws on the Pavement LLC and Lori Elam through an assignment agreement. Elam owned the franchisee LLC.
According to the franchisor, Paws stopped paying royalties in October 2024 and stopped reporting its sales on or about March 21, 2025, both in apparent violation of the assigned franchise agreement. On May 16, 2025, Three Dog Bakery notified the defendants that it was terminating the franchise agreement for their failure to report their gross, net, and royalty sales, and the termination became effective May 18, 2025.
On July 1, 2025, Three Dog Bakery sued Paws and Elam, asserting breach of contract (Count I), violation of the Missouri Uniform Trade Secrets Act (Count II), and violation of the Defend Trade Secrets Act (Count III). The defendants filed a partial motion to dismiss under Rule 12(b)(6), seeking dismissal of the two trade-secret counts and dismissal of Elam as an individual defendant.
Decision
The court applied the familiar Rule 12(b)(6) standard, accepting the complaint’s well-pleaded factual allegations as true and viewing them in the light most favorable to the plaintiff, and asking whether the complaint pleads “enough facts to state a claim to relief that is plausible on its face,” quoting Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal. Measured against that standard, the court concluded that neither of the defendants’ challenges warranted dismissal.
The defendants’ central theory was that Counts II and III failed because Three Dog Bakery had not given ninety days’ notice of termination as required by Mo. Rev. Stat. § 407.405; on their view, the missing notice rendered the termination invalid, left them with continuing contractual rights to the franchisor’s marks and business system, and therefore defeated any trade-secret claim. The court rejected that use of the statute. It pointed to Mo. Rev. Stat. § 407.410.2, under which “[a] franchisee suffering damage as a result of the failure to give notice as required of the cancellation or termination of a franchise, may institute legal proceedings … against the franchisor who cancelled or terminated his franchise.” That language, the court held, means the statute “creates a cause of action, not an affirmative defense to defeat Plaintiff’s claims at the pleading stage.” Because the defendants sought to wield a franchisee-protective statute as a shield against the franchisor’s own claims rather than as the affirmative remedy the legislature provided, their argument failed and the trade-secret counts survived.
The court likewise declined to dismiss Elam individually. The defendants argued she was not personally bound because the only signature she entered on the assignment agreement was on the line for Paws, where she signed as “Owner,” while the separate line for “Lori Elam, Individually” was left blank. The court found the agreement ambiguous as to her personal liability. Relying on Headrick Outdoor, Inc. v. Middendorf, it observed that “[a]n ambiguity as to whether an individual is personally liable is created where the form of the signature is inconsistent with the assumption of personal liability under the terms of the agreement.” Here the agreement defined the “Assignee” to include both Paws and “Lori Elam, an individual,” so that its terms presumed Elam to be a party who assumed the assignor’s obligations, yet the form of her signature — as owner of the LLC only — was inconsistent with that assumption of personal liability.
That ambiguity, the court reasoned, created a question of fact as to the parties’ intent regarding Elam’s personal liability, and on a motion to dismiss the court was required to accept the complaint’s allegations as true and view them in the light most favorable to Three Dog Bakery. On that posture, the court concluded the complaint “plausibly alleges claims against Defendant Lori Elam” and that dismissing her “in the absence of a more developed record would … be inappropriate.” The court accordingly denied the partial motion in full.
Looking Forward
The most useful point for franchisors is the court’s treatment of a franchise-relationship statute as a franchisee’s sword rather than its shield. Many states, like Missouri, condition termination or non-renewal of a franchise on advance written notice, and a franchisee defending post-termination claims may be tempted to argue that any notice defect invalidated the termination and preserved its rights to the brand. This court read Missouri’s regime as giving the franchisee an affirmative cause of action under § 407.410.2 for damages caused by deficient notice, not a defense the franchisee could raise to defeat the franchisor’s independent trade-secret and contract claims at the pleading stage. That reading is favorable to franchisors litigating post-termination misuse of marks and confidential information, but it rests on the structure of the Missouri statute and this record; whether it may inform how courts in other jurisdictions read differently worded relationship statutes will depend on how each statute is drafted, so franchisors should analyze whether the applicable statute is framed as a franchisee remedy or as a condition on the franchisor’s rights before assuming the same result.
At the same time, the decision is no invitation to disregard statutory notice obligations. The court did not hold that the ninety-day requirement is toothless; it held only that a notice failure sounds in a franchisee’s affirmative claim rather than a franchisor’s defense to it. A franchisor that terminates without the required notice may still face a franchisee’s damages action under the same statute. The disciplined practice therefore remains to comply carefully with every applicable termination and non-renewal notice provision, to document the grounds for termination — here, the franchisee’s failure to report sales and pay royalties — and to preserve records of the franchisee’s defaults, so the franchisor can pursue its own claims while limiting exposure to a statutory notice claim.
Finally, Elam’s survival as an individual defendant is a drafting reminder that cuts in both directions. Ambiguity between the signature block and the body of the assignment agreement kept an individual in the case here, which happened to help the franchisor, but the same inconsistency could just as easily let an owner escape personal liability the franchisor intended to secure. Franchisors and their counsel may reduce that risk by making signature blocks explicit about capacity, stating clearly whether an individual owner signs personally or only on behalf of an entity, and ensuring that guaranty, assignment, and assumption language lines up with the signatures actually obtained. Clear, consistent execution reduces the chance that a dispute over who is bound becomes a fact-intensive detour, whichever way the franchisor would prefer it resolved.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case. It was drafted with the assistance of an artificial intelligence system. AI systems can make mistakes, including in describing legal authority. Readers should independently confirm any legal authority before relying on it.
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