Personal Injury Law
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Hello and thank you for using Just Answer. Yes, in Arizona in such a situation, you can bring a claim (civil lawsuit) against such a person for malicious prosecution. You should be able to recover whatever money you spent on a criminal defense attorney plus something for your emotional distress. You can sue for up to $3500 in small claims court and up to $10,000 in regular justice court.
No, you can not recover against the police for doing their job poorly. They have immunity from such suits when they are doing their jobs. This is the same when someone is a victim of a crime and feels the police do not do enough to catch the criminal. They likewise have no right to recover against the police for being bad at their job.
It is not my "theory," it is the state of the law in Arizona. If every time the police got things wrong and arrested the wrong person, they could be sued and held liable for damages, no one would become a police officer. That may be the reason the law is what it is, I don't know, but that is what it is. Police are only liable is they commit "gross negligence," and arresting someone when you have a victim accusing the person and willing to testify (and I am guessing the car was in your possession, and the title in the alleged victim's name) is not going to be found to be "gross negligence." I am sorry you do not like what the law says, but that is the law, not my "theory."
The distinction is the "foreseeable grave injury or harm" which is usually serious physical injury or even death. Getting arrested and going to jail does not fall into that category. So, for example, we had a case here in Arizona recently where someone was being transported by the police, and they threw him in the back of a van and did not belt him in or otherwise secure him, and he cried out several times, but they would not pull over, and when they finally arrived, he was dead. The cops were all found not guilty of anything criminal, but that might be found to be gross negligence in a civil suit.