A settlement paid in shares: who represents whom, when the compensation is the company itself

If the people who have entrusted you with something — employees, patients, citizens, customers — ended up in a collective action against whoever processed that data without a legal basis, two questions would concern you before any other. What is compensation worth when the party who owes it has no money and offers, in place of money, a slice of itself. And who decided how much goes to each claimant: was anyone at that table speaking for you? On 13 July 2026 a United States federal appeals court answered the second question: nobody was. And it vacated the settlement.

What the Seventh Circuit decided

The case is In re: Clearview AI, Inc. Consumer Privacy Litigation, Sanders and others against Clearview AI and others, appeal no. 25-1673 before the Seventh Circuit: argued on 28 January 2026, decided on 13 July, opinion by Judge Hamilton, sitting with Maldonado and Taibleson. It came up from the consolidated proceeding before the district court for the Northern District of Illinois (no. 1:21-cv-00135, Judge Sharon Johnson Coleman), and it was brought by two members of the class, Robert Weissman and Rick Claypool, as objectors — injured parties challenging a settlement concluded in their name.

What the company does, the court sets out itself: Clearview operates “a search engine for faces”, scraping photographs of individuals from public websites, social media included. How it works internally we do not write about: the opinion does not say. We covered the company when the European fines running to a hundred million remained uncollected.

The heart of the ruling is in its opening lines: “We find no inherent substantive problems with two challenged features of the settlement, first the absence of injunctive relief, and second monetary relief in the form of what amounts to an equity stake in the defendant”. The problem lay elsewhere, and it was procedural.

The compensation is the company itself

The mechanism, in the words of the opinion. On a stock market listing or a liquidation event — a merger, a consolidation or a sale — the class receives a payment equivalent to a 23% equity stake in Clearview as at 6 September 2023, subject to the same dilution from future investment that applies to the founders. Alternatively the settlement master appointed by the court, retired federal magistrate judge Sidney Schenkier, may sell the stake to a third party at a commercially reasonable price, or make a cash demand for 17% of the revenue recognised under GAAP accounting principles accruing from the date of final approval at first instance — and that demand cannot be made after 30 September 2027.

What it is worth: the first-instance judge credited an assertion by the class, grounded in confidential financial documents — a valuation of roughly 225 million dollars as at January 2024, which puts the 23% stake at roughly 51.75 million. That is not a finding by the appeals court: it is a party’s own estimate, believed below.

And if the company turns out to be worth nothing? There is no guarantee that the listing or the liquidation will ever happen, nor that a buyer will be found. But “the alternative to an uncertain equity stake was not a guarantee of payment but a substantial risk of bankruptcy” — which would have left the class among the unsecured creditors, with cents on the dollar, or nothing. One detail inverts the usual pattern: the lawyers will be paid only when the class is paid. The court does flag a gap: the judge below neither examined the accounts nor put a figure on the cash demand option.

We have already told the story of a supplier paid in shares of its own customer: here the figure is turned on its head, the injured party becomes a shareholder in the party that injured them.

Why the absence of injunctive relief was not enough

The objectors argued that the settlement stopped nothing, and on the facts they are right: the opinion records that Clearview has not committed to any further limit on its business activities. The court answered on three fronts. The Illinois biometric data statute (BIPA) was pleaded only by the Illinois subclass, and an earlier settlement with the ACLU already permanently barred Clearview from granting database access to private parties outside cases compliant with BIPA, so a further injunction would have been redundant. The nationwide class’s unjust enrichment claim was speculative, and it varies too much from state to state to support an injunction valid everywhere. As for claims never actually pleaded, the release that absorbs them is ordinary practice. No abuse of discretion.

Ten, five, one

This is where it all falls down. The settlement divided the stake into participation shares: ten to each member of the Illinois subclass, five to each member of the California, New York and Virginia subclasses, and one to anyone who belonged to the nationwide class alone. That can be perfectly reasonable: BIPA provides liquidated damages of 1,000 dollars for a negligent violation and 5,000 for a reckless or intentional one, while the other state statutes carry less weight. The point: every representative who asked the court to approve the settlement belonged to a favoured subclass, and no lawyer defended the interests of the nationwide class alone.

Hence the rule: “Class representatives who are members of the favored subclasses cannot also represent the disfavored nationwide class concerning the allocation of monetary relief”. The foundation is Rule 23(a)(4) of the Federal Rules of Civil Procedure, read together with Amchem Products, Inc. v. Windsor (1997) and Ortiz v. Fibreboard Corp. (1999). The court does not say that the ratios were unfair: it says the structural protections needed to establish that, one way or the other, were missing. And it records a warning sign: all eight original class representatives had refused to sign up and had been replaced.

What the remand means

Approval vacated, the case sent back, costs awarded to the objectors. The remand is general: “this is a general remand, and this opinion does not imply that any future settlement needs to be substantially similar to the one we review here”. Faced with a similar agreement, the judge will have to look into the accounts, put a figure on the cash demand option, and weigh substituting the representatives.

What we do not know

This is not legal advice, and the American class action has no direct equivalent in Italian procedure: we draw no parallels we cannot ground. This is an appellate decision that vacates and remands, not a final one: we do not know what the judge below will decide, nor whether a fresh settlement will be reached. We do not have the parties’ briefs: everything reported here is written in the opinion, and where something is a party’s assertion we have said so. The company’s European proceedings are no part of this decision.

The two axes, applied

Complying. The lesson is not about American law, it is about proof. What you can claim is worth what you can demonstrate: which data left your perimeter, when, to whom, and on what legal basis. Without that trail you are in no position to enforce anything — not before a supervisory authority, and not inside an allocation decided by other people, where whoever cannot quantify their own loss ends up in the group that takes a single share. The control we build runs over your own systems and your own contracts: it records every transfer to a third party with date, recipient, category of data and legal basis, and it flags the suppliers for whom that line is missing — as with the biometric readers whose evidence so often never arrives.

Deciding. The same installation holds together, in a single operating model, the data that today sits in separate places: contracts, access logs, document archives, access control, records of processing. Over that model, AI agents carry out the checks with a human operator in command — for large enterprises, public administration, defence and healthcare. The question which processing operations run through this supplier, and what do we hold is answered across the whole perimeter in an afternoon. Always on-premise, on self-contained machines that need no deep integration into your network, or in a dedicated cloud with the data centre in Italy, and always with shared management: you do not need to already employ people who administer models.

The first session, at no cost, produces the dated map of your transfers of data to third parties, with the legal basis and evidence for each. It stays with you whether or not we go on. Talk to one of our engineers.