Controversial Minneapolis landlords to pay $18.5 million to settle tenants' class-action lawsuit

Two Minneapolis landlords who lost their rental licenses last year for committing massive fraud have agreed to pay out $18.5 million to settle a class-action lawsuit filed against them by their tenants.

The settlement, which was filed Friday and must still be approved by Hennepin County Judge Mary Vasaly, covers 5,400 tenants from 2012 to today, many of them low-income and members of minority groups. It is the largest payout of its kind in Minnesota history.

It will net tenants up to $10,000 each, though the average will be about $2,200 to be based on how long they rented from landlords Stephen Frenz and Spiros Zorbalas and the amount they paid. Tenants can opt out and pursue separate legal claims.

The tenants will receive $12 million and the remaining $6.5 million, if approved by Vasaly, will go to the Faegre Baker Daniels law firm, which brought the suit, and to an administrator to be appointed to disburse funds to tenants.

"If approved it will be the largest aggregate settlement in a tenant related class action case in Minnesota history," said Larry McDonough, a housing attorney for 35 years, who heads pro bono work for Dorsey & Whitney law firm. He was not involved in the suit.

"Class action cases for tenants are exceedingly rare, because individual claims are mostly quite a bit different," he said. "The unifying factor here was the improper licensing for a lot of tenants over a long period of time."

William Mohrman, an attorney for Frenz and Zorbalas, declined to comment.

Michael Cockson, the plaintiffs' lead attorney on the case that was certified in 2017, said he was happy with the settlement and looking forward "to working with the court as the process continues."

Frenz and Zorbalas were also accused in the lawsuit of substandard conditions, including vermin infestations and heat and plumbing problems.

Disputes over conditions in the Frenz and Zorbalas apartment buildings stretch back for close to a decade.

Zorbalas was stripped of his licenses for more than 60 apartment buildings by the Minneapolis City Council in 2011 for repeated violations and prohibited from renting in the city for five years.

Frenz purchased Zorbalas' properties in 2012, promised to upgrade them, and was hailed as a savior by city officials. However, within months, tenants were complaining about conditions in the buildings.

Inquilinxs Unidxs Por Justicia (United Renters for Justice), a tenants rights group, found itself in a fight with Frenz over bedbugs, rats and a lack of heat in an apartment building in south Minneapolis during a bitter cold spell in January 2016.

The Faegre law firm took up the case pro bono in what looked to be a minor suit in housing court.

Frenz tried to get the case thrown out by submitting an affidavit and leases showing that the majority of tenants had not joined the suit. The Faegre attorneys discovered the leases were phony.

Then the Faegre lawyers discovered Zorbalas still had a majority financial interest in Frenz's apartments and that the two men continued to operate the buildings together. It led the city to revoke Frenz's rental licenses last December.

Several former tenants hailed Friday's settlement.

"I think it's fantastic for many people who lived there because the conditions in the building as a whole were bad," said Cottrell Doss, 38.

"This victory isn't about the money, it is about justice," said Edain Altamirano, 28, in a statement. "And this settlement is a step toward the justice we want to see. Tenants will continue to organize to hold landlords accountable and get what they deserve."