Johnson v. Clearview AI, Inc.

Background

Charles Johnson co-founded SmartCheckr, LLC, with Hoan Ton-That and Richard Schwartz in 2017. In 2018, the parties entered into a Wind-Down Agreement dissolving SmartCheckr and transferring its assets to Clearview AI, Inc. The agreement gave Johnson a 10-percent ownership interest in Clearview AI and the right to receive 10-percent commissions on sales resulting from his introductions to potential customers.

The agreement also contained an anti-disparagement provision. During a defined restricted period, the parties agreed not to make statements criticizing Clearview AI or its directors, officers, representatives, agents, or employees. Johnson alleged that Ton-That and Schwartz made statements diminishing his role in founding Clearview AI and otherwise damaged his reputation. He also alleged that the defendants failed to pay commissions, concealed sales resulting from his introductions, refused to pursue some leads, and violated the agreement’s implied duty of good faith and fair dealing.

The amended complaint asserted four claims: breach of contract against Clearview AI for unpaid sales commissions; breach of contract against Ton-That and Schwartz based on the anti-disparagement provision; breach of the duty of good faith and fair dealing against all defendants; and unjust enrichment against Clearview AI. The defendants moved to dismiss the last three claims under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. They did not move to dismiss the commission-related contract claim.

Count Two: Anti-Disparagement Claim

The court dismissed Johnson’s breach-of-contract claim against Ton-That and Schwartz. It interpreted the anti-disparagement provision according to its unambiguous language. The provision protected Clearview AI and specified categories of people connected with the company, but it did not generally prohibit statements about Johnson.

Johnson argued that he was protected because he was an agent or representative of Clearview AI. The court rejected that argument. It found that the Wind-Down Agreement did not establish an agency relationship: Clearview AI did not control Johnson’s conduct, Johnson had no authority to bind the company or negotiate sales on its behalf, and he had no obligation to transmit or report information for the company. The court also found that he was not a representative because he was not chosen, appointed, or empowered to act for Clearview AI. His role was limited to voluntarily facilitating introductions. The court therefore held that the individual defendants could not breach the provision by making comments about Johnson and dismissed Count Two with prejudice.

Count Three: Implied Duty of Good Faith and Fair Dealing

The court dismissed Johnson’s claim that the defendants breached the implied duty of good faith and fair dealing. Under New York law, this duty is part of every contract and generally prevents a party from unfairly destroying the other party’s expected benefit from the agreement. It cannot, however, create new obligations beyond the contract or duplicate a breach-of-contract claim based on the same facts.

The court concluded that two bases for Johnson’s claim—allegedly concealing sales that resulted from his introductions and allegedly denying his role in developing Clearview AI—duplicated his contract claims. The court recognized that the third basis, the alleged refusal to pursue leads introduced by Johnson, was different. The Wind-Down Agreement gave the defendants discretion whether to pursue those leads, and that discretion could potentially be challenged if exercised arbitrarily or irrationally and with an improper motive.

Even so, the court dismissed the claim because Johnson sought a single $75,000 sum for his contract and implied-covenant claims, suggesting that the alleged injuries and damages were the same. Because the court was not convinced that amendment would be futile, it dismissed Count Three without prejudice to repleading. The court directed that any amended claim include factual allegations beyond the assertion that the defendants ignored Johnson’s introductions.

Count Four: Unjust-Enrichment Claim

The court dismissed Johnson’s unjust-enrichment claim against Clearview AI with prejudice. Unjust enrichment is an equitable claim generally used when there is no governing agreement requiring payment. Johnson pleaded this claim as an alternative to his contract claims, alleging that he provided services, knowledge, and contacts that benefited Clearview AI.

The court held that the Wind-Down Agreement directly governed how Johnson was to be compensated for those contributions. Johnson affirmatively alleged that the agreement was valid and enforceable, and the defendants did not dispute its validity. Because the agreement governed the subject matter of the claimed benefit, Johnson could not maintain an alternative unjust-enrichment claim.

Disposition

The court dismissed Counts Two and Four with prejudice. It dismissed Count Three without prejudice to repleading. The court directed Johnson to inform it by June 3, 2024, whether he intended to file a second amended complaint addressing Count Three. The motion did not seek dismissal of Count One, the claim against Clearview AI concerning unpaid sales commissions.