2000 c230 towed, rear end smoking
 

Hello, my front right wheel bearing was bad so I called a towing company to tow it to a local shop. Well the guy showed up, hooked up the front of the car to the tow truck, put the car in neutral and made sure the parking brake was off.

We drove about a half mile and he said "thats weird.. your car is pulling funny." We got out and I immediately smelled smoke coming from the rear of the car. He checked and all brakes were still off.. i did notice he had left the car on and in neutral (which he said was normal). Well we tried to drive a block down the street and noticed a white smoke coming out of the back and we immediately stopped.

At that point he hooked up some rear dolly wheels and we were able to make it to the nearest repair shop. My question is, what could have caused the burning from the rear? Also.. have I done any permanent damage to my car?

Luckily I had him sign off on the receipt that this happened. Could it be that the car cannot be towed when turned on and in neutral?

Could we have done damage to the rear differential or transmission?