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Sipology Coffee: A Small Business Gone Ugly

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By Greggory Moore

 | Tuesday, 17 January 2012 08:00

Steppa S (as posted on Yelp)

10:34am | Sipology was gritty-gorgeous, a split-level piece of open floor-planning with an aesthetically pleasing, lived-in look, its upstairs tables giving out on a lovely view of the East Village from the Broadlind corner the coffeehouse occupied.

What was going on beneath the surface was far less pretty, and Sipology owners closed up shop last August with a long list of employees, vendors, and investors feeling lied to and owed tens of thousands of dollars.¹

Charlene Russell, who was on board as Sipology's first manager, says that "from the get-go" Sipology had problems paying employees. But she says it was in June 2010, when Guanajuato and company opened up a second location (at Temple Avenue and Broadway) that things took a significant turn for the worse. 
"I knew from the beginning that they couldn't pay people at the one store," Russell says. "So I knew when they opened a second one and a restaurant that it was going to end badly."

The restaurant, Red: A Sipology Kitchen, opened in Bixby Knolls the following September -- a period when former employees say Sipology was bouncing checks left and right, with Guanajuato leading them on by giving them sporadic payments straight from the cash register.

"The Sipology meltdown was an absolute nightmare," remembers Jasper Oliver, employed at Sipology from September 2010 to May 2011. "My personal theory is that the owners' eyes were just bigger than their stomachs. They tried to expand too quickly […] and as a result owed money all over town. I actually have no idea how big it got except for little hints like the City [contacting Sipology] for rent not paid or the electricity being shut off on Valentine's Day because that bill wasn't paid."

Oliver says he "constantly" had trouble getting paid. "Checks would bounce," he says. "The owners would be absent during paydays and get exasperated and power-trip when asked point blank for paychecks due. […] Ridiculous."

Dave Van Patten, one of Sipology's original employees, who remained on board until December 2010, tells a similar story: "The whole time I worked there maybe two paychecks were on time. […] You pretty much had to twist their arm [to get paid]. They'd pretty much lie to your face. Pretty sociopathic."
Says Russell, "The way they went about trying to pay people, they were con artists. There was no payroll, like [at] a regular job. Everything was cash. You can only hope they were paying their taxes."

Like Oliver, Russell says she saw signs of financial problems beyond paying employees, such a letter from Los Angeles County regarding fraudulent checks. "They had to have written hundreds," she says. "It's astounding how much money they owe. It's astounding they're not in jail."

An outsider owed money by Sipology is Jeff Duggan of Portola Coffee Lab, a coffee-roaster excited at the opportunity to take on Sipology as his first big client. "I was very eager for business," he says. "It was potentially a big account for me, and I wanted to do everything I could to maintain it."
That eagerness, he says, led to his letting himself be strung along by Guanajuato for far too long. "At the time I thought he was genuine, but he really is not," says Duggan. "I see it now."

Duggan says Sipology fell behind on payments "almost immediately," and that after the third month Duggan finally broached the subject -- and got "a whole song and dance" from Guanajuato.

"Isaac will do anything to get his way, and he really doesn't care at all," Duggan says. "[He] would do things like make large partial payments [for past-due bills] -- like if I dropped of $600 of coffee, they would pay $1,000."

Duggan says he finally told Guanajuato, "'I'm not going to sit here and finance your business interest-free.' [But] then they came up with a cockamamie story about getting some investment money -- I think it was $90,000 -- from the City because they were in a historic district. […] They pitched a good story, and I continued to supply them."

Duggan estimates that Sipology closed owing him about $22,000, and reports that Guanajuato and Orosco do not return his calls. "Every time I think about it, my blood boils," he says.

Tiffany Semoy Davy worked at both Sipology locations, as well as the restaurant, between August 2010 and May 2011. She recounts how in October 2010 she received from Guanajuato the first of what would be many paychecks that bounced. 

Subsequent to that incident, Davy says she received some cash payments from Guanajuato -- though often he would arrange to make these payments not at Sipology, but out of his apartment or car.

"I wasn't like the first person they owed money to," she says, "At some point they started paying us from the drawer. […] They hired new people to replace everyone who quit."

Arturo Enciso, who in May 2011 became one of the last hires at Sipology's East Village location, echoes the reports of other Sipology employees -- and indicates that even so late in the game Guanajuato was continuing to string his employees along. After Enciso's first paycheck bounced, he says Guanajuato "acted like he'd never seen something like that. But […] I found out later he was acting like that to people for a year."

However, Davy notes that not all of the Sipology owners were cut from the same ethical cloth. "I started to see the problems that were happening [at the East Village location] weren't happening at the other location," she says. "The other owner, Mike [Gutierrez], was more on top of it. I really liked him and how he tried to handle things."

Gutierrez says his involvement with Sipology began as a customer who, ostensibly because of his eight years of experience in restaurant management, was approached by Guanajuato at end of 2009 about opportunity of starting up that second location.

"I had no idea of the trouble that they were in," Gutierrez says. "From everything I knew as a customer it looked like things were tip-top, and it was just an opportunity for myself to get into business on my own."
For a while Gutierrez's entire focus was on the day-to-day operations of his location, which he ran without the aid of Guanajuato and Orosco. But eventually it dawned on him that all was not well in the world of Sipology.

"By the time I realized how things were gonna turn out, it was already a little bit too late for me," says Gutierrez, "and [Guanajuato and Orosco] had already started to disappear."

Understanding that his business was in danger, Gutierrez "did everything I needed to do to make sure all the time and effort I'd put into this location was going to be secure" -- including seeking legal counsel, which informed him of the steps he needed to take to protect his investment and separate completely from Sipology.

"I don't know if their eyes were bigger than their stomachs, or what the deal was," Gutierrez says. "But I got into this with the best of intentions."

Like Gutierrez, Nathan Israel was a customer Guanajuato approached to help expand the Sipology brand. "He was looking for people to come in with money, or find somebody who could come in and invest," Israel says.

After listening to Guanajuato's pitch and visiting the soon-to-be-closed Trattoria Limone to verify the quality of the physical space and the customer base that seemed to be in place, Israel invested in Red: A Sipology Kitchen.

But within a couple of months of opening, Israel -- who says he was neither involved in the day-to-day operations of the restaurant, nor was he at any time part of Sipology Coffee Co., LLC -- was tipped off to the fact that employee and vendor checks were bouncing. 

"I don't remember what [explanation Guanajuato] told me," Israel says, "but from that point on it was kind of a red flag. Unfortunately, I was already invested. […] It doesn't really matter what he told me -- actions speak louder than words."

Israel says that by the end of 2010 it was apparent that the Sipology enterprise was in dire trouble. "It was at the point where it was like, 'Oh my god.' […] They grew way too quickly, and then it became like they were robbing Peter to pay Paul. And you can't really do that. […] At that point in time I began to see the ship starting to sink."

By June 2011 the restaurant was out of business, with Israel minus his investment and numerous vendors and employees owed money. Israel reports some relatively recent communication with Orosco regarding settling up at least a portion of the restaurant's debts to vendors, but it is unclear if Orosco is serious about making these payments. 

"I'll say this," Israel relates: "he hasn't made good on any outstanding debts yet."

And as for Guanajuato? "Isaac won't speak to me," Israel says. "I told him straight up that he's unethical, that he lacks conscience. […] After the restaurant closed and [the East Village location] was dwindling, he was gone a month before this place closed. He left it to the employees. There was no communication between the employees and him; he walked away from it. How do you walk away from a business and not tell your employees anything? They're not getting paid, they don't know what's going on…. It's that type of actions that tell you what kind of guy he is."

Like Duggan, Israel was told by Guanajuato that Sipology was receiving money from the City that would help keep the endeavor afloat.

"I've heard that they were into the City for money from the RDA; I don't know if that's true," Israel says. "I know they owe a lot of people a lot of money. […] It's sad, because it really could have been a good thing. "

Look for Part 2 this story within the next week to find out what has risen from Sipology's ruin, and what remains nothing but ashes. 

¹ Not to mention one local author out five copies of his novel and/or proceeds from sales thereof. (That author's having a reading 7 p.m. Monday at Portfolio Coffeehouse, BTW. Dig.)