San Luis Obispo Developers File Suit Over Alleged Extortion

Homebuilders claim city is imposing unconstitutional fees to obtain permits

Published on Mar. 5, 2026

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Three San Luis Obispo homebuilders, John Ruda, Jordan Knauer, and Rami Zarnegar, have filed a lawsuit against the city of San Luis Obispo, alleging that the city is engaging in extortion by demanding they either hand over a home at a massive loss or pay a $98,900 'inclusionary housing' fee in order to obtain their building permits.

Why it matters

This case highlights the ongoing tensions between local governments and developers over affordable housing policies, with cities often accused of overstepping their authority and imposing unreasonable financial burdens on builders. The outcome could set an important precedent for how municipalities can structure inclusionary housing requirements.

The details

According to the lawsuit filed by the Pacific Legal Foundation on behalf of the three developers, the city of San Luis Obispo told the homebuilders they could only obtain their permits if they either sold one of the four new homes they built at a massive loss or paid a $98,900 'inclusionary housing' fee. The developers argue this fee is an unconstitutional 'exaction' that is not directly related to the actual impact of their project, as required by a 2024 Supreme Court ruling.

  • The developers, John Ruda, Jordan Knauer, and Rami Zarnegar, bought a rundown house, demolished it, and built 4 homes and 4 ADUs.
  • The city of San Luis Obispo then demanded the $98,900 'inclusionary housing' fee or the right to sell one of the units at a massive loss to the builders.

The players

John Ruda, Jordan Knauer, and Rami Zarnegar

San Luis Obispo homebuilders who purchased a rundown house, demolished it, and built 4 homes and 4 ADUs, only to be hit with an alleged extortionate demand from the city.

Pacific Legal Foundation

A nonprofit law firm representing the homebuilders in their lawsuit against the city of San Luis Obispo, arguing the 'inclusionary housing' fee is unconstitutional.

City of San Luis Obispo

The local government accused of imposing an unconstitutional 'inclusionary housing' fee on the homebuilders as a condition of obtaining their building permits.

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What’s next

The Pacific Legal Foundation plans to take the case to court to challenge the city's 'inclusionary housing' fee as unconstitutional.

The takeaway

This lawsuit highlights the ongoing tensions between local governments and developers over affordable housing policies, with accusations of overreach and unconstitutional fees being levied against cities that are struggling to address housing affordability. The outcome could set an important precedent for how municipalities can structure inclusionary housing requirements without running afoul of legal challenges.