A Jackson County judge has assessed $52 million in damages against a notorious Kansas City landlord and one of its investors in what appears to be the largest judgment ever obtained on behalf of Missouri tenants.
Judge Joel Fahnestock awarded the damages after KM-T.E.H. Realty 8, LLC and Michael Fein were sued late last year over living conditions at Ruskin Place Apartments, a 169-unit, low-income complex in south Kansas City.
During often emotional testimony at the trial before Fahnestock earlier this month, tenants described mold, roach infestation, rats, raw sewage, lack of heat and air conditioning, unsecured doors, overflowing trash bins, exposed electrical wiring and collapsed apartment ceilings. They said apartment managers routinely ignored their complaints.
“These defendants are despicable. They had a scheme that is still operating statewide that was offensive to the court,” said Gregory Leyh, the tenants’ lawyer.
“The conditions these families were compelled to live in were just horrendous. The court used the phrase ‘outrageous and reprehensible,’ which I think is really an apt phrase.”
Officials of KM-T.E.H. Management, the company’s management arm in Reading, Pennsylvania, did not respond to a call from KCUR seeking comment on the court’s judgment.
Neither T.E.H. nor Fein appeared at the trial. Both ignored court orders throughout the litigation, prompting Fahnestock to levy contempt fines of $1,000 a day against them in April and additional fines of $7,500-a-day in June. Those fines, along with interest, are in addition to Fahnestock's damage awards.
A federal grand jury in St. Louis indicted Fein in August, accusing him of filing fraudulent applications to obtain $28 million in bank loans. A warrant has been issued for his arrest. He is believed to be out of the country, possibly in Israel, where KM-T.E.H. was founded in 2006.
Not fit for human habitation
In her 23-page judgment order on Tuesday, Fahnestock found that “the rental units were not fit for human habitation and had a market value of $0.00.”
The class action lawsuit, which was filed in October, was brought on behalf of all tenants who rented units at Ruskin Place since July 2015.
Fahnestock assessed actual damages of $11.8 million against KM-T.E.H. 8 and Fein, as well as punitive damages of $23.4 million against KM-T.E.H. 8 and $16.8 million against Fein.
An economist called as an expert witness at the trial estimated that KM-T.E.H. has assets worth $260 million, a net worth of $120 million and annual operating income of nearly $21 million.
KM-T.E.H. buys distressed, low-income housing units. Each apartment complex is owned by a so-called single asset LLC or limited liability company. Fahnestock found that the corporate structure is designed to insulate the company’s organizers and associates from judgments.
The company, through its LLCs, owns at least two dozen apartment complexes in the Kansas City area, another two dozen in St. Louis and additional properties in Tulsa, Indianapolis and Reading, Pennsylvania.
KM-T.E.H. 8 no longer owns Ruskin Place. Earlier this year, mortgage giant Fannie Mae foreclosed on the property. A New Jersey company bought it out of foreclosure for about $4.2 million and now manages it.
Punishing tenants
While KM-T.E.H. routinely ignores litigation against it, the company has used the courts to evict tenants and collect double rent from them. Since 2015, it has filed 91 eviction cases in Jackson County alone, according to evidence in the Ruskin Place case. Twenty-one of those cases were against Ruskin Place tenants.
Leyh, the tenants’ lawyer, said that KM-T.E.H. routinely uses Missouri’s associate circuit courts “to punish tenants for debt they don’t owe. And then when it comes to the circuit court cases where they’re asked to be accountable, they run and hide. I think they’re cowards.”
Both the Kansas City and St. Louis housing authorities have removed T.E.H. entities from their housing voucher programs for “non-compliance” and failing to address substandard conditions at their apartment buildings.
One trial exhibit in the Ruskin Place case consisted of 591 pages of complaints to the Missouri attorney general’s office. Fahnestock found that T.E.H 8 and Fein’s misconduct “was part of a broader pattern of conduct, and was clearly not an isolated incident.”
The judgments against T.E.H. and Fein are likely to be the start of a long process of trying to collect on the judgments. Leyh declined to say what steps he had in mind but vowed to pursue the matter to the end.
“I told our clients that we will continue to battle for them,” he said. “We’re going to continue this fight and we’re going to pursue what they deserve.”
Lawyers who handle landlord-tenant cases say they are not aware of any judgment against a Missouri landlord approaching the size of the one imposed by Fahnestock. In fact, the judgment may be among the biggest ever awarded anywhere in the country against a private landlord over housing conditions.
In 2018, two Minneapolis landlords who lost their rental licenses for committing massive fraud agreed to pay $18.5 million to settle a class-action lawsuit filed against them by their tenants, according to the Associated Press. The settlement, which covered 5,400 tenants, was the largest payout of its kind in Minnesota history, the AP reported.
Leaving aside personal injury cases such as those involving pool drownings, the Greater Kansas City Jury Verdict Service reports a $1.1 million verdict in 2004 as the largest judgment it has on record against a non-commercial landlord. The case involved violations of the Fair Housing Act.
