With just two months to go before the six-year statute of limitations runs out, the real estate company of former landlords Stephen Frenz and Spiros Zorbalas is challenging the city of Minneapolis to another duel in court.
Frenz and Zorbalas' tumultuous history with Minneapolis seemed to conclude in 2017, when the city revoked their rental license and forced them to liquidate their vast apartment empire. But their company, Equity Residential, now argues city officials failed to follow the proper procedures, violating their constitutional rights and causing them to lose "multiple millions" of dollars they hope to recoup.
"The city will no doubt try to distract from its failings by attacking our clients' character, but no amount of distraction can obscure the simple truth of this case: the city of Minneapolis acted arbitrarily and capriciously to take away our clients' constitutionally protected rights," said Equity Residential lawyer Jack Perry in a statement. "Any right that a bureaucrat can take away with the stroke of a pen is no right at all."
On Tuesday, the city attorney's office had yet to formally respond to the lawsuit filed Monday, and officials there declined to comment. Mayor Jacob Frey's office also declined to comment on the suit, saying Frey was just a City Council member when Equity Residential's licenses were revoked in 2017.
Once owners of dozens of Minneapolis apartment buildings, Frenz and Zorbalas were forced by the city to relinquish many of their properties years ago.
In 2010, officials began the process of revoking Zorbalas' license owing to tenant complaints. Thousands of code violations were found, including inadequate heat in winter, overflowing garbage, pest infestations and broken fixtures. Zorbalas was allowed to keep his rental license for two more years pending appeal, but ultimately lost.
To avoid displacing many low-income tenants, city officials then negotiated a plan to transfer Zorbalas' approximately 50 properties to Frenz, owner of the Apartment Shop management company. Officials were adamant that Zorbalas have nothing to do with the properties.
Frenz assured them that would be the case, but he later admitted in subsequent proceedings that Zorbalas secretly remained an owner of Equity Residential. When city officials caught wind, they moved to strip Frenz's licenses as well.
Around the same time, tenants organized with the renter rights group Inquilinxs Unidxs Por Justicia (United Renters for Justice) to take the landlords to court. Frenz tried to get the suit dismissed, submitting fake leases to show that a majority of tenants in one building hadn't signed on. The landlords ultimately settled the class-action lawsuit for $18.5 million, and Frenz was slapped with an unusual felony perjury conviction.
In the suit filed this week, Equity Residential is alleging that a narrow procedural mistake entitles them to damages worth unspecified millions.
According to the complaint, Noah Schuchman — then Minneapolis' inspections director, who now serves as Duluth's chief administrative officer — wrote Equity Residential tenants on Oct. 26, 2016, that their landlord's rental license wouldn't be revoked until "all legal challenges are exhausted." This would have been in line with how the city dealt with Zorbalas in 2010-12.
But nine months later, Schuchman wrote Equity Residential that its licenses would not be renewed once they expired at the end of the month. The complaint alleges this was an "about-face" that amounted to "effective revocation," bypassing the landlords' "constitutionally protected property rights" to appeal.
The landlords were forced to liquidate some 30 buildings with less than a month's notice at a steep discount, according to the complaint. While they ultimately lost their appeal, waiting for that process to play out would have given them three and a half more months to sell their properties at market rate, the suit claims.
Many of the Equity Residential buildings were sold on contracts for deed that allowed Frenz and Zorbalas to retain their interest in the properties until the buyers paid the full purchase price, or reclaim ownership upon failure to pay. Minneapolis officials refused to issue the new owners rental licenses, and Equity Residential was entangled in a series of additional lawsuits. The company's complaint speculates that the city intended to "punish" Frenz and Zorbalas.
