Denver seeks dismissal of VC firm’s ‘payment dispute’ on technical grounds

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Danielle Shoots speaks during a May 2022 BusinessDen event. (Alyson McClaran/Special to BusinessDen)

The city of Denver has responded in court to a venture capital firm’s lawsuit over tax dollars intended to support women and minority-owned businesses.

Denver said in a Friday motion to dismiss the lawsuit that it “vehemently disagrees” that DEMI Fund is owed money and that the firm provided sufficient documentation of how the money was spent.

Denver wants the case dismissed on largely technical grounds, saying the contract both parties signed lays out a separate out-of-court process for handling disputes.

Denver agreed in 2022 to dedicate 1 percent of the city’s tax on marijuana sales for three years to the “Herman Malone Fund,” and then tapped DEMI Fund to administer the money. 

DEMI, then led by Danielle Shoots, was to dole out the money to various businesses, sometimes in the form of grants and sometimes via direct investment.

In its March 20 lawsuit, DEMI claimed Denver had stopped transferring the tax dollars after sending $6.9 million through last August. The firm said it was owed nearly $800,000 for money it had spent that should be reimbursed.

DEMI accused the city of not just breach of contract, but also fraud.

In its Friday motion, the city said it considered the matter “a payment dispute.”

The city wrote that its contract with DEMI mandates that any disputes “be resolved by administrative hearing pursuant to the procedure established” by a specific city ordinance.

DEMI’s attorney took steps to initiate the “dispute resolution clause” on March 7, according to the city, and a city attorney responded a week later to confirm receipt and share information on the process.

But DEMI then “for some reason, also filed and served this lawsuit several weeks ago, even though the dispute resolution procedure is live and ongoing,” according to the motion written by Assistant City Attorney Edward Gordman.

The city’s response doesn’t address DEMI’s allegations at length, but does seek to refute the core claims. It noted that DEMI’s lawsuit “alleges that DEMI has provided sufficient documentation reconciling the Malone Fund expenditures under the Contract and that the City is obligated to pay DEMI.” 

“The City vehemently disagrees with this and most of the assertions and allegations in the Complaint,” Denver wrote.

Shoots and an attorney representing DEMI did not respond to a request for comment on Monday. Earlier this month, Shoots posted on social media that she had resigned from DEMI Fund. Former DEMI Managing Director Mark Goodman, who appears to be leading DEMI in the wake of Shoots’ resignation, also did not respond to a request for comment.

DEMI used Denver tax dollars to make direct investments in 10 companies in its first year, according to a redacted annual report provided to BusinessDen by the firm. DEMI redacted financial details in the report, making it impossible to judge the performance of the investments.

A BusinessDen review this month found that at least one of the 10 companies has no traditional physical presence in the city, despite the fact that Denver’s contract with DEMI specifies that companies receiving funds must be “physically located” within the city’s limits.

BusinessDen staffer Maia Luem contributed reporting.

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