A Hennepin County court referee has ordered a Minneapolis landlord to pay $187,390 for “bad faith litigation conduct,” the largest sanction in the 27-year history of housing courts in Minnesota.
The court found that Stephen Frenz, one of the city’s biggest landlords, had submitted a falsified affidavit and phony leases to try to persuade the referee to dismiss a lawsuit filed by a neighborhood organization seeking repairs on one of his south Minneapolis apartment houses.
The ruse was discovered by tenant attorneys at the start of a housing trial last year. The housing court fine is the latest setback for Frenz in his yearslong confrontation with tenants and housing inspectors.
“I have never seen a sanction [in housing court] even close to this number,” said attorney Lawrence McDonough of the Dorsey & Whitney firm, who has represented or advised about 10,000 housing court clients in Minnesota over the past 33 years.
But, he added, nor has he previously seen a case play out with such “bizarre conduct by the defendant.”
McDonough was not involved in the current Frenz case. “Sanctions in all kinds of litigation are rare, but even more rare in housing cases,” he said.
The sanctions award was signed by referee Jason Hutchison and Ivy S. Bernhardson, chief Hennepin County District judge.
“I think it provides a strong message to bad actors like Mr. Frenz and this is a wonderful result,” said Michael Cockson of Faegre Baker Daniels law firm and the lead attorney on the case for the neighborhood group.
Christopher Kalla, Frenz’s attorney, said Friday he could not comment on the case. Frenz and his company, the Apartment Shop, have the option to appeal Hutchison’s decision in Hennepin County District Court and if he were to lose there, to the Minnesota Court of Appeals.
Frenz, who did not return phone calls, is under fire on a number of fronts.
The Minneapolis Regulatory Services Department is attempting to strip Frenz of the rental licenses on his 62 properties. The city contends that Frenz falsely informed the city five years ago that he purchased the properties from Spiros Zorbalas, whom the city had ordered to get out of the landlord business.
The city moved against Frenz after last year’s housing trial, where Cockson and his team of four pro bono attorneys discovered that Zorbalas still had a financial interest in Frenz’s apartment buildings.
A hearing officer is expected to take up the license revocation case in late spring. “Depending on the hearing officer’s decision, the council would hold a quasi-judicial hearing and vote [to revoke Frenz’s licenses] in early summer,” Noah Schuchman, city regulatory services director, wrote in an e-mail.
Frenz also is the target of a lawsuit from Cockson that seeks class action status. In addition, Cockson has asked the referee, Hutchison, to refer the case to Hennepin County authorities for a perjury investigation of Frenz.
Hutchison has not indicated whether he will make such a referral.
Frenz was also cited in November for lead paint violations at two of his apartment buildings after children who lived there were found to have elevated blood levels, said Daniel Huff, director of environmental health for Minneapolis.
Lead paint exposure can lead to brain damage in children. Workers are in the process of eliminating the hazard, Huff said.
Hutchison wrote that the size of the sanctions was aimed at both punishing Frenz and sending a message to other litigants who might consider such behavior.
Hutchison argued in his ruling that the fine needed to be large in order to be meaningful because of Frenz’s “highly profitable business” and that “any lesser amount would be ineffective in altering defendants’ cost-benefit calculations in future cases.”
He noted that testimony indicated Frenz’s properties generate $300,000 in net income per month, his gross revenue is $10 million per year, and his portfolio is valued at between $30 million and $50 million.
The fabrication that provoked the sanctions was elaborate.
A tenants rights group, Inquilinxs Unidxs por Justicia — United Renters for Justice — was gathering reports of pest infestations, inadequate heating and other problems at an apartment house at 3057 14th Av. S. In January 2016, they found lawyers, set up a neighborhood group and sued Frenz.
State law requires that any group that sues a landlord must represent a majority of tenants in the affected building.
To stop the lawsuit, Frenz cooked up three phony tenants for the building, produced fake leases for the court, put phony names on three apartment mailboxes, submitted fake service calls from phantom tenants for pest control services, and moved furniture and children’s shoes into the apartments to make it appear people were living there.
When the fraud was discovered, his attorneys withdrew from the case before the trial began and he hired two new attorneys. Those attorneys have now left the case and he is on his fifth lawyer.
Despite the large sanction, the tenant attorneys had sought even more money, stating in a brief last year that their costs had risen to $820,000 by May 2016 and the total costs ran to nearly $1.3 million due to the lengthy proceedings. But referee Hutchison wrote that he had confined his award to litigation more closely related to the fraud issues.
Included in the $187,390.64 sanctions are $32,672.64 to repay a company that Cockson hired, with Hutchison’s approval, to search Frenz’s computers and cellphones.
The remaining $154,718 in sanctions, if upheld on appeal, will be transferred to the Faegre firm’s foundation, which makes charitable donations to community organizations with an emphasis on legal services groups, said Jodie Boderman, Faegre’s pro bono manager.