Hertz faces new lawsuit from customers claiming they were wrongfully arrested, expanding dispute

Dozens of people who have accused Hertz Corp. of having them wrongly arrested filed a new lawsuit against the rental car giant on Thursday, exposing the company to potentially higher court losses.

The new lawsuit, seen by Bloomberg, is based on allegations that had been bogged down in federal bankruptcy court, where there are no juries and where it can be more difficult to win punitive damages against a corporation.

The rental car customers filed their lawsuit against Hertz in state court in Delaware on the same day that a federal judge issued an order letting several dozen claimants try to prove their allegations in front of a jury instead of seeking compensation in bankruptcy.

“In the last two years in bankruptcy, our hands were tied behind our back and our foot was stapled to the floor,” said attorney Francis Alexander Malofiy, the Philadelphia lawyer who has spent years fighting Hertz in court. “Now the gloves come off.”

Representatives for Hertz did not immediately respond to a request for comment.

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. Lawyers for the customers have said about 100 more claims were being prepared.

Until recently, Hertz had successfully kept nearly all of the false arrest allegations tied to its Chapter 11 bankruptcy case. The company filed for 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. More than 230 false arrest claims have been filed against the company, mostly as bankruptcy 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.

Last month, Hertz offered to settle about three dozen of the cases that are still in bankruptcy. The company lost a key court battle in June when U.S. Bankruptcy Judge Mary Walrath allowed more than 70 customers to sue for false arrests. The rest of the cases are still before Walrath.

Hertz is the unit of Hertz Global Holdings 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 company said in a quarterly filing that it doesn’t expect a significant impact.