A Hennepin County judge has revealed new details about how two major landlords tried to deceive the city of Minneapolis in a ruling that will allow more than 5,000 tenants to seek punitive damages.
Landlords Stephen Frenz and Spiros Zorbalas could be forced to pay tenants, many of them low income, up to $500 million in damages if the two men lose a class-action lawsuit under a court order issued Wednesday.
In blunt language, Judge Mary Vasaly wrote that Frenz lied to the city attorney's office by claiming that he alone owned rental properties, even as he had signed a secret deal in which Zorbalas remained an owner. Zorbalas had been banned by the City Council from owning rental property in the city in 2011.
Citing e-mails between the two not previously made public, Vasaly wrote that "Zorbalas also attempted to control Frenz by threatening to expose their scheme."
In 2013, Frenz was praised by city officials after he announced that he had purchased 63 apartment buildings from Zorbalas, who had been barred from renting property for five years for racking up hundreds of housing violations.
Repeatedly pressed by the city attorney's office, Frenz assured the lawyers that he and his wife, Jennifer Frenz, were the sole owners of the properties. "Zorbalas is not involved," he told Assistant City Attorney Lee Wolf, according to Vasaly.
Judge cites repeated lies
"Frenz lied to Wolf, telling him that he and his wife were the only shareholders of all the entities," wrote Vasaly. She said Frenz told Wolf that Zorbalas had been "removed from the equation" and the city should view it as a gift.
"All of Frenz's representations to the city about Zorbalas' removal from the rental business were false," wrote Vasaly.
With corporate offices in Minneapolis, the two landlords created two companies, Equity Residential Holdings LLC and National Housing Fund LLC, registered in Delaware, that "gave no outward indication that they were affiliated with Zorbalas," Vasaly wrote.
She said that while Zorbalas signed the National Housing Fund agreement that was filed with the Delaware secretary of state, Frenz sent the city a falsified version of the agreement from which Zorbalas' signature had been removed.
She said Frenz and Zorbalas said in November 2012 that the new entities with "a different name and organizer" would "throw the city off the trail."
In 2015, Frenz was writing checks with which Zorbalas disagreed, and the men had a falling out.
By 2016, the coverup had been discovered, and last December the city voted to revoke all of Frenz's apartment building licenses.
Vasaly wrote that Frenz and Zorbalas are also being accused in the suit of deliberately failing to maintain their properties as required by health and safety laws.
The class in the lawsuit is made up of about 5,400 tenants who have lived in the buildings owned by Zorbalas and Frenz since November 2012.
Permission for plaintiffs to pursue punitive damages creates a dizzying potential payout to tenants if they win.
"The class is seeking compensatory damages in the approximate amount of $50 million," tenants' attorney Michael Cockson of Faegre Baker Daniels said. "Under United States Supreme Court precedent, a jury could conclude the punitive damages could be as much as nine times that amount." That would come to almost $500 million.