Legal Question in Real Estate Law in California

Yes, such a suit can be brought. However, I think you're really meaning to ask whether it would be successful. That is less certain. First, is the right to retain late fees discussed at all in the contract? If so, that would probably govern the result of a lawsuit. If the subject isn't addressed in a contract, the outcome is less certain, and the court might even divide the late fees between the owner/landlord and the management company on the theory that the management company earned part (or all?) of it because it had to expend extra effort to collect, while the owner was entitled to the other part (or all?) because he was deprived of cash flow for a while. Actually, I doubt that this is worth suing over, even in small claims, but I would certainly suggest that the landlord and the management company sit down and negotiate their positions and see if a mutually-agreeable solution can be worked out without suit. The landlord's bargaining position is strengthened if the management contract is due for renewal in a short time.