Minneapolis landlord Stephen Frenz, accused of perjury and defrauding Hennepin County housing court, could face unprecedented sanctions if attorneys for a group of tenants that sued him have their way.
Housing Court Referee Jason Hutchison has been asked by the lawyers to hold Frenz in contempt, refer the case to Hennepin County Attorney Mike Freeman for prosecution and to rebate the rents of tenants going back nearly four years.
They also want Frenz to face a financial sanction that could exceed $1 million, reflecting the massive costs of the legal case.
Faegre Baker Daniels, which has been representing the tenants for free, says it has already racked up $1.1 million in legal costs. Michael Cockson of Faegre says the award might go to the tenants or some other entity the referee designates.
Cockson did not hold back during a nearly two-hour sanctions hearing Monday. He called Frenz a “slumlord fraudster” and “a very accomplished liar.” Cockson said that he’d handled Ponzi scheme cases, including Bernie Madoff litigation, but that the litigation conduct of Frenz broke new ground.
“I’ve never seen anything like it,” he said.
In court Monday, Matthew Schaap, Frenz’s attorney, minimized the fraud allegations and labeled the $1.1 million in legal bills “absurd,” “extreme and outrageous.” Bills in such cases normally run $2,000 to $4,000, he said. In a brief, he blasted Faegre’s “scorched-earth tactics.”
The case began as a relatively benign housing dispute back in January when tenants represented by Inquilinxs Unidxs por Justicia (United Renters for Justice) sued Frenz, alleging he failed to make repairs, fix the heating, and stop bedbug, cockroach and mouse infestations in a 17-unit Minneapolis apartment house on the 3000 block of 14th Av. S.
Just before the trial, Frenz’s lawyers argued the suit was invalid under state law because more than half the tenants had not signed onto it. To prove their point, his lawyers submitted a list of leases of tenants who had not joined the suit.
However, Cockson’s legal team discovered that three of the leases were fakes cooked up by Frenz. Cockson’s legal team also produced evidence that Frenz staged the apartments to look lived in — children’s shoes in one empty apartment, fake tenants’ names on mailboxes and a phony noise complaint by a nonexistent tenant.
When Faegre uncovered the fraud, Frenz’s lawyers withdrew the false leases and quit the case, and Frenz withdrew his affidavit claiming the tenants were real.
Then the Faegre lawyers’ investigations turned up an even more startling revelation. Despite Frenz’s earlier testimony that he and his wife owned Apartment Shop and Equity Residential Holdings, he was forced to admit on the stand that Spiros Zorbalas continued to have controlling interest in the 40 apartment buildings he claimed he sold to Frenz.
Zorbalas, labeled by Minneapolis officials as the city’s worst slumlord, was ordered to sell those properties back in 2012. The city attorney’s office has said it is closely watching the current case. It is possible they may order Frenz and/or Zorbalas to sell off the 40 properties.
Those properties netted them $3.6 million per year, a 60 percent profit margin, according to court testimony, Cockson wrote.
Joseph Daly, professor emeritus at Mitchell Hamline School of Law, said he could not find any housing court cases in state history where sanctions as high as $1 million were awarded.
Hutchison’s decision is expected soon.