A novel court settlement that resolved a legal complaint against the data collection practices of facial recognition provider Clearview AI has been thrown out by the U.S. Seventh Circuit Court of Appeals.
The settlement gave class members (and their attorneys) a stake that would lead to a payout equivalent to 23 percent of Clearview’s value in the case of an IPO or “liquidation event” like an acquisition.
Two members of the class action brought objections to the settlement before the Circuit Court. The three-judge panel ruled that while the two challenged features of the settlement have “no inherent substantive problems,” a procedural problem renders the agreement invalid.
The objections were based on allegations that the agreement does not provide injunctive relief – that is, that it does not bar Clearview from scraping people’s biometrics from the public-facing internet – and that the equity stake represents adequate monetary relief.
But different state laws create subclasses among the complainants, with “far greater monetary benefits for members of several favored subclasses,” Circuit Court Judge Hamilton wrote in the decision. Plaintiffs in Illinois were eligible for 10 shares, those in New York, California and Virginia were to receive 5 shares, and all others a single share.
All eight original class representatives rejected the settlement agreement, but were replaced as representatives by Lead Class Counsel Loevy & Loevy by four representatives from “one of the favored state-specific subclasses.”
Sixteen objections were filed, in total, and rights groups and 23 state attorneys general opposed the agreement. Objectors appealed the approval of the settlement, with support from even more AGs, and now their victory sends the parties back to the negotiating table.
“If another settlement is reached on remand, the district court should consider the substitution and the reasons for it in evaluating whether the class representatives have adequately protected the interests of the class, as opposed to the attorneys’ interest in settling this litigation,” the Seventh Circuit panel advises.