Hertz False-Arrest Claimants Can Sue in State Court, Judge Rules

More than 60 people who have accused Hertz Corp. of having them wrongly arrested won the right to join a lawsuit against the company, dealing another blow to efforts by the rental car giant to keep the allegations bottled up in bankruptcy.

Under a legal standard set by US Bankruptcy Judge Mary Walrath, the customers can sue for false arrest instead of battling the company in bankruptcy court. With the latest court maneuvers, more than 120 people are actively suing Hertz outside of bankruptcy court, according to an emailed statement by victim advocates.

About 320 people have come forward to accuse the company of having them falsely arrested, according to lawyers leading the lawsuits. Those renters claim Hertz routinely called the police on customers, sometimes over a payment dispute and in a few cases after the company lost track of a rental car.

The company lost a key court battle in June when Walrath allowed more than 70 customers to sue for false arrests.

Until June, Hertz had successfully kept nearly all the false arrest claims locked inside its Chapter 11 case, where juries are not allowed and where it’s difficult to win punitive damages against a corporation. As more claims move from bankruptcy jurisdiction to state courts, Hertz faces higher litigation costs and the prospect of big jury verdicts. The false arrest claims could cost Hertz hundreds of millions of dollars, according to advocates for those suing the company.

Hertz has appealed the June ruling to allow certain claims to be resolved outside of bankruptcy. Company officials have offered to settle dozens of the claims while it continues to fight others in bankruptcy court.

“We disagree with the bankruptcy court’s ruling and the legal standard that the judge used,” the company said in an emailed statement. Since June, Hertz has offered to settle with about 60 alleged victims, the company said. “We remain steadfast in our commitment to defend the company’s interest against those that intend harm, while also doing right by our customers.”

At a court hearing last month, Hertz lawyer Samuel Hershey said the company agreed that under the rules Walrath laid out for deciding which cases must stay in bankruptcy court, about 60 people qualify to have their claims decided elsewhere. Should the company succeed in overturning Walrath’s rules on appeal, those cases could be returned to the Chapter 11 case.

The company filed bankruptcy in 2020 as the Covid-19 pandemic ravaged the economy and brought car rentals to a halt. Hertz exited bankruptcy oversight last year, but left a shell company behind to pay off its older, disputed debts, including the false arrest claims.

Bankruptcy courts don’t have juries and all disputes are settled by a judge who is typically focused on rehabilitating the financially distressed company. In state courts, juries can be unpredictable, sometimes imposing steep penalties on corporations found to have harmed the public.

Hundreds of customers say in court papers that Hertz filed police reports against them and had them falsely arrested, often at gunpoint. A small number of those cases allege errors by Hertz employees caused police to pull over innocent customers on suspicion of driving stolen cars.

Hertz is the unit of Hertz Global Holdings Inc. that operates the Hertz, Dollar and Thrifty rental brands in regions that include Europe, the Americas, Asia, Africa and Australia.

Hertz files thousands of criminal cases against customers annually, according to court documents. The company says the majority involve disputes about vehicles that weren’t returned on time and likely have been stolen, and it tries to contact customers via phone calls, text messages, emails and certified letters about overdue cars and get them back through private means, working for about 63 days beyond the return date before involving police.

The case is Rental Car Intermediate Holdings, LLC 20-11247, US Bankruptcy Court, District of Delaware (Wilmington).