Small Claims Court, Property Management Company won't take responsibility

[Curtis Harrison]

I hired a Property Management (PM) firm 5 years ago.  I've been paying them $135 per month for their 'services'.  Got an e-mail from zillow.com that my house was up for rent.  Contacted PM company and they tell me that the tenant has been gone for a week and they were going to start on the repair work.  I promptly fired the PM company for not telling me that the home was vacant, and for not finding me a new tenant before the home vacated.

So, 3 months later, I get served by the Tenants who are taking me and the PM to small claims court for $5000 to get their security deposit back.

0. Rental Agreement was signed by PM and Tenant, not by me.  Security deposit was held by the PM, not by me.

1.  PM said there was no move-in checklist, so all repairs could be taken out of the security deposit.

2. PM had their own people do all the repairs and charged tenants $2100 out of the $2700 security deposit.

3. PM did a walk through after the tenant vacated and did not involve me or the tenant in that walk through.

4. PM assured me that all these repairs would come out of the security deposit and would not be disputed since there was no move-in checklist from the tenant.

5. I FOUND THE Move-In checklist on the PM's website under my owner portal.  Told them where it was, and then when they looked, they found it too.  This is AFTER we got served for Small Claims court and after they completed all their repairs.

6. PM is willing to refund $300 in labor costs to the Tenant, but wants me to pay all the materials costs $375 for repairs I wouldn't have had done if I'd have known they weren't covered in the security deposit.

7. Tenants will settle for $2000, but PM will only pay $300 and they want me to pay the rest.

8. PM did not inform the tenant or me that the costs were going to be so high, and now they expect me to reimburse the tenant for the repairs that were done for pre-existing conditions that the PM fixed because the PM couldn't find the Move-In checklist.

Is the PM liable to the Tenant for a security deposit refund?

Do I (as the owner) have any liability towards the tenant or PM to pay for repairs done by the PM when they shouldn't have done the repairs in the first place?

Should I sue the PM for negligence, or wait for the outcome of the Small Claims court?

Should I encourage the Judge to hold the PM liable for all penalties in the Small Claims Court?

HELP !!!

Thanks for any and all advice,

Curtis