In a lawsuit that could upend tenant-landlord relations for one of the biggest property owners in Minneapolis, a local law firm representing four renters has asked Hennepin County District Court to put 62 apartment buildings in receivership and refund millions of dollars of rent money to tenants.
A legal team from Faegre Baker Daniels sued landlords Stephen Frenz and Spiros Zorbalas along with their wives and companies Friday, alleging the two men engaged in "egregious deceptive business practices and statutory violations." They are seeking class action status for the lawsuit.
Frenz and Zorbalas did not return calls or text messages seeking comment Friday.
Frenz owns and oversees nearly 1,400 units in Minneapolis and at a recent civil trial in housing court, disclosed that Zorbalas still has ownership interest in his properties. The city ordered Zorbalas to divest all his rental properties in 2012 because of a history of housing violations that led to some license revocations.
Frenz admitted Zorbalas' ongoing involvement when he testified in the case brought by low-income tenants of one south Minneapolis apartment building that was in disrepair.
Housing court referee Jason Hutchison ruled earlier this month in favor of the tenants and said Frenz had deceived the court in a failed attempt to get the tenant lawsuit dismissed.
In the new lawsuit filed Friday, Faegre attorney Michael Cockson alleged that Zorbalas engaged in a sham sale of his properties to Frenz, using a network of shell corporations to conceal Zorbalas' continuing interest in the properties. Frenz lied to the city about the deal and continued to collect rent from thousands of tenants living in substandard, unsafe and unhealthy conditions at many of their apartment buildings, the lawsuit alleges.
"In a four-year period they collected $40 million [in rent] and we are asking for all of it to be returned" to tenants, Cockson said Friday.
He said he is seeking an injunction to have a receiver appointed for all 62 buildings in Frenz's name but allegedly owned by the pair. The receiver would collect the rents, fix the buildings and hold the money in escrow, Cockson said.
Noah Schuchman, Minneapolis director of regulatory services, sent Frenz a letter Sept. 16, demanding he disclose the names of all partners and shareholders in his 62 properties, including any financial or legal interest that Zorbalas has in the buildings. Frenz has until Monday to comply with the request.
Schuchman explained in a letter to Mayor Betsy Hodges and the City Council that it could lead to the revocation of Frenz's rental licenses.
Hutchison has yet to rule on whether he will issue sanctions against Frenz in the housing court case. Cockson has also asked Hutchison to refer the case to the Hennepin County attorney's office to investigate Frenz for perjury during the housing trial.