Whistleblower suit accuses San Luis Obispo officials of unlawful conduct

San Luis Obispo's former chief building official has filed a whistleblower lawsuit against the city, naming City Manager Whitney McDonald, Assistant City Manager Scott Collins, Community Development Director Timothea Tway, and City Attorney Christine Dietrick as defendants — and painting a portrait of city leadership that allegedly prioritized revenue and political convenience over public safety and state law.

The suit, filed Friday June 13 and first reported by CalCoastNews, alleges that Michael Loew — who served as the city's chief building official from March 2022 through June 19, 2025 — was subjected to what the complaint describes as "a sustained campaign to silence, punish, and ultimately force him out" after he refused to go along with what the suit characterizes as unlawful conduct.

Allegations of Fee Manipulation

One of the lawsuit's most financially significant allegations concerns how the city calculated and justified its building permit fees — costs borne directly by homeowners, contractors, and businesses seeking to build or renovate in San Luis Obispo.

Under California law, cities may only charge applicants the actual cost of permit processing and inspections. But according to the suit, city administrators directed Loew to participate in overcharging applicants through inflated fees and then "diverting fee revenues" into other city uses.

When an outside consultant conducted a 2024 fee study and recommended a 35 percent reduction in fee rates — a change that would have cut building and safety fee revenues by approximately $1 million annually — city administrators allegedly directed Loew to develop an entirely new cost-justification methodology. Rather than anchoring fees to actual historical expenditures, as state law requires, the new model was based on estimates of what it "should" cost to operate the division at a level its services "warranted." The forward-looking model, the suit contends, was designed to justify keeping fees at existing levels rather than implementing the consultant's legally required reductions.

The allegation echoes a pattern seen elsewhere in California. A similar case in Miami involved claims that the city turned permit fees into what a court filing called a "hidden profit reservoir," with property owners seeking more than $75 million in refunds after a court allowed the suit to proceed.

The Laurel Lane Building: Months of Alleged Inaction

The second — and arguably more alarming — thread in the lawsuit involves a commercial building at 1150 Laurel Lane that has become one of the most closely watched properties in recent SLO history.

The mixed-use warehouse complex has been home to a cluster of local tenants, most notably Bang the Drum Brewery, a beloved community gathering spot. As KSBY reported, the building had faced years of stalled renovation work after its owner, Laurel Creek LLC, lost access to construction financing. The property had been listed "in violation" of code enforcement for years, and tenants had repeatedly been caught off guard by the building's worsening condition.

According to Loew's lawsuit, the situation was far more dangerous — and far more deliberately ignored — than the public knew at the time.

In November 2024, Loew determined that the building was being occupied without valid occupancy permits and that it "posed a serious and unreasonable risk to the life safety of occupants and the public." State law mandates that a chief building official "shall" condemn unsafe buildings, "shall" post condemned placards, and "shall" take immediate action. Loew wanted to act — but the lawsuit alleges that City Manager McDonald, Assistant City Manager Collins, and Community Development Director Tway directed him not to condemn the building, allowing occupancy to continue for another six months.

The situation came to a head on May 1, 2025, when Mayor Erica Stewart promoted a public social event at the building — allegedly exposing attendees to "known life-safety hazards," according to the suit. Four days later, at an administrative hearing on May 5, 2025, Fire Chief Todd Tuggle stated on the record that the building was too dangerous for firefighters to enter in the event of an emergency. The city ultimately condemned portions of the building, forcing tenants including Bang the Drum to vacate. The property owner subsequently filed for Chapter 11 bankruptcy, with the building evaluated at nearly $50.1 million. According to the lawsuit, the city continues to permit Ernest Packaging Solutions and Empire Electrical to operate in the partially condemned structure.

Retaliation and Constructive Discharge

Loew's lawsuit does not simply allege that city leaders made bad policy decisions — it alleges those leaders turned against him personally after he pushed back.

According to the complaint, once Loew disclosed his concerns, he was stripped of enforcement authority, directed to stop exercising mandatory enforcement duties, sent "hostile and threatening communications," and subjected to questioning in internal meetings. City management staff collectively created working conditions that the suit describes as "so intolerable, hostile, and humiliating that a reasonable person in Loew's position — a senior public safety professional directed to violate mandatory legal duties" — would have had no choice but to resign. Loew did resign, on June 19, 2025.

The suit names the City of San Luis Obispo, City Attorney Christine Dietrick, City Manager McDonald, Assistant City Manager Collins, and Community Development Director Tway as defendants. It seeks general, compensatory, and punitive damages, along with attorney fees and costs.

Who Is Named — and What Their Roles Are

The named defendants hold some of the highest positions in city government. Whitney McDonald was appointed unanimously by the City Council in August 2024 as city manager after serving as assistant city manager and then interim city manager following former City Manager Derek Johnson's departure. She oversees a staff of more than 480 employees and a total city budget of approximately $225 million. Christine Dietrick serves as city attorney, one of only two positions appointed directly by the City Council. Neither the city nor any named defendant had issued a public statement in response to the lawsuit as of publication time.

What Comes Next for SLO Residents

For San Luis Obispo residents, the lawsuit raises questions that go beyond a single personnel dispute. If the fee manipulation allegations hold up, building permit applicants — from individual homeowners adding a room to developers seeking approvals for new housing — may have been overcharged for years in violation of state law, with those excess funds allegedly diverted elsewhere in the city budget. The lawsuit does not quantify total alleged overcharges, but the consultant's finding that a 35 percent fee reduction was warranted suggests the gap between legal fees and actual charges could have been significant across many transactions.

The Laurel Lane situation adds a public safety dimension. City Council members, who appoint both the city manager and the city attorney, have not publicly addressed the suit's specific allegations. Whether the Council requests an independent investigation — or whether the case proceeds through civil litigation — will be a critical question in the weeks ahead.

The city is also facing separate legal pressure on fees: in March 2026, three homebuilders filed a federal lawsuit challenging the city's inclusionary zoning fee policy, adding to what is becoming an increasingly litigious environment around the city's land-use and permitting practices.

The City of San Luis Obispo was contacted for comment. This story will be updated with any response.