Danville suing two startups to recoup grant money

Published December 1, 2014 by Veronica Garabelli

Danville is suing two companies and their top executives for a total of $2.3 million so it can recoup grants issued by the city and the Tobacco Commission.

The two separate lawsuits say GOK International and Web Parts LLC failed to meet performance and grant requirements set by the city and the Tobacco Indemnification and Community Revitalization Commission, which provides formerly tobacco-dependent communities with money to promote economic development. Through the city, GOK International and Web Parts each received a $1 million Tobacco Region Opportunity Fund (TROF) grant. The city also is looking to recoup from GOK a $140,000 Technology Enhancement Grant and $69,007 in Enterprise Funds. It also wants to recover $100,000 in Enterprise Funds issued to Web Parts under the agreements.

Danville says the companies received these funds under the condition that they would create a certain number of jobs and level of investment in the city within three years. The companies were supposed to meet at least 25 percent of either their employment or capital investment obligations within 18 months of signing the agreement. King says the companies no longer have a presence in the area.

According to the lawsuit, Chinese furniture company GOK International promised to create 600 jobs and invest $25 million in two phases. Web Parts, on the other hand,  agreed to create 260 jobs and make a capital investment of $10 million in relocating its computer programming, applications and data-center operation from Guatemala to Danville.

Danville City Council recently approved repaying $2 million to the commission for the grants. The amount would be paid over the next three years with no interest.

Danville City Manager Joe King says the city now vets companies who apply for Tobacco Commission grants more thoroughly. A company, for example, must provide ongoing financial information, go through a third-party audit and show proof of credit or a performance bond so if the firm fails to meet objectives, the city can repay the Tobacco Commission. “These are very obvious kinds of safeguards that anybody could argue should have been in place all along,” King says.

The Tobacco Commission also has changed its approach. “This year we adopted new guidelines that give the locality a choice to receive TROF funds ‘upfront’ but only when secured by some form of credit such as a line of credit or performance bond, versus receiving the funds on the ‘back-end’ based on proof of the company’s performance in the 36-month performance period,” says Tim Pfohl, the Tobacco Commission’s interim executive director. The commission, however, requires the locality to fully vet a company before it receives funds.

In an email to Virginia Business, Brad Mainland, the CEO of Web Parts, says Danville should reconsider its lawsuit and focus on the oversight of the economic development department. Mainland says it was clear to him, at least, that the company’s future jobs and investments would be paid for by its revenues. “…If I had been told that the city itself had difficulties filling [information technology] jobs there is absolutely no way we would have imagined that somehow we could fill 260 I.T. related jobs there,” Mainland says.

GOK International’s President Kevin Liao did not return a request for comment.

King says that, since Danville started participating in the Tobacco Commission program, six of 47 companies recruited by the city have failed to meet the commission’s performance agreements. The other companies are Hybrid Vehicles of Danville, Macerata Wheels, U.S. Green Energy and EcomNets. This is the first time the city has sued a company for failing to repay Tobacco Commission grants, he says.