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IN THE UNITED STATES DISTRICT COURT 

WESTERN DISTRICT OF TEXAS 

AUSTIN DIVISION 

JAKE GUARINO, 

 Plaintiff/Counter-Defendant, 

 v. 

VISUAL EDGE, INC., 

 Defendant/Counter-Plaintiff. 

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Civil Action No.: 1:20-CV-00670RP 

DEFENDANT’S ORIGINAL COUNTERCLAIMS 

 Defendant/Counter-Plaintiff Visual Edge, Inc. (“Visual Edge”) files its Original 

Counterclaims and as Counter-Plaintiff complains of Plaintiff/Counter-Defendant Jake Guarino 

("Plaintiff" or "Guarino"), and for its causes of action, would respectfully show the Court the 

following: 

I. 

PARTIES

1. Plaintiff/Counter-Defendant Guarino is an individual who is a citizen of the State 

of Texas. Guarino has already made his appearance by way of being the Plaintiff in this action 

and service is hereby made through his attorneys of record in this action, Daniel H. Byrne and 

Christine E. Burgess, with the law offices of Fritz, Byrne, Head & Gilstrap, PLLC, 221 West 6th 

Street, Suite 960, Austin, TX 78701 by filing and service via the CM/ECF filing system. 

2. Defendant/Counter-Plaintiff Visual Edge, Inc. is a Delaware corporation with its 

principal place of business in the State of Ohio. Visual Edge engages in business in the State of 

Texas under the assumed names Zeno Digital Solutions, Zeno Imaging, and Zeno Business 

Systems. 

 

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II. 

JURISDICTION AND VENUE

3. The Court has jurisdiction over this lawsuit pursuant to 28 U.S.C. § 1332(a)(1) 

because Guarino and Visual Edge are citizens of different states of the Unites States and the 

amount in controversy exceeds $75,000.00, excluding interest and costs. 

4. Venue is proper in this district under 28 U.S.C. § 1391(b)(2) because a substantial 

part of the events or omissions giving rise to the claims and counterclaims occurred in this judicial 

district. 

III. 

BACKGROUND FACTS

5. On information and belief, in 2008, Guarino was hired as the Vice President of 

Managed Print Services of Zeno Digital Solutions, LLC d/b/a Zeno Imaging ("Zeno"). At that 

time, Zeno was principally owned by the founder of the company Thomas Frederick ("Frederick"). 

On information and belief, Frederick was largely an absentee owner of the business and turned 

over operational authority and responsibility to Guarino. In 2014, Guarino was made an Executive 

Vice President of Zeno. 

6. On information and belief, effective on or about January 1, 2015, Zeno adopted a 

new pay structure for Guarino which was tied to Zeno's financial success. Specifically, Guarino's 

bonus structure was tied to two key performance indicators: revenue achieved and earnings before 

depreciation and amortization ("EBDA"). Guarino's compensation plan was set forth in a letter 

agreement dated January 13, 2015 (the "Compensation Agreement") which, on information and 

belief, Guarino himself substantially authored. Under the terms of the Compensation Agreement, 

Zeno agreed to provide Guarino a base salary, together with the following: 

 10% of the gross profit of each deal resulting from Guarino's personal sales to be paid on 

the payroll following funding of a deal (the "Commissions"); 

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 a bonus of 0.4% of Zeno's total monthly revenue (the "Revenue Bonus") as reported on the 

Company's financials as prepared according to Generally Accepted Accounting Principles 

("GAAP"); and 

 a bonus of 4% of Zeno's quarterly EBDA (the "EBDA Bonus") as reported on the 

Company's financials as prepared according to GAAP. 

The Revenue Bonus and EBDA Bonus are referred to hereafter collectively as the "Bonuses." 

7. Effective as of October 31, 2018, Zeno and Visual Edge entered into an Asset 

Purchase Agreement whereby Visual Edge purchased Zeno's assets in the Houston and Austin 

markets and which included the purchase of the assumed name Zeno Digital Solutions and Zeno 

Imaging. Excluded from the purchase were all assets used exclusively in Zeno's Dallas, Texas 

location (the "Dallas Business") and Zeno's professional services business (the "Professional 

Services Business"). 

8. As part of the Asset Purchase Agreement, Visual Edge hired Guarino, together with 

then-Zeno Vice Presidents Casey Vaughan ("Vaughan") and Scott Copeland ("Copeland"), and 

retained Guarino's existing compensation plan. Visual Edge initially hired Guarino as President 

of the new Zeno division. Subsequently, in the fall of 2019, Visual Edge regionalized various 

markets and named Guarino as the General Manager of the Southwest Region. As President and 

General Manager, Guarino had the operational authority and responsibility to oversee and manage 

the new Zeno division in the Houston and Austin markets, including accurate financial reporting 

relating to the Zeno division. 

9. As the President of Zeno, and subsequently the General Manager of Visual Edge's 

Southwest Region, Guarino owed Visual Edge fiduciary duties to manage and operate the business 

in a trustworthy and honest manner. As such, Guarino was bound to exercise the utmost honesty, 

good faith and full disclosure on all transactions related to the business and its finances. As 

reflected below, the trust and confidence placed in Guarino was violated by Guarino who 

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repeatedly breached his fiduciary duties and engaged in acts of self-interest by deliberately not 

following required protocols for the reporting and recording of sales transactions, falsifying and 

misrepresenting (and/or requiring others who reported to him to falsify) the financial results of 

Zeno in order to artificially increase his Bonuses and Commissions and his anticipated earn out 

from the sale of the company, together with other acts of misconduct during the time he served in 

a fiduciary capacity for Visual Edge. 

10. After the purchase of Zeno, it took several months for the Zeno accounting system 

to become fully integrated with Visual Edge's accounting system. After these accounting systems 

were more fully integrated in approximately April 2019, some troubling patterns began to emerge 

as to how Zeno and Guarino were reporting and recording "deals" or sales transactions with 

customers. There were repeated instances of Zeno, at Guarino's express direction, recording sales 

transactions on the Zeno financial system without required protocols being followed which 

resulted in a high level of uncollectable accounts receivable, bad debt, and ultimately less revenue 

than what was anticipated at the time of the Zeno asset purchase. Examples include, but are not 

limited to: 

 shipping equipment and posting revenue for sales transactions with no approved lease or 

credit approval for the customer; 

 not properly documenting Delivery and Acceptance ("D&A") of equipment sales and 

leases; 

 inadequate documentation for large customer accounts; 

 providing manual credit memos to customers without entering the credit into the financial 

system; 

 billing maintenance contracts after the contracts had expired or had been cancelled by the 

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customer resulting in uncollectable account receivables ("A/R") and the accumulation of 

bad debt; 

 booking and posting revenue on sales before the work had been completed; and 

 moving A/R from the Zeno balance sheet off of the A/R trial balance to a miscellaneous 

account so that unpaid items would not appear to be aging, uncollectable or as a reserve 

calculation. 

Guarino engaged in false and deliberate manipulation of Zeno's financial performance in order to 

increase Bonuses and Commissions he claims are owed to him under the Compensation 

Agreement. The failure by Guarino to follow GAAP, as he was required to do under the terms of 

his Compensation Agreement to be eligible to receive Bonuses and Commission, as well as the 

failure to comply with required protocols for recording and reporting sales transactions, was done 

by Guarino in an effort to falsely and artificially increase his personal sales, together with Zeno's 

reported monthly revenue and quarterly earnings, so as to increase the Bonuses and Commissions 

to be paid to him under the terms of the Compensation Agreement. 

11. As a result of Guarino's fraudulent and deceptive conduct, Visual Edge was 

required to spend considerable time, money and resources to go back and perform an accounting 

and adjustment of Zeno's true financial performance during the time Guarino was President and 

General Manager. The result of that accounting and adjusted financial statements demonstrates 

that if Guarino is owed any additional compensation under the terms of the Compensation 

Agreement, it is far less than what he claims to be owed in this lawsuit. 

12. Guarino had an additional personal financial incentive to falsify the financial 

performance and results of Zeno. The Asset Purchase Agreement contained an earn-out and 

contingent payment provision whereby Visual Edge was contractually obligated to pay to Zeno 

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and Frederick (the "Sellers") the following additional amounts contingent upon the financial 

performance of the purchased Zeno assets after the sale: 

 up to Five Million, Seven Hundred and Sixty Thousand Dollars ($5,760,000.00) 

for a 2018 contingent payment; 

 up to Four Million, Two Hundred Thousand Dollars ($4,200,000) for an Earn-out 

#1 contingent payment; and 

 up to One Million, Four Hundred and Forty Thousand Dollars ($1,440,000) for an 

Earn-out #2 contingent payment. 

13. Pursuant to the Asset Purchase Agreement, Guarino and two other Zeno executives 

were entitled to be paid 25% in the aggregate to the extent any earn out payments were required 

to be made and provided that he was still employed by Visual Edge at the time such payments 

were made. Based on information and belief, by virtue of an agreement with the Sellers, Guarino 

has and retains a financial interest in any earn out payment made to the Sellers of up to 

$850,000.00. 

14. During the time he was employed with Visual Edge and in an effort to maximize 

his anticipated earn out payment, Guarino falsified (and/or required others who reported to him to 

falsify) Zeno's financial performance and results to make it appear as if Zeno was doing better 

financially than what it truly was. Among other things, as part of this scheme, Guarino required 

others in the organization who reported to him to defer earned bonus and commission payments 

until a later time, after the earn-out had been paid. 

15. As a result of Guarino's fraudulent manipulation of Zeno's financial performance 

and financial statements during the time he was placed in charge of operating the business, and 

prior to understanding the full scope of Guarino's fraudulent activities, in January 2020, Visual 

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Edge and the Sellers entered into an Amendment No. 1 to the Asset Purchase Agreement and 

Release (the "Amendment") whereby the parties agreed to reduce the total maximum aggregate 

purchase price and provide for a final calculation of the 2018 Contingent Payment and Earn-out 

#1 in order to restructure the purchase price contingencies and accelerate the cash payments to the 

Sellers. In connection with the Amendment, Visual Edge Technology, Inc., the parent company 

of Visual Edge, was required to enter into promissory notes in the total amount of $3,600,000.00 

to be paid to the Sellers. Additionally, in connection with the Amendment, Visual Edge was 

required to waive and release any claims it may have had against the Sellers related to the original 

Asset Purchase Agreement. 

16. Guarino's fraudulent activity described above resulted in Visual Edge agreeing to a 

higher purchase price and better terms to the Sellers, both at the time of the acquisition but also in 

connection with the Amendment. Visual Edge would not have agreed to the Amendment with the 

revised purchase price, promissory notes and release of claims if Guarino had not engaged in the 

fraudulent activities and had not breached his fiduciary duties in connection with Zeno's financial 

performance and results. As a result, Visual Edge seeks damages of no less than $3,342,000.00. 

17. As set forth above, when Visual Edge purchased Zeno, it did not purchase the 

Professional Services Business of Zeno. Unbeknownst to Visual Edge, Zeno's prior owner 

Frederick sold this part of the business to Guarino, Vaughan and Copeland, which was then spun 

off into a new entity named Innovative Orange, LLC ("Innovative Orange"). According to the 

Texas Comptroller's website, the original members and directors of Innovative Orange were 

Guarino, Vaughan and Copeland who at the time were also among the highest paid employees of 

the Southwest Region. This transaction was never disclosed to Visual Edge. In fact, this conduct 

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directly contradicted a conflict of interest representation made by Guarino, wherein he failed to 

disclose that he had any relationship with Innovative Orange. 

18. Prior to the sale of Zeno to Visual Edge, the Professional Services Business of Zeno 

had entered into contracts with a number of customers for the sale or lease of Laserfiche software. 

Laserfiche software is an enterprise content and document management system. Zeno's contracts 

with customers regularly consisted of three components: equipment lease or sale; after-sale service 

and support; and professional services for development and Laserfiche licensing. In most cases, 

all three components were bundled into a single contract. These contracts and leases were 

regularly sold by Zeno to finance companies that funded the equipment leasing or sale portion of 

the contract but did not fund the after-sale service and support or the professional services portion 

of the contract. As a result, Zeno was paid and received the sales revenue up front although there 

were continuing recurring costs and expenses related to the after-sale service and support required 

under the contract with the customers. These Laserfiche-related contracts were subsequently 

transferred to Innovative Orange upon the purchase of the Professional Services Business by 

Guarino, Vaughan and Copeland. 

19. In approximately April 2020, it was discovered that Guarino was approving and 

submitting costs and expenses for the professional services portion of the Laserfiche contracts for 

Visual Edge to pay. When questioned about these costs and expenses, Guarino falsely advised 

Visual Edge that the costs and expenses being submitted for payment related to service and support 

for Laserfiche contracts that had been entered into after the Zeno asset purchase and for which 

Zeno would be paid sufficient revenue to cover the costs and expenses. This was false. In reality, 

the majority of the costs and expenses being passed on to Visual Edge to pay related to contracts 

that had been entered into by Zeno before the asset purchase, and where Zeno had been paid all of 

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the revenue up front but had not accrued for the subsequent recurring costs and expenses associated 

with the after-sale service and support required by the contracts with the customers. 

20. The responsibility to pay the recurring costs and expenses for Laserfiche-related 

customer contracts that had been entered into prior to the Asset Purchase Agreement was 

exclusively upon either Zeno's prior owner or Innovative Orange. Despite knowing this, Guarino 

fraudulently and under false pretenses approved and submitted invoices relating to such costs and 

expenses for Visual Edge to pay and that Visual Edge did pay in an amount exceeding $331,000.00 

during the time he was employed in a fiduciary capacity. Visual Edge seeks the return of this 

amount from Guarino. 

IV. 

CAUSES OF ACTION

Count I: Breach of Fiduciary Duties 

21. All the facts and allegations in the preceding paragraphs are incorporated herein by 

reference as if fully set forth herein. 

22. In the capacity of President and/or General Manager of the Zeno division, Guarino 

owed fiduciary duties to Visual Edge. The conduct described above constitutes a breach of his 

fiduciary duties, including his duty of loyalty, duty to refrain from self-dealing, duty to act with 

integrity, and duty of full disclosure. Among other things, Guarino breached his duties by falsely 

representing the true facts relating to his personal sales as well as the results of Zeno's reported 

monthly revenue and quarterly EBDA so as to artificially increase the Commissions and Bonuses 

to be paid to him under the terms of his Compensation Agreement. 

23. Guarino also breached his fiduciary duties by falsifying Zeno's financial 

performance in an effort to maximize his anticipated earn out payment related to the purchase of 

Zeno's assets by Visual Edge. 

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24. Guarino also breached his fiduciary duties by approving and submitting costs and 

expenses to be paid by Visual Edge relating to Laserfiche contracts when in fact such expenses 

should have been paid directly by either the prior owner of Zeno or Innovative Orange, a company 

Guarino surreptitiously had a personal interest in while still employed at Visual Edge. 

25. Guarino willfully, intentionally and with actual malice breached his fiduciary duties 

which proximately caused damages to Visual Edge. Visual Edge seeks damages in excess of the 

jurisdictional limits of this Court. 

Count II: Fraud, Constructive Fraud and Negligent Misrepresentation 

26. All the facts and allegations in the preceding paragraphs are incorporated herein by 

reference as if fully set forth herein. 

27. By making material false and misleading statements, and/or remaining silent when 

he had a duty to speak, Guarino, in the course of his employment and with the purpose that Visual 

Edge rely on the statements, intentionally or negligently misrepresented facts, failed to disclose 

facts and supplied false information to Visual Edge, upon which it justifiably relied to its detriment. 

These material misrepresentations were made with knowledge of their falsity when made or with 

negligent indifference as to their veracity when made and proximately caused damages to Visual 

Edge in an amount in excess of the jurisdictional limits of this Court. 

28. In addition, Guarino had fiduciary duties to disclose material facts and to not make 

material misrepresentations relating to Zeno's and Visual Edge's business. Guarino has breached 

these duties, and as a result, has constructively defrauded Visual Edge and has proximately caused 

damages in an amount in excess of the jurisdictional limits of this Court. 

 

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Count III: Damages 

29. For the reasons set forth above, Visual Edge seeks actual, special, consequential 

and exemplary damages, together with equitable remedies, resulting from Guarino's fraudulent 

conduct and breaches of his fiduciary duties. Because Guarino has been unjustly enriched under 

the Compensation Agreement, Visual Edge seeks the return of the value of all Bonuses and 

Commissions paid to him by Visual Edge pursuant to the Compensation Agreement; repayment 

of the costs and expenses that were improperly paid by Visual Edge relating to Innovative Orange; 

damages associated with the Amendment to the Asset Purchase Agreement; together with payment 

by Guarino of any and all accounting costs and fees, legal costs and fees, and other professional 

costs (including all internal and external costs incurred in investigating Guarino's misconduct) and 

fees incurred now or in the future as a result of Guarino's fraud and breach of his fiduciary duties. 

30. Guarino's multiple acts of fraud and breach of his fiduciary duties were done with 

malice and/or specific intent to cause substantial injury to Visual Edge. Visual Edge therefore is 

entitled to an award of exemplary damages against Guarino in this action in an amount in excess 

of this Court's minimum jurisdictional limits. 

V. 

ATTORNEY FEES

31. As a result of Guarino's actions, the damages anticipated by Visual Edge and the 

necessity for instigating these counterclaims to recover same, Visual Edge seeks recovery of its 

attorneys' fees incurred in this action. 

VI. 

CONDITIONS PRECEDENT

32. All conditions precedent to the recovery of the relief requested by Visual Edge 

herein have occurred. 

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VII. 

PRAYER FOR RELIEF

 WHEREFORE, Defendant/Counter-Plaintiff Visual Edge, Inc. prays: 

(a) that Visual Edge have judgment against Counter-Defendant Guarino for actual 

damages, special damages, consequential damages, and exemplary damages, for its claims as 

described herein; 

(b) that Visual Edge have judgment against Counter-Defendant Guarino for costs and 

its reasonable and necessary attorneys’ fees; 

(c) that Visual Edge have judgment against Counter-Defendant Guarino for prejudgment and post-judgment interest as allowed by law; and 

(d) that Visual Edge be awarded such other and further relief, at law or in equity, as 

may be just and proper. 

Dated: March 1, 2021 Respectfully submitted, 

/s/ Thomas E. Reddin 

Thomas E. Reddin 

State Bar No. 16660950 

tom.reddin@nortonrosefulbright.com 

Joshua Owings 

Texas State Bar No. 24117274 

josh.owings@nortonrosefulbright.com 

NORTON ROSE FULBRIGHT US LLP 

2200 Ross Avenue, Suite 3600 

Dallas, TX 75201-7932 

Telephone: (214) 855-8000 

Facsimile: (214) 855-8200 

Counsel for Defendant 

Visual Edge, Inc. 

 

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CERTIFICATE OF SERVICE 

I hereby certify that on March 1, 2021, a true and correct copy of the foregoing has been 

filed with the Court via the CM/ECF filing system and served via same on the following counsel 

of record: 

Daniel H. Byrne 

dbyrne@fbhg.law

Christine E. Burgess 

cburgess@fbhg.law

FRITZ, BYRNE, HEAD & GILSTRAP, PLLC

221 West 6th Street, Suite 960 

Austin, TX 78701 

Counsel for Plaintiff

 /s/ Thomas E. Reddin 

 Thomas E. Reddin 

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