Background
Clearview AI operates a facial recognition database built by scraping photographs from public websites, including social media platforms. The company converts these images into “facial vectors” that enable identification searches, potentially revealing personal information linked to online profiles. After a January 2020 New York Times exposé, multiple putative class-action suits were filed and consolidated in the Northern District of Illinois as a multidistrict litigation.
The consolidated complaint asserted claims on behalf of five classes: a Nationwide Class encompassing all individuals whose biometric data entered Clearview’s database, plus state-specific subclasses for Illinois, California, New York, and Virginia. The claims included BIPA violations (Illinois only), unfair competition and misappropriation of identity under state law, and unjust enrichment. After vigorous litigation producing over 500 docket entries, the parties entered settlement negotiations mediated by retired federal judge Wayne Andersen.
Settlement negotiations initially failed because Clearview was undercapitalized and unable to make large immediate payments. Negotiations resumed in early 2023, with the parties agreeing to structure relief around an equity stake. The resulting settlement provided the class with a 23% equity stake in Clearview (as of September 6, 2023), to be paid upon an IPO or liquidation event, with a fallback option for the settlement master to demand 17% of Clearview’s GAAP-recognized revenue by September 30, 2027. Notably, the settlement allocated 10 shares to each Illinois Subclass member, 5 shares to each California, New York, and Virginia Subclass member, and only 1 share to members of the Nationwide Class. All four class representatives approved by the district court were members of favored state subclasses. The district court approved the settlement on March 20, 2025.
The Court’s Holding
The Seventh Circuit vacated the district court’s approval, holding that the settlement process violated Rule 23’s structural requirements for adequate representation. The court agreed with objectors Weissman and Claypool (Nationwide Class members) that no representative for the disfavored Nationwide Class endorsed the allocation of monetary benefits. Because all approved class representatives were members of the favored state subclasses, there existed a fundamental conflict of interest: the interests of the Nationwide Class in maximizing its share directly opposed those of the subclass representatives. The court emphasized that class-action settlements require “structural assurance of fair and adequate representation,” and that assurance was absent when representatives of one group approve an allocation that disadvantages another identifiable group within the class.
On the merits, however, the court found no inherent substantive defects with two aspects objectors challenged. First, the absence of injunctive relief did not render the settlement unfair: the ACLU had already secured an injunction in a separate case, the BIPA claims supporting injunctive relief were state-specific to Illinois, and the Nationwide Class’s unjust enrichment claim was speculative given Clearview obtained its data through publicly available scraping rather than improper means. Second, the equity-stake structure was reasonable despite its uncertainty: uncertainty is inherent to equity-based settlements, and given Clearview’s financial condition, an uncertain equity stake was preferable to the substantial risk that trial victory would yield only cents on the dollar through bankruptcy. The settlement master, a retired federal magistrate judge, owes fiduciary duties comparable to those under ERISA and can enforce the cash demand option if necessary.
Key Takeaways
- Class-action settlements allocating substantially different monetary relief to subclasses require separate representation for each subclass, particularly where identified groups have materially adverse interests in the relief allocation
- Equity-based settlements, while inherently uncertain, need not include injunctive relief and may be fair and reasonable where trial alternatives are riskier or where other remedies are already in place
- Biometric data privacy claims arising from public-source scraping present novel and unsettled legal questions, particularly regarding unjust enrichment remedies and state constitutional privacy rights
- Rule 23’s fairness requirements focus on structural assurance of representation; courts approving settlements must ensure absent class members have adequate advocates without conflicting loyalties
Why It Matters
This decision provides important guidance on class-action settlement procedure when class composition creates internal conflicts. The holding confirms that courts cannot simply assume that representatives of favored subclasses will fairly advocate for disfavored ones, even within a unified class action. For biometric data litigation, the decision clarifies that novel privacy claims need not be settled with injunctive relief and that equity stakes can constitute adequate monetary recovery when defendants lack liquid assets. The case also reflects ongoing uncertainty about whether existing state and federal law adequately addresses facial recognition’s implications—the court noted that Congress and state legislatures remain actively engaged in crafting privacy regulation.
For Clearview AI and similar facial-recognition companies, the decision suggests that continued litigation risk exists, particularly as state biometric privacy laws expand. For class counsel, the decision underscores that settlement structures must address conflicts of interest through structural protections, not assumptions of good faith representation. The remand invites the parties to restructure the settlement with adequate representation for all class groups or to pursue different terms altogether.