(Bloomberg) – More than 60 people who have accused Hertz Corp. of wrongfully arresting them have won the right to join a lawsuit against the company, dealing a further blow to the car rental giant’s efforts to keep the allegations bankrupt.
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Under a legal standard established by US Bankruptcy Judge Mary Walrath, customers can sue for false arrest instead of fighting the business in bankruptcy court. With the latest legal maneuvers, more than 120 people are actively suing Hertz outside of bankruptcy court, according to an emailed statement from victims’ advocates.
“Withdrawing these claims from the bankruptcy process allows us to seek a full discovery of Hertz’s illegal practices and provides a means to expeditiously resolve our customers’ claims before a Delaware jury,” said Francis Alexander Malofiy, l lead attorney suing the company on behalf of the alleged victims, said in an emailed statement. “We will seek full redress for the harm caused by Hertz, including punitive damages,” he said.
About 320 people have come forward to accuse the company of wrongfully arresting them, according to the attorneys leading the prosecution. These renters say Hertz regularly called the police about 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 managed to lock up almost all false arrests in its Chapter 11 case, where juries are not allowed and it is difficult to obtain punitive damages against a company. As more claims move from bankruptcy jurisdiction to state courts, Hertz faces higher legal costs and the prospect of grand jury verdicts. The bogus arrest claims could cost Hertz hundreds of millions of dollars, according to attorneys for those suing the company.
Hertz has appealed the June ruling allowing certain claims to be settled outside of bankruptcy. Company officials have offered to settle dozens of claims while it continues to fight others in bankruptcy court.
“We disagree with the bankruptcy court’s decision and the legal standard used by the judge,” the company said in an emailed statement. Since June, Hertz has offered to settle with about 60 alleged victims, the company said. “We remain true to our commitment to defend the interests of the company against those who intend to harm, while benefiting our customers.”
At a hearing last month, Hertz attorney Samuel Hershey said the company agreed that under the rules Walrath set for deciding which cases should stay in bankruptcy court, about 60 people were eligible to have their claims decided elsewhere. If the company is successful in overturning Walrath’s rules on appeal, those cases could be moved to the Chapter 11 case.
The company filed for bankruptcy in 2020 as the Covid-19 pandemic ravaged the economy and halted car rentals. Hertz left bankruptcy watch last year, but left behind a front company to pay off its disputed old debts, including the false arrest claims.
Bankruptcy courts do not have a jury and all disputes are decided by a judge who generally focuses on rehabilitating the financially troubled business. In state courts, juries can be unpredictable, sometimes imposing heavy penalties on companies found guilty of harming the public.
Hundreds of customers say in court documents that Hertz filed police reports against them and had them wrongfully arrested, often at gunpoint. A small number of these cases allege that mistakes made by Hertz employees caused police to arrest innocent customers suspected of driving stolen cars.
Hertz is the unit of Hertz Global Holdings Inc. that operates the Hertz, Dollar and Thrifty rental brands in regions including Europe, Americas, Asia, Africa and Australia.
Hertz files thousands of criminal cases against customers each year, according to court documents. The company says the majority are disputes over vehicles that weren’t returned on time and were likely stolen, and it tries to contact customers by phone, text, email and certified letters regarding the cars in delay and recover them by private means, worked for approximately 63 days after the return date before involving the police.
The case is Rental Car Intermediate Holdings, LLC 20-11247, US Bankruptcy Court, District of Delaware (Wilmington).
(Updates with plaintiff’s attorney’s comment in third paragraph.)
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