Bad apple spoils the bunch as godfather of CRLTO cases pleads guilty to fraud charges

Lawrence v. Regent Realty Group, Inc. et. al. (197 Ill. 2d 1, 9-10 (2001)) is the grand poo bah of Chicago Residential Landlord Tenant Ordinance lawsuits.  Sure, there were others that came before it, but Lawrence opened the floodgates to a generation of attorneys who have great success in making landlords pay for simple little violations of the CRLTO.

At the crux of the case was a tenant, Aurelia Lawrence, who paid a pet deposit of $100 to Regent Realty Group, Inc. who managed the apartment complex where Lawrence lived from 1990 to 1996.  Regent failed to pay interest on the pet deposit when Lawrence moved out.  Although Regent prevailed at the trial court level, the Illinois Appellate Court and eventually the Illinois Supreme Court agreed that Lawrence was entitled to interest on her deposit and was entitled to the ordinance penalty equal to two times the deposit plus attorney’s fees and court costs.  The famously court noted, to the great happiness of tenants everywhere in the City, that “Nothing in section 5-12-080(f) requires proof that the landlord’s actions were knowing or willful. A landlord’s duty to comply with the statute is absolute.”   That was the beginning of the modern era of CRLTO enforcement.

Back then, Regent Realty, Inc. was run by Jay Strauss who actually testified in the case.  The court in the Lawrence opinion noted:

In support of its defense, Regent presented the testimony of Jay Strauss, who was the only witness to testify at trial on behalf of the company. Strauss was Regent’s chairman and was personally responsible for keeping track of Lawrence’s security deposit and calculating the interest Regent was obligated to pay on that deposit. Although Lawrence’s $100 pet deposit was specifically included in each lease under the section designated for the security deposit, Strauss claimed that he did not pay interest on that amount for the years 1991 through *8 1995 because he viewed the pet deposit as a pet “fee” or “charge” and not as a security deposit. Strauss did not explain how he reached that conclusion, nor did he account for why he had credited Lawrence for interest earned on her pet deposit in 1990.

In the end, Regent Realty had to pay up.

Now, just over ten years after that historic case was published, Jay Strauss is in the news again.  The Chicago Tribune reports that Jay Strauss was sentenced earlier this week to three years in federal prison and sentenced to repay two million dollars after pleading guilty to defrauding the condominium associations his company represented.  The Tribune indicates that Strauss and his co-owner in Regent Realty allegedly stole funds from 2005 to 2008 “to pay off personal debt they had accumulated on a real estate project”.

So, when landlords ask themselves why the ordinance is so draconian, they can thank Jay Strauss and landlords and property managers like him.  Some landlords don’t get it.  A tenant’s security deposit (and the interest accrued thereon) belongs to the tenant.  A security deposit account is not a piggy bank.  It is not a slush fund.  Because of the abuses of landlord and managers like Regent Realty, Inc., today’s landlords face huge potential liability for seemingly small violations of law that may cause little or no actual damage to tenants.

Is the current CRLTO too strong?  Is it too heavy handed?  Is it unfair to landlords?  Yes.  Yes.  Yes.

When there are landlords and managers out there who pull off the stunts that Regent Realty, Inc. allegedly did, is there any way landlords will be able to bring moderation and reason to these laws?  Probably not.

Thanks a lot Jay.

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