Key Points

  • The Second Appellate District, Division One, held that the right to prevailing-party costs under Code of Civil Procedure section 1032, subdivision (b) is a procedural right.
  • Because Civil Code section 1953 voids residential lease provisions by which a tenant waives or modifies procedural rights in litigation, a lease cap on costs is void.
  • The same $1,000 cap remains enforceable as to attorney fees, because the lease clause was the only source of any fee right and section 1950.5 does not provide for fees.
  • In an unpublished portion, the panel affirmed a $61,801.67 judgment for the tenant, including a $39,000 bad-faith penalty, and held that the bad-faith finding barred the landlords from any setoff.
  • The trial court must reconsider the motion to tax costs; it may award attorney fees only if costs fall below $1,000, and only up to a combined $1,000.

A California appeals court held on Nov. 2 that a residential lease cannot cap the court costs a winning tenant recovers, ruling that a state law voiding lease waivers of a tenant's "procedural rights in litigation" covers the statutory right to costs. The same clause's $1,000 limit on attorney fees survived.

A three-justice panel of the Second Appellate District, Division One, ruled unanimously for tenant Lee Aviles, who sued landlords Yury and Natela Shenon for keeping his entire $19,500 security deposit on a Los Angeles rental home. Presiding Justice Rothschild wrote the opinion, joined by Justices Weingart and M. Kim. The panel affirmed a $61,801.67 judgment for Aviles, including a $39,000 bad-faith penalty, and reversed an order that had held his costs to $1,000.

The clause at issue appears in the California Association of Realtors form the Shenons used to draft the lease. It gives the prevailing party "reasonable attorney fees and costs, collectively not to exceed $1,000." Under the ruling, such a clause cannot shrink the costs that California's Code of Civil Procedure grants every winning litigant "as a matter of right." The same question is pending before the California Supreme Court in Gogal v. Deng, where review was granted Nov. 19, 2025, the panel noted.

Aviles leased the home for $9,750 a month, then exercised an option for a second year at $10,043, according to the opinion. He moved out in November 2022. The Shenons neither returned the deposit nor gave him an accounting, which Civil Code section 1950.5, the statute governing residential security deposits, requires within 21 days after a tenant leaves.

Yury Shenon texted that he had "identified many areas of the damage throughout the house," the opinion said, but he listed specific items only after Aviles's lawyer sent a formal demand in March 2023. After a week-long trial, a Los Angeles County jury found the Shenons violated the statute, acted in bad faith and owed $19,500, and it rejected their cross-claims that Aviles had damaged the property.

Superior Court Judge Barbara Ann Meiers then imposed a penalty of twice the deposit, the most the statute allows. "Had it been up to me to render a decision about bad faith it would have been the same as what the jury came in with," the judge said in response to the Shenons' argument that the court should have decided the issue.

Aviles then sought $24,773.27 in costs and, by separate motion, $136,896.50 in attorney fees. The trial court granted the Shenons' motion to tax costs, which challenged the costs claimed, and denied the fee motion, on the ground that the cap was valid and the $1,000 had already been awarded as costs.

On appeal, Aviles relied on Civil Code section 1953, which declares "void as contrary to public policy" lease terms by which a tenant waives or modifies certain rights. To decide whether the costs right was procedural, the panel borrowed a test the U.S. Supreme Court applied in Shady Grove Orthopedic Associates v. Allstate Insurance Co. Awarding costs does not change how a court decides any claim, Rothschild wrote; rather, it "allows a prevailing plaintiff to enforce his rights by, inter alia, collecting costs."

The panel also pointed to federal courts hearing state-law claims, which generally treat costs as procedural unless a state legislature shows a "special interest" in costs for a particular cause of action. The California costs statute applies to "all types of actions," the panel noted, and the deposit statute shows no such interest. "Considering all of the above, we conclude Code of Civil Procedure section 1032, subdivision (b) reflects a procedural right," Rothschild wrote.

The panel said its holding was consistent with the Fourth District's decision in Gogal, which had observed that the tenants there identified no tenant-protection statute that overrode the general costs rule. "Section 1953 is the type of tenant protection statute the parties had failed to identify in Gogal," the opinion said. The Supreme Court has directed the Gogal parties to brief both section 1953 and Civil Code section 3513, on which the Fourth District relied, according to the opinion.

Attorney fees came out differently. California's default rule is that each side pays its own lawyers, and section 1950.5, unlike state statutes on retaliatory eviction and rent control, does not provide for fees, the panel said. Because the only fee right Aviles identified was the lease clause itself, the clause restricts no right, Rothschild wrote: "it creates a limited right to recover such fees up to a certain amount."

That reasoning also disposed of Aviles's argument that the court should have refused to enforce the clause as unconscionable. Striking the provision, the panel wrote, "would result in Aviles having no right to any attorney fees at all." At oral argument, Aviles asked the court to strike only the $1,000 limit, but the panel said courts cannot "rewrite agreements and impose terms to which neither party has agreed," quoting a 2024 state Supreme Court decision.

In a portion of the opinion not certified for publication, the panel rejected the Shenons' appeal. The landlords argued the judge, not the jury, should have decided bad faith. The panel assumed without deciding that letting the jury decide was error and found it harmless, because the judge made "an independent finding of bad faith after the jury verdict." Aviles's testimony and the marketing photographs Yury Shenon took before the tenancy supported an inference that the landlords knew the damage predated it, the panel held.

The panel also barred the Shenons from deducting repair costs for damage they said Aviles admitted causing. The deposit statute bars a landlord who acts in bad faith from claiming any part of the deposit, and the state Supreme Court's 1995 decision in Granberry v. Islay Investments, which let landlords recover repair costs in later litigation, was limited to landlords acting in good faith, the panel said. "Having acted in bad faith, the Shenons may claim no portion of the security deposit," the opinion said.

Aviles was represented by Jason M. Stone and Elliott Montgomery of Stone & Sallus. The Shenons were represented by David M. Almaraz and Thomas Dreblow of Grant Shenon Almaraz.

The case returns to the Los Angeles County Superior Court, which must reconsider the Shenons' motion to tax costs. If the costs awarded come to less than $1,000, the trial court may then consider attorney fees, but costs and fees combined may not exceed $1,000. Each side will bear its own costs on appeal.