Reported / Citable
Background
Yury and Natela Shenon leased a Los Angeles residential property to Lee Aviles for approximately two years at $9,750 per month, with a $19,500 security deposit. At the end of the tenancy, the Shenons neither returned the deposit nor provided an accounting within the 21-day period required by Civil Code section 1950.5, subdivision (h)(1). Aviles sued for violation of section 1950.5 and breach of lease; the Shenons cross-complained for property damage exceeding the deposit. At trial, Aviles testified that many of the claimed damages—including wall holes, kitchen cabinet damage, pool coping damage, and front door issues—existed when he moved in or constituted ordinary wear and tear. The Shenons presented testimony from Yury, Gregory Shenon, and painter Stefan Morales asserting the damage occurred during Aviles’s tenancy. The jury found the Shenons violated section 1950.5, acted in bad faith, and awarded Aviles $19,500 in compensatory damages. The trial court independently found bad faith and imposed a $39,000 statutory penalty under section 1950.5, subdivision (m), entering judgment for $61,801.67 total. The lease contained a California Association of Realtors form provision limiting combined prevailing-party costs and attorney fees to $1,000. The trial court granted the Shenons’ motion to tax costs, limiting Aviles to $1,000, and denied his motion for $136,896.50 in attorney fees based on the same provision.
The court affirmed the merits judgment but reversed the costs order and provisionally reversed the attorney-fee order with directions.
The Court’s Holding
The Court of Appeal affirmed the judgment in full. It held that any error in submitting the bad faith issue to the jury was harmless because the trial court independently found bad faith based on Yury’s lack of credibility and the evidence that damage predated Aviles’s tenancy. Substantial evidence supported the bad faith finding, including Aviles’s testimony and staging photographs showing pre-existing damage. Because the Shenons acted in bad faith, section 1950.5, subdivision (h)(7) barred them from claiming any setoff for repairs. On the postjudgment orders, the court held that Code of Civil Procedure section 1032, subdivision (b) creates a procedural right to recover prevailing-party costs, which cannot be waived under Civil Code section 1953, subdivision (a)(4); thus the $1,000 cap on costs is void. However, no independent statutory or common law right to attorney fees exists in section 1950.5 actions, so the contractual provision creates—rather than waives—a right to fees and is enforceable as to fees. The unconscionability argument was rejected because striking the provision would leave Aviles with no basis for fee recovery. The order limiting costs was reversed; the order denying attorney fees was provisionally reversed, with directions that the trial court may consider fees only if awarded costs are less than $1,000, and the combined total may not exceed $1,000.
The decision turns on the specific record and procedural setting described above. Its operative effect is limited to the relief stated in the disposition; issues the court did not reach remain open on remand or before the assigned district judge, as applicable.
Key Takeaways
- A landlord’s bad faith in withholding a security deposit under Civil Code section 1950.5 bars any claim to the deposit, including setoffs for alleged tenant-caused damage (section 1950.5, subd. (h)(7)).
- The right to recover prevailing-party costs under Code of Civil Procedure section 1032, subdivision (b) is a procedural right that cannot be waived or limited in a residential lease under Civil Code section 1953, subdivision (a)(4).
- No statutory right to attorney fees exists in security deposit actions under section 1950.5; a contractual fee provision creates a limited right to fees rather than waiving one, so it is enforceable as to fees even if void as to costs.
- A trial court’s independent post-verdict finding of bad faith can render harmless any error in submitting the bad faith issue to the jury.
- Substantial evidence review requires accepting all evidence favorable to the prevailing party and drawing all reasonable inferences in support of the judgment.
Why It Matters
This decision clarifies the interplay between Civil Code section 1953’s prohibition on waiving procedural rights and Code of Civil Procedure section 1032’s prevailing-party cost recovery in residential lease disputes. It establishes that contractual caps on costs in standard lease forms are void as against public policy, while simultaneously upholding such caps on attorney fees where no independent statutory fee-shifting right exists. The ruling reinforces the strong tenant protections in section 1950.5: a bad faith finding not only triggers statutory penalties but also completely bars landlord setoffs. The case also confirms that trial courts may independently assess bad faith under section 1950.5, subdivision (m) regardless of jury findings, and that credibility determinations based on staging photographs and tenant testimony can support bad faith findings.
For California practitioners, the practical lesson is to match the requested remedy to the governing procedural vehicle and to preserve a record addressing the court’s stated legal test. The ruling should not be read more broadly than its posture permits.