Former Hertz Chief Beats Executive Compensation Clawback Lawsuit

Former Hertz Corp. chief executive Mark Frissora defeated the company’s lawsuit seeking to claw back his incentive compensation following his 2014 resignation in connection with an accounting scandal.

Hertz accused Frissora of violating the company’s clawback policies on incentive compensation and its standards of business conduct. But none of these policies are binding, standalone contracts that the company can enforce through a breach-of-contract action, Judge Evelyn Padin of the US District Court for the District of New Jersey said Monday.

The lawsuit sought to recoup about $56 million in compensation paid to Frissora and co-defendant John Zimmerman, who previously served as Hertz’s general counsel. The company accused them of pressuring employees to use fraudulent accounting methods to inflate the company’s income and earnings, which Hertz said spurred a lengthy and costly investigation by the Securities and Exchange Commission, along with significant legal fees and damage to the business.

Hertz argued that the clawback policies were specifically incorporated into various other agreements with Frissora and could be enforceable through this incorporation. But this issue was already decided in a prior opinion and can’t be relitigated, Padin said.

The judge’s unpublished opinion also found that the company’s business conduct standards were “too vague to be enforceable as legally binding duties.” They contain “only broad aspirational language” such as “lead by positive example,” but they fail to include any yardstick by which to measure performance, Padin said.

Hertz’s claims under Frissora’s separation agreement also failed, with Padin concluding that the company actually sought rescission of the contract rather than damages for an alleged breach.

Hertz settled its claims against Zimmerman in 2022.

Gordon Rees Scully Mansukhani LLP represents Hertz. Dechert LLP and Lowenstein Sandler LLP represents Frissora.

The case is Hertz Corp. v. Frissora, D.N.J., No. 2:19-cv-08927, unpublished 6/26/23.