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A New Jersey appeals court has reinstated a legal malpractice suit stemming from complications that arose in the sale of a waste-hauling company.

The appeals court reinstated the suit against John Ambrosio and his firm, Ambrosio & Associates of Newark, finding in Tuesday’s decision that the plaintiffs made a prima facie claim of legal malpractice.

The case concerns the 2009 sale of Walker Management Systems to another waste hauler, Meadowbrook Industries.

At the time of the sale, Walker was unable to complete the deal without liens or encumbrances because creditors held title to various assets. The parties added an addendum to the sales contract calling for Meadowbrook to assume the debt and indemnify Walker against claims by creditors. The principal of Walker, Lori Vance, later claimed that Meadowbrook added those terms to the agreement without her knowledge.

About a week after Meadowbrook completed its purchase of Walker, Meadowbrook disclosed it could not take the assignment of Walker’s service contracts with the state of New Jersey because of past violations of the “pay-to-play” law.

Two months after the sale was complete, in September 2009, Meadowbrook sued Walker and Vance, alleging breach of contract.

Walker retained attorney Gabriel Ambrosio in 2010 to represent it in the suit filed by Meadowbrook. After Gabriel Ambrosio became ill, the case was transferred to his brother and law partner, Anthony Ambrosio. In 2011, John Ambrosio and his firm, Ambrosio & Associates, took over the case.

In 2016, Vance and Walker filed a malpractice suit against Anthony Ambrosio, John Ambrosio and the estate of Gabriel Ambrosio. They claimed the attorneys failed to argue that Meadowbrook’s failure to disclose its inability to service the state contracts voided the sales contract.

The attorney defendants moved for summary judgment on the malpractice suit, and Judge Craig Wellerson of Ocean County Superior Court granted the motion in December 2017. The plaintiffs appealed the dismissal of John Ambrosio and his firm.

At the Appellate Division, Walker and Vance claimed Ambrosio committed malpractice by failing to assert that the sales agreement was void from inception based on Meadowbrook’s failure to disclose its restriction on taking state contracts. In opposing summary judgment, Ambrosio argued that the sales contract was unenforceable because of the failure of Meadowbrook to obtain prior approval of the sale from the state Department of Environmental Protection. Ambrosio also claimed that the sales contract was void because Meadowbrook added terms without Vance’s knowledge.

Appellate Division Judges Thomas Sumners Jr. and Stephanie Ann Mitterhoff said that, if the theory of fraud by Walker and Vance had been successful, Ambrosio and his firm may have breached their duty of care by failing to raise this argument.

Sumners and Mitterhoff, viewing facts in the light most favorable to plaintiffs and granting inferences in their favor, said plaintiffs presented sufficient evidence to establish a prima facie case of legal or equitable fraud in the Meadowbrook case. But to prevail on a fraud claim, Sumners and Mitterhoff said, the plaintiffs must show that the defendants intended for them to rely on the fraudulent representation, that reasonable reliance resulted, and that the plaintiffs suffered damages as a result.

Sumners and Mitterhoff said the plaintiffs presented sufficient evidence for a reasonable jury to infer that Meadowbrook was aware that the ban on state contracts was a material issue in the transaction and that plaintiffs would rely on nondisclosure of the ban. And the facts demonstrate that Meadowbrook’s principal knew his company could not perform state contracts and intended for Walker and Vance to rely on that omission, the judges said. And a reasonable jury could infer that the plaintiffs justifiably expected that Meadowbrook would service the state contracts.

Finally, plaintiffs presented sufficient evidence to show they were damaged by entering into the sales contract without knowing that Meadowbrook would be unable to carry out the state contracts, Sumners and Mitterhoff said. Vance states that her company was forced to spend substantial funds to continue servicing the state contracts after selling a majority of its assets to Meadowbrook, that she filed Chapter 11 bankruptcy as a result of Meadowbrook settling Walker’s debts for less than the amount owed, that she was unable to find other employment in the waste-collection industry because of a noncompete clause in the sales agreement, and that she said she lost $1.1 million in commissions on the state contracts, the judges said.

Plaintiffs have presented sufficient evidence to support that their preferred theory of fraud might have been successful, Sumners and Mitterhoff said.

“We therefore conclude that the trial court improvidently granted summary judgment and dismissed plaintiffs’ legal malpractice claim,” the judges said.

Vance and Walker Management were represented by David Berlin and Matthew Weisberg of Weisberg Law in Morton, Pennsylvania. Weisberg said in a statement, ”While it is this firm’s policy not to comment on the merits of an attorney liability matter, we are pleased with the Appellate Division’s ruling and look forward to a trial whereupon our clients believe they will be successful. The ruling is even more gratifying given appellee-defendants sought and repeatedly threatened sanctions for a so-called frivolous lawsuit (which sanctions adjudication the now reversed trial judge only held in abeyance pending this adjudication at our request).”

Ambrosio and his firm were represented by Cathleen Kelly Rebar of Rebar Bernstiel in Blue Bell, Pennsylvania. Rebar said her clients had not authorized her to discuss the case.