Zappacosta

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF PENNSYLVANIA

IN RE: :

: Chapter 13

COZETTE MCAVOY, :

:

: Bankruptcy No. 24-11597-AMC

:

DEBTOR :

:

:

JASON ZAPPACOSTA & :

JOY GODOWSKI, :

:

PLAINTIFFS :

:

v. : Adv. Pro. No. 24-00087-AMC

:

COZETTE MCAVOY, :

:

DEFENDANT :

____________________________________:

OPINION

I. INTRODUCTION

Plaintiffs Jason Zappacosta and Joy Godowski (the “Zappacostas” or “Plaintiffs”) move

pursuant to Federal Rule of Civil Procedure 56 (“FRCP 56”)1 for summary judgment on their

claim against Defendant Cozette McAvoy (“Defendant,” together with the Zappacostas, the

“Parties”) that the debt she allegedly owes them is nondischargeable under § 523(a)(2)(A) as

arising from false representations made by Defendant to Plaintiffs in connection with the sale of

certain real property (the “Motion for Summary Judgment” or the “Motion”).

As discussed below, Plaintiffs have met their burden to establish that there is no genuine

dispute as to certain material facts that entitle Plaintiffs to judgment as a matter of law on three

1 Made applicable in bankruptcy through Federal Rule of Bankruptcy Procedure 7056. See Fed. R. Bankr. P. 7056.

of the five elements necessary to succeed on a § 523(a)(2)(A) claim, including that (i) Defendant

made false representations in the Seller’s Disclosure, defined below; (ii) Defendant knew such

representations were false or made them with at least a reckless disregard for their truth; and (iii)

Defendant made the false representations with intent to deceive Plaintiffs.

However, genuine disputes of material fact remain as to whether Plaintiffs justifiably

relied on Defendant’s false representations, and therefore necessarily also as to whether damages

were a proximate result of those false representations.

Accordingly, the Motion for Summary Judgment will be granted in part and denied in

part. The Motion will be granted in favor of Plaintiffs and against Defendant on the first three

requisite elements of § 523(a)(2)(A), including that: (i) Defendant made false representations;

(ii) Defendant knew of their falsity; and (iii) Defendant intended to deceive Plaintiffs through

those false representations. The Motion will be denied respecting the issues of whether Plaintiffs

justifiably relied on Defendant’s representations and any damages resulting from the

representations.

II. UNDISPUTED FACTS

In June of 2018, Plaintiffs purchased certain residential real property located at 2841

Cambridge Street in Philadelphia, Pennsylvania, 19130 (the “Cambridge Property”) from

Defendant’s single-member limited liability company, Gentian Capital, LLC (“Gentian”). Case

No. 24-87, ECF 1, ¶ 13(a); ECF 1-3, Ex. C, ¶ 1.2

On June 9, 2020, Plaintiffs commenced a civil action against Defendant and Gentian,

captioned Jason Zappacosta, et al. v. Cozette McAvoy, et al. (Pa. C.P., Philadelphia Cty., Civ.

2 As discussed below, at the March 10, 2025 trial before the Philadelphia Court of Common Pleas, Defendant

testified that she “was always the 100 percent owner of Gentian…[and] the only member of Gentian.” See Case No.

24-87, ECF 13-6, Ex. B, 121:2-7.

Div., No.: 2006-00518) (the “State Court Action”) in the Philadelphia Court of Common Pleas.3

See Case No. 24-87, ECF 1, ¶¶ 13(a), (k). Through the complaint filed in the State Court Action

(the “State Court Complaint”), Plaintiffs alleged that, in selling the Cambridge Property to

Plaintiffs, Defendant made false representations regarding her knowledge of the construction and

condition of the Cambridge Property, including, inter alia, the presence of improperly installed

stucco, a history of water infiltration and water leakage involving the roof, wood deterioration,

and mold infested pipes and vents. See Case No. 24-87, ECF 1-3, Ex. C, ¶¶ 57, 95, 98. The State

Court Complaint included claims brought by Plaintiffs against Defendant personally for: (i)

breach of contract (“State Court Count I”); (ii) breach of express and implied warranties of

fitness, merchantability, and habitability (“State Court Count II”); (iii) violation of the

Pennsylvania Real Estate Seller Disclosure Law, 68 P.S. § 7303 (“State Court Count III”); (iv)

negligent misrepresentation (“State Court Count V”)4; (v) fraudulent misrepresentation (“State

Court Count VI”); (vi) fraudulent concealment (“State Court Count VII”); (vii) violation of

Pennsylvania’s Unfair Trade Practice and Consumer Protection Law, 73 P.S. § 201-1, et seq.

(“State Court Count VIII); and (viii) civil conspiracy (“State Court Count IX”) (collectively, the

“State Court Counts”). Case No. 24-87, ECF 13-2, Ex. A.

On June 2, 2023, default judgment was entered in the State Court Action in favor of

Plaintiffs and against Defendant and Gentian (the “Default Judgment”). Case No. 24-87, ECF 1,

¶ 13(q-r).

3 Through the State Court Action, Plaintiffs also brought claims against seven additional co-defendants, including:

Michael P. Cohen; CC Philly Real Estate Realty, LLC, d/b/a Keller Williams Philly; Montevista, LLC; Tiago D.

Patricio; Danielle Mills; Gregory Damis; and Fox and Roach, L.P., d/b/a Berkshire Hathaway Fox and Roach

Realtors a/k/a Team Danis (the “State Court Co-Defendants”). See Case No. 24-87, ECF 1-1, Ex. A, 7. Plaintiffs

successfully settled their claims against the State Court Co-Defendants. See id. at 9.

4 The State Court Complaint includes two Counts labeled “Count V,” presumably in error. The first Count that is

labeled Count V, alleging liability for respondeat superior/vicarious liability, was not brought against Defendant. See

Case No. 24-87, ECF 13-2, ¶¶ 142-158.

On July 3, 2023, Defendant and Gentian commenced an appeal of the Default Judgment

to the Superior Court of Pennsylvania (the “Superior Court”), docketed as Jason Zappacosta, et

al. v. Cozette McAvoy, et al. (Pa. Super., 1779 EDA 2023) (the “First Appeal”). Case No. 24-87,

ECF 1, ¶ 13(w); ECF 1-1, Ex. A, 27.

On July 24, 2023, the Philadelphia Court of Common Pleas entered a molded verdict in

the State Court Action, awarding Plaintiffs damages against Defendant and Gentian, jointly and

severally, in the amount of $1,441,162.92, with post-judgment interest accruing at a daily rate of

$175.67 from June 15, 2023 (the “Default Judgment Damages Amount”). Case No. 24-87, ECF

1-7, Ex. G.

On May 9, 2024 (the “Petition Date”), during the pendency of the First Appeal,

Defendant filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code (the

“Bankruptcy Case”). Case No. 24-11597, ECF 1.

On May 24, 2024, Plaintiffs filed a proof of claim in the Bankruptcy Case for a secured

claim in the amount of $1,470,324.14 based on the Default Judgment and the Default Judgment

Damages Amount (the “Original Zappacosta Claim”).5 See Case No. 24-11597, Claims Docket,

Proof of Claim No. 2.

On June 13, 2024, Plaintiffs initiated this adversary proceeding (the “Adversary

Proceeding”) by filing a complaint (the “Adversary Complaint”), seeking: (i) exception to

discharge of the debt owed to Plaintiffs (the “Zappacosta Debt”) pursuant to § 523(a)(2)(A) of

the Bankruptcy Code for false representations allegedly made by Defendant to Plaintiffs in

connection with the sale of the Cambridge Property (“Adversary Count I”); and (ii) exception to

discharge of the Zappacosta Debt pursuant to § 523(a)(2)(A) and § 523(a)(6) of the Bankruptcy

5 The difference between the amounts in the Default Judgment Damages Amount and the Original Zappacosta Claim

presumably reflects interest accrued.

Code for Defendant’s alleged falsification of a mortgage for the purpose of frustrating any

collection effort by Plaintiffs (“Adversary Count II”).6 See Case No. 24-87, ECF 1. More

specifically, in Adversary Count I, Plaintiffs allege that the Zappacosta Debt was obtained by

Defendant through false representations within the meaning of § 523(a)(2)(A) insofar as

Defendant, pursuant to the sale of the Cambridge Property, falsely represented in the seller’s

disclosure (the “Seller’s Disclosure”) (i) that Gentian, of which Defendant was the sole member,

did not possess any knowledge in the construction or development of the Cambridge Property,

despite Gentian and Defendant having been responsible for the construction and development of

the Cambridge Property; and (ii) that the roof of the Cambridge Property had never leaked,

despite Defendant having been made aware of water infiltration events involving the roof of the

Cambridge Property prior to sale to Plaintiffs. See Case No. 24-87, ECF 1, ¶¶ 13(d)-(g), ¶¶ 28-

29.

On September 27, 2024, in the First Appeal, the Superior Court struck the Default

Judgment and remanded the State Court Action to the Philadelphia Court of Common Pleas for a

trial on the issues of liability and damages. See Case No. 24-11597, ECF 57, ¶ 8.

On March 10, 2025, trial was held in the remanded State Court Action in the Philadelphia

Court of Common Pleas (the “Trial”). See Case No. 24-87, ECF 13-6, Ex. B. During the Trial,

the Philadelphia Court of Common Pleas deemed admitted all factual averments in the State

Court Complaint. 7 See Case No. 24-87, ECF 13-6, Ex. B, 66:11-15. Accordingly, this Court

observes that the following factual averments in the State Court Complaint relevant to this

6 The instant Motion for Summary Judgment concerns only Adversary Count I.

7 At the Trial, presiding Judge Erdos for the Philadelphia Court of Common Pleas stated: “Under the circumstances,

the factual averments are deemed admitted by the defendants” after discovering that three days prior to Trial, on

March 7, 2025, Judge Cohen of the Philadelphia Court of Common Pleas had entered an order granting Plaintiffs’

Motion to Strike Defendant’s Answer in response to the State Court Complaint. See Case No. 24-87, ECF 13-6, Ex.

B, 61:2-19, 66:11-15.

Adversary Proceeding were deemed admitted by the Philadelphia Court of Common Pleas

pursuant to the Trial:

15. Plaintiffs […] are the present owners and were, at all times relevant hereto, the bona-

fide buyers and purchasers of the Cambridge Property.

16. Defendant […] is the managing-member and/or controlling member of Gentian.

Defendant […] is also a member of […] Montevista[,] [LLC, a business entity organized

under the laws of the Commonwealth of Pennsylvania]. […]

19. At all times material hereto, […] Gentian and Montevista are the developers, builders,

owners, sellers, and/or contractors responsible for the construction, development, design,

structural integrity, marketing, and sale of the Cambridge Property. […]

30. […] Montevista purchased the Cambridge Property on February 8, 2010[,] as an

empty and vacant lot of land.

31. [Defendant, Gentian, Montevista, and Co-Defendant Tioga D. Patricio (‘Patricio’), a

member of Montevista (collectively, the ‘Seller Defendants’)] subsequently sought to

obtain permits necessary to develop, construct, and erect a new three-story residential

dwelling.

32. [T]he Seller Defendants served as the owners, general contractors, supervisors,

builders, and developers of the Cambridge Property throughout its construction.

33. [S]ometime during the early phases of development, [...] Montevista transferred title

of the Cambridge Property to […] Gentian via $1 quitclaim deed transfer.

34. […] Montevista and Gentian were controlled and operated by the same individuals,

including specifically Defendant[.]

35. [T]he construction of [the] Cambridge Property was completed on or around

November 2011.

36. [I]n 2011 through 2012, following the completion of construction, the Seller

Defendants actively marketed and listed the Cambridge Property for sale.

37. [T]he Seller Defendants could not sell the property, and ultimately, in 2014, began

seeking a tenant to occupy and rent the Cambridge Property.

38. [T]he Seller Defendants served as landlords and/or property managers over the

Cambridge Property during any time which it was occupied by tenants.

39. [T]he property was occupied by one or more tenants between 2014 through 2018.

40. On May 2, 2018, the Seller Defendants […] listed the Cambridge Property […] and

marketed the property for sale. […]

43. [After visiting the Cambridge Property on May 3, 2018,] Plaintiffs offered to

purchase the Cambridge Property at its full ask listing price of $489,900.

44. On May 4, 2018, Plaintiffs and […] Gentian entered [into] an Agreement of Sale for

the Purchase of the Cambridge Property.

45. Prior to the execution of the Agreement of Sale, Plaintiffs were provided with the

Seller’s Disclosure related to the Cambridge Property.

46. The Seller’s Disclosure was executed by Defendant […], on behalf of […] Gentian.

47. In the Seller’s Disclosure, the [Defendant] indicated that (a) the seller does not

possess any expertise related to the construction and condition of the Cambridge

Property[…]; (b) the seller has occupied the property since 2016 […]; the seller was not

aware of any current/past problems with the roof, gutters, flashing, or downspout […];

the roof has never leaked […]; the seller was not aware of any past or present water

infiltration in the house […]; and the seller was not aware of any mold tests or issues[.]

[…]

51. [Gentian] was an entity formed for the purpose of constructing, developing, and

profiting off the property. […]

54. In 2015, the Cambridge Property was occupied by tenants.

55. [D]uring the period of time which the Cambridge Property was occupied, Defendant

[…] had personal interactions with the tenants in her capacity as landlord, property

manager, and/or owner/owner’s representative.

56. [At] various times in 2015 and 2016, Defendant […] and the Seller Defendants were

personally made aware of mold complaints brought about by the tenants of the

Cambridge Property.

57. [B]y 2016 at a minimum, the Seller Defendants were made aware of issues related to

water infiltration and water leakage near or around the roof.

58. Finally, the Seller Defendants are related individuals and entities, of which Defendant

[…] was the representative, managing, and controlling member.

59. Despite the relatedness of the entities, Defendant […] never disclosed that she was

the developer and builder of the Cambridge Property and a member of both […]

Montevista and […] Gentian. […]

61. On May 17, 2018, Plaintiffs conducted a home inspection of the property.

62. As a result, there were major concerns raised regarding: (1) the condition of the roof

downspout; (2) suspected soft spots and concealed damage to the front balcony fiberglass

roof/decking; (3) concerns surrounding the installation and condition of the stucco. […]

65. On May 24, 2018, the Seller Defendants agreed to, inter alia, repair the spots on the

roof and front deck and unclog and clear the drains and roof downspout. […]

71. […T]he Seller [Defendants] agreed to repair the roof issues and the purported

aesthetic stucco issues.

74. On June 14, 2018, despite having certain repairs outstanding, Plaintiffs were required

to close and settle on the Property.

75. On June 14, 2018, Plaintiffs and Seller Defendants executed an escrow agreement

outlining the remaining repairs that would be completed and remedied by June 24, 2018.

76. On June 14, 2018, Plaintiffs settled on the property and became the owners of the

Cambridge Property.

77. On June 25, 2018, Plaintiffs moved into the property and learned that some of the

repairs were not yet completed.

78. [T]he repairman retained by the Seller Defendants abandoned and/or failed to

complete all the repairs agreed upon prior to settlement.

79. As a result, Plaintiffs were required to retain their own repairman to complete some of

the outstanding items designated for repair.

80. From August 2018 through September 2018, Plaintiffs made several attempts to

communicate with Defendant […] about the status of the repairs.

81. On October 8, 2018, Defendant […] finally responded to Plaintiffs indicating that the

repairs were not complete because of actions taken by Plaintiffs’ realtor[.] […]

84. On December 21, 2018, Plaintiffs discovered water damage stemming from the roof

of the Cambridge Property.

85. Believing that the roof had been repaired, Plaintiffs sought an alternative explanation

as to the cause of the water infiltration.

86. On January 4, 2019, Plaintiffs retained a mason to inspect and remove several bricks

to determine whether the water damage was a masonry issue.

87. A result of the mason’s inspection suggested that the water damage was a result of

leaks in the roof.

88. Based on that information, Plaintiffs then contacted one of the repairmen previously

retained by the Seller Defendants who had purportedly repaired the soft spots along the

roof.

89. Subsequently, Plaintiffs discovered that the roofer who was retained by the [Seller

Defendants] to make repairs to the roof[] did not actually repair any of the soft spots

along the fiberglass, and, in fact, was not familiar with fiber glass [sic] roofing. […]

91. In March 2019, Plaintiffs continued to experience water infiltration through the roof.

92. As a result, Plaintiffs retained a roofing company to make the necessary repairs to the

roof, including, but not limited to; [sic] removal of the existing fiberglass system,

installation of new AC sheathing, installation of lumber throughout the roofline and

installation of a new parapet wall.

93. Following the repairs to the fiberglass, Plaintiffs continued to experience water

infiltration and leaking issues.

94. As a result, Plaintiffs retained a home inspector to conduct a[n] in depth review of the

stucco. […]

95. The Stucco Inspection Report concluded that the stucco cladding was improperly

installed, did not contain the appropriate sheathing behind the stucco to prevent moisture

damage, and caused moisture intrusion to come through the windows and interior wood

areas on the first and second floor of the property.

96. The report recommended the removal of the stucco in the front and rear of the

property, however, following the repairs to the stucco, it was discovered that there were

water intrusions coming from all sides of the property.

97. As a result, Plaintiffs were required to remove the entire stucco and reframe the

property and conduct a full stucco remediation.

98. Subsequently, the removal of the stucco revealed several other concealed defects with

the property, including, but not limited to: wood deterioration around the supporting deck

area; no flashing around a door; and mold infested pipes and vents.

99. As a result of the additional defects, Plaintiffs [were] required to replace the windows

and remove the flooring throughout the house due to water and mold contamination.

See ECF Case No. 24-87, ECF 1-3, Ex. C.

On August 19, 2025, following the Trial, the Philadelphia Court of Common Pleas

entered a verdict in favor of the Zappacostas and against Defendant and Gentian, finding

Defendant and Gentian jointly and severally liable for: (i) State Court Count I for breach of

contract; (ii) State Court Count II for breach of warranties; (iii) State Court Count VI for

fraudulent misrepresentation; (iv) State Court Count VII for fraudulent concealment; and (v)

State Court Count VIII for violation of Pennsylvania’s Unfair Trade Practice and Consumer

Protection Law (the “Trial Verdict”). See Case No. 24-87, ECF 13-7, Ex. C. The Trial Verdict did

not include an accompanying opinion explaining the basis on which the Trial Verdict was

reached. See id.

On September 5, 2025, Plaintiffs filed the instant Motion for Summary Judgment

pursuant to FRCP 56. See Case No. 24-87, ECF 13. Through the Motion, Plaintiffs seek summary

judgment in their favor on Adversary Count I for exception to discharge of the Zappacosta Debt

pursuant to § 523(a)(2)(A), on the basis that Defendant is collaterally estopped from relitigating

the issue of her liability for false representations under § 523(a)(2)(A) in light of the Trial Verdict

finding Defendant liable to Plaintiffs for fraudulent misrepresentation under Pennsylvania law.

Id.

On September 19, 2025, Defendant filed a Response to the Motion for Summary

Judgment (the “Response”), discussed below in more detail. See Case No. 24-87, ECF 16.

On October 16, 2025, the Philadelphia Court of Common Pleas entered a molded verdict

in the amount of $1,498,333.35 in connection with the Trial (“Trial Verdict Damages Amount”).

See Case No. 24-11597, Claims Docket, Proof of Claim No. 2-2.

On November 13, 2025, Defendant appealed the Trial Verdict to the Superior Court,

which appeal currently remains pending (the “Second Appeal”).8 See Case No. 24-11597, ECF

150, ¶ 7.

On January 21, 2026, Plaintiffs filed an amended Proof of Claim 2-2 for a secured claim

in the amount of $1,498,333.35, based on the Trial Verdict Damages Amount (the “Amended

Zappacosta Claim”). See Case No. 24-11597, Claims Docket, Proof of Claim No. 2-2.

III. DISCUSSION

For the reasons that follow, the Motion will be granted in part and denied in part. The

record reveals that there is no genuine dispute as to material fact and that Plaintiffs are entitled to

judgment as a matter of law on three of the five elements necessary to succeed on a

nondischargeability claim pursuant to § 523(a)(2)(A), including that (i) Defendant made false

representations in the Seller’s Disclosure in relation to the sale of the Cambridge Property to

Plaintiffs; (ii) Defendant knew the representations were false or made them with at least a

reckless disregard for their truth; and (iii) Defendant intended to deceive Plaintiffs through the

false representations. Genuine disputes of material fact remain, however, as to whether Plaintiffs

8 Plaintiffs state that the appeal was docketed by the Superior Court as Appeal No. 2863. See Case No. 24-11597,

ECF 150, ¶ 7.

justifiably relied on Defendant’s false representations and whether damages were a proximate

result of those false representations. Therefore, the issues of reliance and damages will proceed

to trial.

A. Applicable Legal Principles

i. Federal Rule of Civil Procedure 56

Pursuant to FRCP 56, "[t]he court shall grant summary judgment if the movant shows

that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law." Fed. R. Civ. P. 56(a). The duty of a court on a motion for summary judgment is

not to determine the truth of the matter or to resolve issues of fact, but to determine whether

genuine and material issues are present. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106

S. Ct. 2505, 91 L. Ed. 2d 202 (1986).

A genuine issue of material fact arises when there is sufficient evidence that would permit

a reasonable fact finder to return a verdict for the non-moving party. Odom v. Philadelphia

Parking Auth. (In re Odom), 571 B.R. 687, 692 (Bankr. E.D. Pa. 2017) (citing Anderson, 477

U.S. at 248). A material fact is one which could alter the outcome of the case, and a dispute is

genuine when reasonable minds could disagree on the result. Burtch v. Detroit Forming, Inc. (In

re Archway Cookies), 435 B.R. 234, 238 (Bankr. D. Del. 2010) (citing Horowitz v. Fed. Kemper

Life Assur. Co., 57 F.3d 300, 301 (3d Cir. 1995)).

The moving party has the burden of showing there is no genuine issue of material fact.

See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant meets its initial burden,

the burden shifts to the non-moving party to go beyond the pleadings to provide counterevidence

indicating there is a genuine issue to be resolved at trial. See Celotex Corp., 477 U.S. at 324.

In resolving a motion for summary judgment, the Court must draw all reasonable

inferences in favor of the non-moving party. See In re Odom, 571 B.R. at 692. However, “[t]he

line between reasonable inferences and impermissible speculation is often ‘thin,’ but is

nevertheless critical because ‘an inference based upon a speculation or conjecture does not create

a material factual dispute sufficient to defeat summary judgment.’” Prince v. BAC Home Loans

Servicing, LP, No. 16-CV-1544, 2018 WL 4154947, at *2 (E.D. Pa. Aug. 30, 2018). “Inferences

must flow directly from admissible evidence.” Id. at *3. Furthermore, if the evidence offered by

the non-moving party is merely colorable, or is not significantly probative, summary judgment

may be granted. Chusid v. First Union Nat. Bank, No. CIV. A. 97-4134, 1998 WL 42292, at *3

(E.D. Pa. Jan. 21, 1998).

B. Analysis

i. Collateral Estoppel

It is well-established that preclusion principles apply in bankruptcy proceedings. See,

e.g., In re Adesanya, 613 B.R. 808, 826 (Bankr. E.D. Pa. 2020), aff'd sub nom. Novartis Pharms.

Corp. v. Adesanya, 645 B.R. 733 (E.D. Pa. 2022) (citing Murphy v. Snyder (In re Snyder), 939

F.3d 92, 100 (2d Cir. 2019)). A trial court has “broad discretion to determine if collateral estoppel

should apply.” In re Kamps, 575 B.R. 62, 75 (Bankr. E.D. Pa. 2017) (citing In re Cunningham,

526 B.R. 578, 583 (Bankr. E.D. Pa. 2015), aff'd sub nom. In the Matter of Cunningham, 541 B.R.

792 (E.D. Pa. 2015)). “The party seeking to effectuate an estoppel has the burden of

demonstrating the propriety of its application.” Id. (citing Suppan v. Dadonna, 203 F.3d 228, 233

(3d Cir. 2000) (cleaned up)).

In determining whether collateral estoppel applies, the court should “examine the trial

record ‘with an eye to all the circumstances of the proceedings.’” Bravo-Fernandez v. United

States, 580 U.S. 5, 6 (2016) (quoting Ashe v. Swenson, 397 U.S. 436, 444 (1970)); see also

Spilman v. Harley, 656 F.2d 224, 228 (6th Cir. 1981) (“[B]efore applying the doctrine of

collateral estoppel, the bankruptcy court must determine if the issue was actually litigated and

was necessary to the decision in the state court. To do this, the bankruptcy court should look at

the entire record of the state [court] proceeding, not just the judgment[.]”). "[W]hen a court

cannot ascertain what was litigated and decided, issue preclusion cannot operate." 18 Moore's

Federal Practice § 132.03[2][g], at 132-83 (3d ed.) (citing cases).

In the context of dischargeability proceedings, collateral estoppel permits a court to

accept findings established by a previous judgment as evidence of nondischargeability. In re

Adesanya, 613 B.R. at 826 (citing In re Docteroff, 133 F.3d 210, 215 (3d Cir. 1997) (citing In re

Halpern, 810 F.2d 1061, 1064 (11th Cir. 1987))). In other words, where a trial court has made

detailed factual findings underpinning a ruling, a bankruptcy court may give preclusive effect to

those detailed factual findings and, “accepting them as true, determine independently whether the

findings establish the elements of nondischargeability[.]” In re Jacobs, 381 B.R. 128, 143

(Bankr. E.D. Pa. 2008).

Because the Trial Verdict was rendered by the Philadelphia Court of Common Pleas,

Pennsylvania law on collateral estoppel must be applied. See, e.g., Est. of Tyler ex rel. Floyd v.

Grossman, 108 F. Supp. 3d 279, 289 (E.D. Pa. 2015) (“[A]s the prior forum is the Pennsylvania

Court of Common Pleas for Philadelphia County, Pennsylvania preclusion law applies.”) (citing

Heck v. Humphrey, 512 U.S. 477, 480 n.2 (1994)).

Under Pennsylvania law, collateral estoppel precludes relitigation of an issue of fact or

law determined in a prior action if the following conditions are met:

(1) the issue decided in the prior case is identical to the one presented in the later action;

(2) there was a final adjudication on the merits; (3) the party against whom the plea is

asserted was a party or in privity with a party in the prior case; (4) the party or person

privy to the party against whom the doctrine is asserted had a full and fair opportunity to

litigate the issue in the prior proceeding; and (5) the determination in the prior proceeding

was essential to the judgment.

In re Kamps, 575 B.R. at 76 (citing Off. of Disciplinary Couns. v. Kiesewetter, 585 Pa. 477, 889

A.2d 47, 50–51 (2005)). If the above conditions are satisfied, the prior determination of the

factual or legal issue is conclusive in a subsequent action, “whether on the same or a different

claim.” Id. (quoting Pennsylvania State Univ. v. Cnty. of Ctr., 532 Pa. 142, 615 A.2d 303, 306

(1992) (quoting Restatement (Second) of Judgments § 27 (1982)).

Through the Motion for Summary Judgment, Plaintiffs argue that Defendant is

collaterally estopped by the Trial Verdict from relitigating the elements of false representation

under § 523(a)(2)(A) because the Pennsylvania Court of Common Pleas found Defendant liable

for fraudulent misrepresentation under Pennsylvania law. See Case No. 24-87, ECF 13.

Defendant responds that collateral estoppel is not appropriate because, inter alia, Defendant was

not given a full and fair opportunity to litigate through the Trial due to alleged procedural errors

made by the Philadelphia Court of Common Pleas. Case No. 24-87, ECF 16, 3-4.9

As noted above, the Trial Verdict issued by the Philadelphia Court of Common Pleas did

not include an accompanying opinion explaining the factual findings and reasoning underpinning

the decision. As such, the Trial Verdict, standing alone, does not contain sufficient findings to

permit this Court to determine whether the issues necessary to sustain a § 523(a)(2)(A)

dischargeability claim were necessary to the judgment for the entire Trial Verdict Damages

Amount. However, as noted above, in reaching the Trial Verdict, the Philadelphia Court of

9 The procedural errors alleged by Defendant include: (i) an “[e]x parte damages hearing without notice (June 6,

2023);” (ii) “[a]doption of damages from that hearing in the [Trial Verdict];” (iii) “[s]triking of the Answer and New

Matter immediately before trial;” “[g]rant of Motion in Limine preventing presentation of damages evidence;” and

“[e]xclusion of 29 of 31 defense exhibits.” Case No. 24-87, ECF 16, 3-4.

Common Pleas deemed admitted the factual averments set forth in the State Court Complaint.

See Case No. 24-87, ECF 13-6, Ex. B, 66:11-15. Accordingly, consistent with the principle that a

court should examine the entire record of the prior proceeding rather than merely the resulting

judgment, the Court will consider whether those admitted factual averments are entitled to

preclusive effect in this Adversary Proceeding. See In re Jacobs, 381 B.R. at 143.

As discussed below, in applying the five elements of collateral estoppel, the Court

concludes that Defendant is precluded from challenging the factual findings made by the

Philadelphia Court of Common Pleas, consisting of the factual averments in the State Court

Complaint deemed admitted through the Trial.

Regarding the first element of preclusion under Pennsylvania law, there is no question

that the facts necessary to determine Defendant’s liability for false misrepresentation in the State

Court Action are identical to those this Court must determine to consider whether § 523(a)(2)(A)

renders the Zappacosta Debt nondischargeable based on false representations, as both actions

involve the exact same events and transactions. In regard to the second element in the preclusion

analysis, the Trial Verdict represents a final adjudication on the merits; the fact that Defendant

initiated the Second Appeal does not impact the finality of the judgment. See, e.g., In re Turner,

326 B.R. 563, 570 (Bankr. W.D. Pa. 2005) (holding that a judgment rendered in a state court

proceeding is final as to the matters decided therein unless and until overturned) (collecting

cases). Regarding the third element of preclusion, there is no dispute that the relevant Parties in

the instant Adversary Proceeding, Plaintiffs and Defendant, were parties to the proceedings

underlying the Trial Verdict.

As for the fourth element of preclusion, Defendant argues that she was not given a full

and fair opportunity to litigate the issues underlying the Trial Verdict due to alleged procedural

errors by the Philadelphia Court of Common Pleas.10 Under Pennsylvania law, for purposes of

collateral estoppel, a party enjoyed a full and fair opportunity to litigate in a previous proceeding

“if a party could ‘litigate issues in the manner available in a court of record’ and had sufficient

incentive to do so vigorously in the first proceeding.” Adelphia Gateway, LLC v. Pennsylvania

Env't Hearing Bd., 62 F.4th 819, 828 (3d Cir. 2023); see also, e.g., Pennsylvania Laws. Fund for

Client Sec. v. McKee, No. 2:23-CV-00535-CFK, 2023 WL 6520492, at *7 (E.D. Pa. Oct. 5,

2023) (finding that a party who had the opportunity to testify, present witnesses, and put forth

evidence had full and fair opportunity to litigate for purposes of issue preclusion). Here, the Trial

Transcript reveals that Defendant was given and that she availed herself of the opportunity to

testify as to the facts of the case pertaining to the issue of fraudulent representation, as well as to

file post-trial briefing on the issue of liability on all causes of action at issue in the Trial,

including fraudulent misrepresentation. See Case No. 24-87, ECF 13-6, 112-185; 190. Because

Defendant could litigate the issues in the manner available in the court of record and had

incentive to do so vigorously, the Court finds that Defendant received a full and fair opportunity

to litigate.

Finally, as for the fifth element of preclusion, the determination by the Philadelphia Court

of Common Pleas to deem admitted all facts in the State Court Complaint was clearly essential to

reaching the Trial Verdict, because the court necessarily relied on those deemed admissions as

the operative facts establishing liability.

For the above reasons, Defendant is collaterally estopped from relitigating the factual

findings by the Philadelphia Court of Common Pleas through the Trial, which factual findings

consist of the factual averments set forth in the State Court Complaint.

10 See supra note 9.

ii. Nondischargeability Under § 523(a)(2)(A)

“Upon application of collateral estoppel in a nondischargeability action, the Court must

determine whether a judgment entered in a prior proceeding and the accompanying underlying

findings are sufficient to render a debt nondischargeable.” In re Adesanya, 613 B.R. at 826

(citing In re Aiello, 533 B.R. at 494–95). Section 523(a)(2)(A) of the Bankruptcy Code provides

that:

a discharge under […] this title does not discharge an individual debtor from any debt [...]

for money, property, services, or an extension, renewal, or refinancing of credit, to the

extent obtained by […] false pretenses, a false representation, or actual fraud, other than a

statement respecting the debtor's or an insider's financial condition[.]

11 U.S.C. § 523(a)(2)(A).

To succeed on a false representation claim under § 523(a)(2)(A), a plaintiff must establish

the existence of five elements by the preponderance of the evidence: (1) the debtor made a false

representation; (2) at the time of the representation, the debtor knew, or believed, such

representation was false; (3) the false representation was made with the intent and purpose of

deceiving the creditor; (4) the creditor justifiably relied upon the representation; and (5) the

creditor sustained damages as a proximate result of the false representation. In re Adesanya, 613

B.R. at 827 (citing In re Didio, 607 B.R. 804, 816 (Bankr. E.D. Pa. 2019)).

Once it is established that specific money, property, services, or an extension, renewal, or

refinancing of credit has been obtained by false representations, false pretenses, or fraud, any

debt arising therefrom is excepted from discharge. In re Hay Phat, 623 B.R. 371, 377 (Bankr.

E.D. Pa. 2021) (citing Fledderman v. Glunk (In re Glunk), 343 B.R. 754, 758 (Bankr. E.D. Pa.

2006)).

a. False representations

Adversary Count I of the Adversary Complaint alleges Defendant falsely represented in

the Seller’s Disclosure that (i) Gentian, of which Defendant was the sole member, did not

possess any knowledge in construction or real estate development related to the Cambridge

Property,11 and (ii) the roof of the Cambridge Property had never leaked during Gentian’s

ownership. Case No. 24-87, ECF 1, ¶ 28-29.

First, based upon the factual averments in the State Court Complaint, given preclusive

effect in this Adversary Proceeding, there is no genuine dispute that Defendant, the sole,

controlling, and managing member of Gentian, who executed the Seller’s Disclosure on behalf of

Gentian as the seller of the Cambridge Property, falsely represented that Gentian had no

knowledge or expertise in construction or real estate development in connection with the

Cambridge Property. See Case No. 24-87, ECF 1-3, Ex. C, ¶ 46. Specifically, in the Seller’s

Disclosure, in response to the question, “[d]oes Seller12 possess expertise in contracting,

engineering, architecture, environmental assessment or other areas related to the construction and

conditions of the property and its improvements?” Defendant checked “[n]o.” Case No. 24-87,

ECF 1-3, Ex. C, 53. This was categorically false in light of the record before the Court.13

Gentian, as the developer and builder of the Cambridge Property, was engaged in and responsible

for the construction, development, design, and structural integrity of the Cambridge Property.

See, e.g., Case No. 24-87, ECF 1-3, Ex. C, ¶¶ 19, 32, 58.

11 In the Adversary Complaint, Plaintiffs aver that Defendant stated “she did not possess any knowledge in

construction or real estate development.” Case No. 24-87, ECF 1, ¶ 28-29 (emphasis added). More accurately,

Defendant stated in the Seller’s Disclosure that the “Seller” of the Cambridge Property, Gentian, had no “expertise”

in any area related to the “construction and conditions of the property and its improvements.” Case No. 24-87, ECF

1-3, Ex. C, 53.

12 The “Seller” for purposes of the Seller’s Disclosure was Gentian. See Case No. 24-87, ECF 1-3, Ex. C, ¶ 58.

13 The Court notes that statements made by Defendant in the Seller’s Disclosure on behalf of Gentian, of which LLC

Defendant is the sole, controlling, and managing member, are attributable to Defendant. See, e.g., In re Grasso, 497

B.R. 434, 443 (Bankr. E.D. Pa. 2013) (holding debtor’s status as managing member of LLC sufficient to find the

LLC an insider of debtor and therefore sufficient to attribute statements made by the LLC to debtor for purposes of §

523(a)(2)(A) analysis).

Plaintiffs have therefore established that Defendant falsely represented in the Seller’s

Disclosure that Gentian had no expertise in any area related to the construction and condition of

the Cambridge Property.

Second, based upon the factual averments in the State Court Complaint given preclusive

effect in this Adversary Proceeding, there is no genuine dispute that Defendant falsely

represented the roof of the Cambridge Property had never leaked during Gentian’s ownership.

Gentian owned the Cambridge Property by the time construction was completed in

November 2011. Case No. 24-87, ECF 1-3, Ex. C, ¶¶ 33, 35. By at least 2016, Defendant and

Gentian were made aware of issues related to water infiltration and water leakage involving the

roof of the Property. Id. at ¶ 57. Nevertheless, in the Seller’s Disclosure, in response to the

question, “[h]as the roof ever leaked during your ownership?” Defendant checked “[n]o.” Case

No. 24-87, ECF 1-3, Ex. C, 53. Given these facts, Defendant’s assertion in the Seller’s

Disclosure that the roof had not leaked during Defendant’s ownership of the Cambridge Property

was false. Instead, the record reveals that the roof had leaked by at least 2016, approximately two

years before Plaintiffs purchased the Cambridge Property from Defendant.

Plaintiffs have therefore established that Defendant falsely represented in the Seller’s

Disclosure that the roof of the Cambridge Property had not leaked during Gentian’s ownership.

In summary, Plaintiffs have satisfied the first element of § 523(a)(2)(A) in showing that

Defendant falsely represented in the Seller’s Disclosure that: (i) Gentian had no expertise related

to the construction and conditions of the Cambridge Property; and (ii) the roof of the Cambridge

Property had never leaked during Gentian’s ownership.

b. Knowledge and Intent

To succeed on a § 523(a)(2)(A) claim, a plaintiff must show that the debtor knew of the

falsity of the representation at issue. See 11 U.S.C. § 523(a)(2)(A). As courts within the Third

Circuit have observed:

To satisfy scienter or the knowingly false element of § 523(a)(2)(A), a misrepresentation

must be made with either actual knowledge of its falsity, or with such reckless disregard

of the truth that the law will impute the knowledge to the responsible party. New York Life

Ins. Co. v. Marotta, 57 F.2d 1038, 1039 (3d Cir. 1932). “In assessing a debtor's

knowledge of the falsity of the representation... the Court must consider the knowledge

and experience of the debtor.” FTC v. Duggan (In re Duggan), 169 B.R. 318, 324 (Bankr.

E.D.N.Y. 1994). “A false representation made under circumstances where a debtor should

have known of the falsity is one made with reckless disregard for the truth, and this

satisfies the knowledge requirement.” Id.

In re Brown, 591 B.R. 587, 595 (Bankr. M.D. Pa. 2018) (citing In re Santos, 304 B.R. 639, 664

(Bankr. D.N.J. 2004)).

Furthermore, a plaintiff must also show that the debtor made the false representation with

an intent to deceive the creditor. See 11 U.S.C. § 523(a)(2)(A). Because a debtor “will rarely, if

ever, admit that deception was his purpose,” intent to deceive may be inferred from the totality of

the surrounding facts and circumstances. In re Hay Phat, 623 B.R. at 379–80 (citing Starr v.

Reynolds (In re Reynolds), 193 B.R. 195, 200 (D.N.J. 1996)). A debtor's reckless disregard for

the truth of his representations to creditors will satisfy § 523(a)(2)(A)'s requisite intent to deceive

when, with some due diligence, debtor should have known his statements were false. Id. (citing

In re Bocchino, 794 F.3d 376, 379–82 (3d Cir. 2015)).

“[R]eckless disregard for the truth of a statement will fulfill both the knowledge element

and the intent to deceive element.” In re Hay Phat, 623 B.R. at 380 (citing De La Cruz v. Cohen

(In re Cohen), 185 B.R. 171, 177-78 (Bankr. D.N.J. 1994)).

Regarding Defendant’s false representation in the Seller’s Disclosure that Gentian

possessed no expertise related to the construction and conditions of the Cambridge Property, as

discussed above, the record reveals instead that Gentian was responsible for the construction,

development, design, and structural integrity of the Cambridge Property. See, e.g., Case No. 24-

87, ECF 1-3, Ex. C, ¶¶ 19, 32. As the sole, controlling, and managing member of Gentian, it

would simply be inconceivable for Defendant not to have known of Gentian’s expertise. At

minimum, Defendant should have known of the falsity of the statement given her position as

Gentian’s sole, controlling, and managing member, and so the statement was therefore made with

at least a reckless disregard for the truth. Denying the truth of Gentian’s extensive involvement in

the construction and development of the Property would have benefited Defendant by allowing

her to more plausibly deny in the Seller’s Disclosure her and Gentian’s awareness of any defects

in the Property, thereby making the Property more marketable, further supporting a finding of

Defendant’s intent to deceive. Because the circumstances support at minimum a finding of

Defendant’s reckless indifference to the truth of her representation, both the requisite knowledge

and intent under § 523(a)(2)(A) have been satisfied in regard to Defendant’s false statement that

Gentian had no expertise related to the construction and conditions of the Cambridge Property.

Next, regarding Defendant’s false representation in the Seller’s Disclosure that the roof of

the Cambridge Property did not leak during Gentian’s ownership, the record supports a finding

that Defendant made this statement with at least a reckless disregard for the truth. In the Seller’s

Disclosure, Defendant stated Gentian was the landlord for the Cambridge Property at the time of

sale to Plaintiffs. Case No. 24-87, ECF 1-3, Ex. C, 53. Furthermore, as averred in the State Court

Complaint and given preclusive effect in this Adversary Proceeding, “Defendant [] had personal

interactions with the tenants in her capacity as landlord, property manager, and/or owner/owner’s

representative” on behalf of Gentian, and by 2016, Defendant and Gentian were made aware of

issues related to water infiltration and water leakage near or around the roof. See Case No. 24-87,

ECF 1-3, Ex. C, ¶¶ 55-57. These circumstances support a finding that Defendant made the

statement in the Seller’s Disclosure that there were no leaks in the roof of the Cambridge

Property with at least reckless disregard for its truth, as she should have, and would have, known,

given her interactions with tenants, of the statement’s falsity. A finding of Defendant’s intent to

deceive is further supported by the fact that Defendant made the false statement in connection

with her efforts to sell the Property, likely motivating her to conceal any prior leaks in the roof to

make the Property more marketable. Therefore, both the requisite knowledge and intent under §

523(a)(2)(A) have been satisfied in regard to Defendant’s false statement that the roof of the

Cambridge Property had not leaked during Gentian’s ownership.

Plaintiffs have therefore satisfied the second element of § 523(a)(2)(A) by showing that

Defendant possessed the requisite knowledge and intent in making the false statements in the

Seller’s Disclosure.

c. Reliance

To satisfy the justifiable reliance element of § 523(a)(2)(A), the plaintiff must show that it

“believed the representation made by the other party and that the representation led the deceived

party to take certain action.” In re Dizinno, 532 B.R. 231, 238 (Bankr. M.D. Pa. 2015). As

summarized by one court, “[j]ustifiable reliance is a less demanding standard than reasonable

reliance; it requires only that the creditor did not blindly rely upon a misrepresentation the falsity

of which would be patent to him if he had utilized his opportunity to make a cursory examination

or investigation. Under the justifiable reliance standard, a creditor has no duty to investigate

unless the falsity of the representation would have been readily apparent.” In re Dizinno, 532

B.R. at 238 (quoting Ojeda v. Goldberg, 599 F.3d 712, 717 (7th Cir. 2010) (quoting Field v.

Mans, 516 U.S. 59, 71 (1995))) (cleaned up).

Here, the record reveals that, at some point before execution of the agreement of sale,

Plaintiffs were supplied with the Seller’s Disclosure, executed by Defendant on behalf of

Gentian. Case No. 24-87, ECF 1-3, Ex. C, ¶¶ 45-46. Subsequently, on May 17, 2018—prior to

closing—Plaintiffs conducted a home inspection of the Cambridge Property. Id. at ¶ 61. As stated

by Plaintiffs in the State Court Complaint, pursuant to the home inspection, “[m]ajor concerns

[were] raised" regarding the downspout, “soft spots” on the roof, “concealed damage to the

balcony fiberglass roof/decking,” and installation of stucco. Id. at ¶ 62. Nevertheless, on June 14,

2018, Plaintiffs and Gentian closed and settled on the Cambridge Property. Id. at ¶ 74.

Given that Plaintiffs conducted a home inspection of the Cambridge Property between

receiving the Seller’s Disclosure and closing on the sale, and furthermore, given Plaintiffs’

admission in the State Court Complaint that “major concerns” were raised by the home

inspection in specific regard to the condition of the roof, there remains in this case a genuine

dispute as to whether Plaintiffs justifiably relied on Defendant’s false representations in the

Seller’s Disclosure, or whether Plaintiffs relied on the statements in the Seller’s Disclosure at all.

On the record currently before the Court, it is not clear whether Plaintiffs relied on or were

otherwise justified in their reliance on the false representations in the Seller’s Disclosure, or if

their independent inspection should instead have made the falsity of the statements readily

apparent. See In re Dizinno, 532 B.R. at 238.

Therefore, Plaintiffs have failed at this stage to establish the requisite justifiable reliance

to succeed on a claim under § 523(a)(2)(A). Summary judgment will accordingly be denied as to

the issue of justifiable reliance.

d. Damages

Because the Court cannot presently conclude that no genuine dispute exists regarding

whether Plaintiffs justifiably relied on the Seller’s Disclosure in purchasing the Cambridge

Property, the Court likewise cannot conclude that no genuine dispute exists respecting whether

and in what amount damages were actually caused by the false representations. '*

IV. CONCLUSION

For the reasons stated above, the Motion for Summary Judgment will be granted in part

and denied in part. The Motion will be granted in favor of Plaintiffs and against Defendant on the

first three elements of § 523(a)(2)(A), with respect to which Plaintiffs have shown that there are

no genuine disputes as to material fact that: (1) Defendant made false representations; (11)

Defendant had the requisite knowledge of the falsity of those representations; and (111) Defendant

intended to deceive Plaintiffs by way of those false representations. The Motion will be denied in

regard to the final two elements of § 523(a)(2)(A), the Court finding that genuine disputes of

material fact exist as to whether (iv) Plaintiffs justifiably relied on Defendant’s false

representations and (v) damages proximately resulted from the false representations. The issues

of justifiable reliance and damages will accordingly proceed to trial.

Date: May 7, 2026 5 2

Honorable Ashely M. Chan

United States Bankruptcy Judge

noted above, the Trial Verdict found for Plaintiffs on multiple causes of action. However, it did not break down

which damages were attributable to which causes of action, thereby making it impossible for this Court to determine

whether the entire Trial Verdict, which the Plaintiffs seek to be deemed nondischargeable, could have been

supported by the false misrepresentation count.

24