In January, Kirk Guthrie signed a sworn affidavit stating that he had run his own design business inside Warner's while he was an employee, using Warner's employees, reputation and credit, drivers and warehousemen to process, deliver and install the merchandise he sold.

He also states that he split fees, commissions or profits with Ebbett and that Ebbett had started his own business inside Warner's, using Warner's client base. Guthrie says he paid Ebbett $108,000 between October 1991 and October 1992 in connection with his own business.

A review of Warner's records, court documents and an interview with Guthrie indicate that the scenario through which Warner's alleges its business was stolen worked like this:

Guthrie would order merchandise and work to be done on a client's home. Merchandise that was not delivered directly to a client's home was delivered to Warner's. Warner's employees then delivered that merchandise to the client.

Invoices from suppliers were sent to Warner's, which Guthrie paid with a personal check. He then presented either the original invoice to the client or, in some cases, created his own invoice reflecting a markup of anywhere from 5 to 160 percent. Clients paid Guthrie. He kept the profit, and, in some cases, paid a portion to Ebbett.

"I always made Warner's more money than I ever did," Guthrie says. "I really feel that the clientele felt like they were being treated fairly by me because I would let them have some things cheaper and they had to pay the full price on others.

"If I had approached them and said, 'Well, I have to have a 50 percent markup,' they would have never talked to me."

However, in at least one instance, the customer had no idea what he was buying, let alone what the markup was.

In an April 1992 sale to Bruce Halle, owner of Discount Tire Stores and Warner's largest customer, Guthrie falsified an invoice from an antique dealer in Los Angeles, nearly doubling the price of three items for a total of about $24,000.

While the bill went to Halle, the merchandise went to his daughter's home in San Diego.

According to Guthrie, the price of those items was inflated to cover items that Ebbett had included in the delivery from his own home. Ebbett did not want Halle to know that they came from his home, so he didn't itemize them. Guthrie then paid Ebbett with the money he collected from Halle.

"Gerry told me to do it this way," Guthrie says. "It was, 'Kirk, do this'--Done."

In a different transaction, another designer ordered a rug for a client from a dealer in California. It was shipped to Warner's and installed by Warner's employees. The client paid Ebbett $38,200 for the rug. Ebbett then wrote a check for $28,000 to the dealer for the rug. He also wrote a check for $5,000 to another designer, which he says in his deposition was her share of the profits.

"If I hadn't done it direct, I wouldn't have been able to finish the job," Ebbett says in deposition.

Ebbett and Guthrie both justify going off the books of Warner's. They claim that they were ordering items and paying the suppliers for them out of their own pockets because Warner's didn't have the money. But bank records show that Ebbett and Guthrie did not pay the suppliers until they collected from their customers.

In 1989, Guthrie says he went to Ron Warner and told him that he and Ebbett both were doing business on the side. The occasion was that Ebbett had mandated that all the designers at Warner's were to use a drapery maker called Custom Works exclusively.

Guthrie was furious. He had had a falling out with the owner of Custom Works over a bill from a client and did not care to do any further business there.

In describing the scenario to Warner, Guthrie says, he included that he had done side work and so had Ebbett, and offered his resignation. Warner, he says, sent him back to Ebbett to work things out.

"I met with Gerry and offered my resignation," Guthrie says in his deposition. "He explained to me that this was a normal part of this business and this had to happen from time to time to keep a job running and that my resignation was not accepted and that I produced much too much business for something like this to interfere with my employment relationship with Warner's Interiors."

Ebbett says in his deposition that he sent the business to Custom Works because the drapery company was renting a house that he and Warner jointly owned, and because the business would carry Warner's for up to $10,000 on jobs. Warner says he told Ebbett that the fact that they were landlords to the drapery business is exactly why it wasn't a good idea to use Custom Works exclusively.

But Ebbett left out another piece of information, according to his deposition. Ebbett never told Warner that he was a partner in the Custom Works business.

"At a company this small, in which hundreds of thousands of dollars' worth of merchandise is in this warehouse going out and it's not being run through Warner's . . . it's impossible for everybody not to be in on it," observes Warner.

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It always warms my heart to see how a small business can develop into a million-dollar enterprise with sheer hard work and talent. But when that same business shatters, the feeling can be crushing. Still, this incident at Warner’s not only opened doors to queries, but also opened eyes to the dirty world of money-making.

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