In Hertz false arrest cases, bankruptcy judge opens door for dozens of customers to proceed in state courts

Nearly 100 customers accusing Hertz of wrongful theft arrests for cars they rented can now pursue their cases outside of bankruptcy court. 

On Thursday, Delaware bankruptcy judge Mary Walrath ruled in favor of the claimants, allowing them to file lawsuits in state courts around the country.

After listening intently to arguments from both sides, Walrath granted relief to 89 customers with late claims.

She deemed the customers as known creditors who Hertz failed to properly notice about its bankruptcy filing, Chapter 11 plan and deadline for submitting proofs of claim for their alleged damages.

As a result, she said, they shouldn't be subject to or bound by the reorganization plan, which had prevented them from filing lawsuits in state court.

"The remedy is to grant their relief from the plan injunction," Walrath said. "With that said, they are no longer appearing before me." After the hearing, Francis Malofiy, the lead attorney for the claimants based in Pennsylvania, described the ruling as a pivotal point in the litigation.

"It's a tremendous victory for the victims," he said, who won't be "stuck in the glue trap of bankruptcy" anymore.

He likened it to receiving a "get out of jail free card."

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In state court, the dozens of claims can get resolved more quickly, likely with fairer results, through jury trials, Malofiy said.

"There's a real harm in justice being delayed," he said. "Justice delayed is justice denied." 

In a company statement Friday, Hertz said: "The hearing involved some expected procedural matters, not the merits of the litigation. As the legal process continues, we remain steadfast in our commitment to do right by our customers and defend the company's interest against those that intend harm.”

Hundreds of false arrest claims are still pending in bankruptcy court.

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Based on Walrath's ruling, however, more of them could get pulled out and pushed into state court, when they come before the judge, if she finds the claimants didn't receive required formal written notices from Hertz, Malofiy said.

"It's basically just a rubber stamp," he said.

The claims have been organized into buckets, based on when they got filed in relation to Hertz's bankruptcy case.

More customers have stepped forward after hearing or reading about the current legal battle in the news.

Malofiy contends the problem is systemic for Hertz, which the company denies. Those arguments will be the focus of a future hearing, which could also prove crucial for the company.

In some cases, customers have alleged they got pulled over, arrested and prosecuted for stealing cars because Hertz couldn't locate the vehicles after they got returned.

Others claim various mix-ups with their rental returns, extensions or payments, which they didn't know about, until learning a warrant had been put out for their arrest months or even years later.

A few months ago, Hertz revealed in court documents that it files about 3,365 police reports every year charging customers with car theft. 

That would mean more than 23,000 of the car rental firm’s customers have had theft charges levied against them over the past seven years, when claims of false arrests began to bubble up.

It's not clear how many of Hertz's theft reports might have been improperly filed, as rental car theft is a real issue. An estimated 30,000 rental cars are stolen every year, according to the National Insurance Crime Bureau.

When Estero-based Hertz filed for bankruptcy protection in May 2020, after taking a heavy hit from the pandemic, the company faced a little over 20 false arrest claims. Now, there are more than 300.

Hertz has repeatedly asserted in company statements and in court that the majority of the current legal claims involve renters who failed to return their cars weeks — or even months — after the due date, and stopped communicating with the company, forcing it to take action.

"These situations where overdue rentals are reported to authorities are very rare and happen only after exhaustive attempts to reach the customer," the company has emphatically argued in defending itself.

Although Hertz exited bankruptcy a year ago, the false arrest lawsuits stayed behind in court unresolved, as the company focused on re-establishing itself as a rental car leader.

Claims continue to grow, with another 100 or so in the works, according to Malofiy.

In total, plaintiffs' attorneys have estimated damages at more than $960 million based on current claims. The alleged damages include everything from lost wages to mental anguish.

During the court hearing, Chris Shore, a partner in White & Case LLP, who represents Hertz, said opposing counsel appeared to be filing pleadings "on the fly," with a lot of activity showing up on the court docket.

"We've got a little bit of a cottage industry of chaos going on," he said.

The reorganized company's goal remains the same, to try to keep the claims process as simple and orderly as possible, to minimize the burden on itself and the bankruptcy court, Shore said.

As part of its reorganization process, the company paid out our nearly $19 billion of creditors in full. It made a rare payout to shareholders.

Hertz promised to pay allowable claims in full through the bankruptcy process.

Ironically, those who filed timely claims could now do worse than those who didn't, however, Shore said.

"This is just about getting out of a process that they feel is prejudicial to them," he said. "When in fact it's the same process that any bankruptcy claimants go through"

He said he didn't know why claims continue to come in at this point, well past the deadline.

"They keep coming in and we're dealing with them," Shore said.

In another matter taken up at the hearing, judge Walrath balked at granting a motion by one group of claimants to compel — or force — Hertz to produce sweeping discovery, or evidence, that could support their arguments of a systemic problem with the company's theft reporting practices.

She asked the opposing sides to meet and confer to try to come up with a compromise that could protect all parties, and not unduly burden Hertz — or hurt its chances of defending itself in other cases, including those now headed to state court.

"I have concerns," Walrath said. "I do have concerns."