IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

RICHARD F. MCCLOSKEY and

ROSEMARIE K. MCCLOSKEY, : CIVIL ACTION

Plaintiffs, :

:

v. : NO. 05-1162

:

NOVASTAR MORTGAGE, INC., :

Defendant. :

MEMORANDUM AND ORDER

Stengel, J. August 21, 2007

In June 2003, NovaStar Mortgage, Inc. solicited Richard McCloskey and

Rosemarie McCloskey regarding the refinancing of the McCloskeys’ mortgage on their

residence in Paoli, Pennsylvania. Between June 2003 and August 2003, the McCloskeys

and NovaStar exchanged information, sent emails, and carried on telephone conversations

in an effort to finalize the refinancing. According to the McCloskeys, the parties agreed to

a clearly defined mortgage and NovaStar subsequently breached that contract. In the

present motion for summary judgment, NovaStar contends no contract ever existed

between it and the McCloskeys. At best, NovaStar claims, they were negotiating the

specific terms for a future contract. In addition, NovaStar argues that the McCloskeys

cannot recover under their promissory estoppel and fraud claims because the McCloskeys

misrepresented their income during the application process. For the reasons to be

discussed, I will grant summary judgment on the breach of contract claim but deny

summary judgment on the promissory estoppel claim and fraud claim. 

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 1 of 30
As I am required to do for purposes of this motion for summary judgment, I have viewed all 1

facts in the light most favorable to the plaintiffs.

According to NovaStar’s program manual, NovaStar’s Stated Income loan is offered to 2

“Borrowers who prefer to not provide documentation necessary to prove their income and/or cash flow.”

Def. Opp. to Pl. March 23, 2007 Mot. Compel, Ex. 1. For self-employed Borrowers and W-2 wage

earners, “the income stated in the Fannie Mae Form 1003 will be used to qualify the Borrower provided

the income appears reasonable for the nature and length of employment.” Id.

2

I. BACKGROUND1

On June 16, 2003, Krista Mayo, a NovaStar loan officer, called Richard McCloskey

to inquire about his desire to refinance his mortgage. Mr. McCloskey informed Mayo that

he had been working with another finance company, Apex Mortgage. Apex had offered

the McCloskeys a refinance rate of 4 7/8% plus 1 7/8 points. Mr. McCloskey indicated to

Mayo that he would refinance with NovaStar if NovaStar offered them a better rate than

Apex. 

During the course of the conversation, Mr. McCloskey permitted Mayo to access

his credit report to determine Mr. McCloskey’s eligibility for NovaStar’s products. Mayo

reviewed Mr. McCloskey’s credit report and stated that his credit score was “excellent.” 

As a result, Mayo told Mr. McCloskey that he qualified for a “no-doc” Stated Income

loan. According to Mayo, this type of loan was based on the mortgagor’s net assets and 2

did not require any proof or documentation of the mortgagor’s income or cash flows. The

only conditions for closing on a Stated Income loan were (1) a verification of the

borrower’s assets and liabilities and (2) two appraisals of the property demonstrating its

fair market value in excess of $1.4 million. 

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3

Mr. McCloskey agreed to proceed with NovaStar’s Stated Income refinancing

because Mayo assured him that NovaStar could beat the Apex rate. Thereafter, Mayo

walked Mr. McCloskey through a series of questions to ascertain the McCloskeys’ assets

and liabilities. The inquiry included a serious of questions regarding the McCloskey’s

major sources of income. Mayo also completed a loan application for the McCloskeys

based on the information.

Later that same day, Mayo called Mr. McCloskey to inform him that he and his

wife had been approved for a 30-year loan in the amount of $990,000 at a locked-in rate of

4 3/4% plus 1 3/4 points. Mayo stated that the locked-in rate was conditioned on the

following: (1) a verification of the McCloskeys’ assets and liabilities; (2) two appraisals of

the subject property showing its value in excess of $1.4 million; and (3) a commitment

from the McCloskeys that they would deal exclusively with NovaStar (which Mr.

McCloskey agreed to). 

On June 19, 2003, Mayo sent Mr. McCloskey a copy of the loan application for his

signature. Prior to signing the application, however, Mr. McCloskey noticed several errors

in the documents and contacted Mayo to discuss the mistakes. In particular, Mr.

McCloskey was concerned that the Good Faith Estimate showed that the loan would cost 2

1⁄2 points, rather than the agreed upon 1 3/4 points. Mayo responded to Mr. McCloskey by

email and indicated she had to be “overly conservative to account for where the investors

may require additional points.” In addition, Mayo spoke with Mr. McCloskey on June

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Based on Mayo’s advice, the McCloskeys paid for the appraisals to speed up the closing of the 3

loan. NovaStar agreed to reimburse the McCloskeys the $850 they spent on the appraisals. The

McCloskeys were not reimbursed. 

4

19 , acknowledged the mistakes, and told Mr. McCloskey to discard the application th

because they were proceeding with a Stated Income loan.

On June 26, 2003, Mayo and Mr. McCloskey exchanged a string of emails

regarding NovaStar’s commitment. Mr. McCloskey did not want to place two appraisals

in NovaStar’s name until the “commitment is firm.” Mayo advised Mr. McCloskey that

she heard from the appropriate vice president at NovaStar and “it looks like we are going

forward as planned at 4.75%.” Mr. McCloskey sought clarification and asked, “I trust the

4 3/4 rate is with 1 3/4 points, correct?” Mayo responded, “Yes, you are correct.” Based

on Mayo’s confirmation of the rate and points, the McCloskeys placed the appraisals in

NovaStar’s name and notified Apex that they were withdrawing their refinancing with

them. The appraisals were completed on July 16, 2003. 

3

 On July 22, 2003, Mayo emailed and called Mr. McCloskey. Mayo emailed Mr.

McCloskey the following: “I finally received a commitment from Underwriting for the rate

we want, and it lists some conditions that I need your help in completing before we go to

docs.” One of the conditions was Mr. McCloskey returning a signed copy of the loan

application. On the phone, Mayo asked Mr. McCloskey to sign and back date to June 18,

2003 a copy of the loan application in order to complete his file. Even though both Mr.

and Mrs. McCloskey were obtaining the refinancing, Mayo told Mr. McCloskey that he

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5

should only sign the application. Mayo indicated that a single applicant would expedite

the application process.

On July 23, 2003, Mayo requested Mr. McCloskey to complete some additional

steps before the parties could proceed to closing the loan. These final steps included: (1)

permitting NovaStar to pay off a e-Trade loan of the McCloskeys; (2) transferring their

property insurance to name NovaStar as first mortgagee; and (3) providing documentation

regarding the subdivision plan for the property. The McCloskeys agreed to or performed

these further requests.

On July 24, 2003, Mayo advised the McCloskeys that the loan commitment was

good until August 16, 2003, but that closing had to be completed by August 11, 2003.

On July 31, 2003, Mayo contacted the McCloskeys to ask why their property tax

bills for the several pieces of property they owned in Paoli, Pennsylvania did not list the

subject property separately. After contacting the county tax assessor, the McCloskeys

explained to Mayo that despite their property being subdivided, Chester County did not

provide separate tax bills. Mayo accepted this explanation.

On August 5, 2003, Mayo notified Mr. McCloskey that she was being transferred to

another department at NovaStar and she would no longer handle the McCloskeys’ account. 

NovaStar did not replace Mayo with another Loan Officer. The next day Mr. McCloskey

received a phone call from a Sales Manager named Lee. Lee informed the McCloskeys

that they did not have a locked in rate, despite Mr. McCloskey’s contentions to the

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6

contrary. 

On August 7, 2003, Mayo emailed Mrs. McCloskey to apologize for the difficulty

she was encountering in finalizing the mortgage. In the email she stated: 

Remember the conversation we had about all of the paperwork being

“estimates”. That is across the board with lenders. Because everything

hinges on the way the market goes, all rates and fees have to be presented as

an “estimate”. When I sold Richard the loan, I was under the impression

that 4.75% was the rate that we could get, because that is what I was told. . .

. [U]nfortunately, we were in the process of doing your loan when the rates

when back up tremendously.

On August 11, 2003, Mrs. McCloskey spoke with Lee. Lee insisted on an

additional condition for closing — that the subject property be billed separately for taxes. 

The McCloskeys hired an attorney and sent a letter to the county to satisfy NovaStar’s

request.

On August 19, 2003, NovaStar informed the McCloskeys that the refinancing was

denied for two reasons: (1) the McCloskeys did not disclose the e-Trade loan, and (2) the

McCloskeys failed to disclose four encumbered investment properties. However, in the

McCloskeys’ dealings with Mayo, the McCloskeys informed NovaStar of both of these

pieces of their financial picture. In addition, the four investment properties were

unencumbered. 

On August 22, 2003, after numerous phone calls by the McCloskeys’ to NovaStar,

NovaStar’s Vice President Ron Zaccaria called the McCloskeys to provide a new reason

for the denial of their loan. Zaccaria stated that NovaStar’s Credit Committee did not

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I previously dismissed the McCloskeys’ claim under Pennsylvania’s Unfair Trade Practices and 4

Consumer Protection Law. See Docket No. 14.

7

approve the loan. On September 2, 2003, the McCloskeys received from NovaStar a

Statement of Credit Denial. The statement stated NovaStar declined to refinance the

McCloskeys’ mortgage because they had “excessive obligations in relation to income” and

“insufficient income for the amount of credit requested.” On September 4, 2003, Mr.

McCloskey contacted NovaStar in an attempt to obtain additional information regarding

the denial of credit. He spoke with a NovaStar employee who stated that NovaStar’s

computer system indicated his loan was approved.

The events that occurred in the summer of 2003, and the McCloskeys’ failure to

obtain the allegedly promised mortgage from NovaStar, led the McCloskeys to file suit

against NovaStar. The following three remaining state law claims have been asserted

against NovaStar: (1) breach of contract; (2) promissory estoppel; and (3) fraud. The suit 4

was initially filed in the Chester County Court of Common Pleas and removed to this court

on March 11, 2005. Since its removal, the case has taken a rather long and unorthodox

path to this summary judgment stage. The parties attempted to both arbitrate and settle the

case. Although the docket does not reflect a Rule 16 conference or a scheduling order, the

parties have conducted written discovery as evidenced by the various motions to compel. 

No depositions, however, have been conducted. Despite this limited discovery, NovaStar

filed a motion for summary judgment believing judgment should be entered in its favor as

a matter of law. The plaintiffs disagree and have filed a response in opposition to the

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8

summary judgment motion and a Rule 56(f) motion requesting additional discovery to

establish the merits of their case. 

II. STANDARD FOR SUMMARY JUDGMENT

Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with affidavits, if any, show that there is

no genuine issue as to any material fact and that the moving party is entitled to judgment

as a matter of law.” FED. R. CIV. P. 56©. An issue is “genuine” if the evidence is such

that a reasonable jury could return a verdict for the non-moving party. Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is “material” if it might

affect the outcome of the case under governing law. Id.

The defendant bears the initial responsibility of informing the court of the basis for

its motion and identifying those portions of the record that it believes demonstrate the

absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986). When the plaintiff bears the burden of proof on a particular issue at trial, the

defendant’s initial Celotex burden can be met simply by pointing out to the court that there

is an absence of evidence to support the plaintiff’s case. Id. at 325. After the defendant

has met its initial burden, plaintiff’s response, by affidavits or otherwise as provided in this

rule, must set forth specific facts showing that there is a genuine issue for trial. FED. R.

CIV. P. 56(e). Summary judgment is appropriate if plaintiff fails to rebut defendant’s

assertions by making a factual showing sufficient to establish the existence of an element

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essential to his case, and on which he will bear the burden of proof at trial. Celotex Corp.

v. Catrett, 477 U.S. at 322. The defendant must establish that there is no triable issue of

fact as to all of the elements of any issue on which it bears the burden of proof at trial. See

In re Bessman, 327 F.3d 229, 237-38 (3d Cir. 2003) (citations omitted). 

Under Rule 56, the court must view the evidence presented on the motion in the

light most favorable to the plaintiff. Anderson v. Liberty Lobby, Inc., 477 U.S. at 255. If

the plaintiff has exceeded the mere scintilla of evidence threshold and has offered a

genuine issue of material fact, then the court cannot credit defendant’s version of events

against the plaintiff, even if the quantity of defendant’s evidence far outweighs that of the

plaintiff’s. Big Apple BMW, Inc. v. BMW of North Am., Inc., 974 F.2d 1358, 1363 (3d

Cir. 1992).

III. DISCUSSION

A. Breach of Contract Claim

1. Existence of Contract

According to the complaint, NovaStar breached its agreement with the McCloskeys

to refinance their mortgage at the rate of 4 3/4% and 1 3/4 points. NovaStar argues that

the McCloskeys fail to establish the existence of a legal contract. NovaStar points to the

McCloskeys’ response to discovery interrogatories that asked them to identify all

documents that reflect the alleged contract. The McCloskeys produced only three

documents that do not contain the essential terms of the contract or reflect the intent of the

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parties. The plaintiffs dispute NovaStar’s position. According to the McCloskeys,

NovaStar, through Mayo, agreed to extend a refinancing loan to them upon the satisfaction

of certain conditions.

Under Pennsylvania law, an enforceable contract exists if: (1) the parties have

manifested an intent to be bound by the agreement's terms; (2) the terms are sufficiently

definite; and (3) there was consideration. In re Estate of Hall, 731 A.2d 617, 621 (Pa.

Super. Ct. 1999). See also Mazzella v. Koken, 739 A.2d 531, 536-37 (Pa. 1999) (noting

that in order to enforce an agreement “‘the minds of the parties should meet upon all the

terms, as well as the subject-matter, of the [agreement].’” (citation omitted)). “A contract

for the sale of land must be in such form which properly expresses the intention of the

parties and must be definite and certain as to all terms.'" Golf View Office Campus P’ship

v. Resolution Trust Corp., No. 96-5597, 1997 U.S. Dist. LEXIS 15640, at *12 (E.D. Pa.

Oct. 2, 1997) (quoting Sw. Germantown Cmty. Dev. Corp. v. Concerned Neighbors of

Germantown, 598 A.2d 63, 64-65 (Pa. Super. Ct. 1991)). Further, "'it is hornbook law that

evidence of preliminary negotiations or an agreement to enter into a binding contract in the

future does not alone constitute a contract.'" Id. (quoting Channel Home Ctrs. of Grace

Retail Corp. v. Grossman, 795 F.2d 291, 298 (3d Cir. 1986)). See also Middleton v.

Realen Homes, 24 F. Supp. 2d 430, 435-36 (E.D. Pa. 1998). In other words, before

preliminary negotiations ripen into contractual obligations, there must be manifested

mutual assent to the terms of a bargain. Mazzella, 739 A.2d at 536-37. Cf. Shovel

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The question of “whether an undisputed set of facts establishes a contract is one of law.” Buff

5

v. Fetterolf, 215 A.2d 327, 330 (1995). Here, NovaStar does not dispute the plaintiffs’ account of the

pertinent events and communications.

11

Transfer & Storage, Inc. v. Pa. Liquor Control Bd., 739 A.2d 133, 136 (Pa. 1999) (“If the

parties agree upon essential terms and intend them to be binding, a contract is formed even

though they intend to adopt a formal document with additional terms at a later date.” 

(quotations and citation omitted)). And when a party relies on the existence of an oral

contract, it must be established by “clear and precise” evidence. Geiger Assocs. Plumbing,

Heating & Air Conditioning, Inc. v. Geiger Servs., Inc., No. 98-1315, 1998 U.S. Dist.

LEXIS 6778, at *3 (E.D. Pa. May 14, 1998); see also Kurland v. Stolker, 533 A.2d 1370

(Pa. 1987) (stating party asserting oral agreement concerning title to real estate must prove

the existence of an oral agreement "beyond a doubt").

5

Here, the plaintiffs’ tale demonstrates that they were engaged in negotiations with

NovaStar about the refinancing. However, the plaintiffs do not establish that an agreement

concerning the refinancing of their home had been reached or that either party intended to

be bound by the terms now suggested by the plaintiffs as the oral agreement. During the

initial telephone conversations on June 16, 2003, Mayo indicated to Mr. McCloskey that

the McCloskeys were “approved” for a mortgage at the locked-in rate of 4.75% contingent

on three things. In other words, they qualified to receive the refinancing at the quoted rate

if they satisfied all three conditions. Mayo’s statement did not give Mr. McCloskey the

ability to accept a mortgage, i.e., the power to create a contract by making an acceptance

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12

of an offer. Triffin v. Thomas, 462 A.2d 1346, 1350 (Pa. Super. Ct. 1983) (“It is

fundamental that for an agreement to exist there must be an offer and acceptance which

signifies that there has been a ‘meeting of the minds.’”). Mr. McCloskey does not contend

that Mayo made a definitive offer to him. Mayo simply outlined what was required in

order for NovaStar to offer the desired loan to the McCloskeys. Moreover, no where in his

affidavit does Mr. McCloskey actually claim he accepted a particular, definitive offer from

NovaStar to refinance his mortgage. 

As the email exchanges and Mr. McCloskey’s affidavit attest, the McCloskeys

spent the weeks after the first phone conversation attempting to satisfy the conditions

needed to qualify for the quoted mortgage. The emails show “preliminary” negotiations,

not a binding contract, as the parties worked towards the closing of the loan at a specific

rate. Prior to satisfying one of the required conditions, Mayo informed Mr. McCloskey

that “we are going forward as planned at 4.75%.” Such a statement does not suggest a

binding agreement between the parties. It reflects two parties working towards a future

contract. In another exchange, Mayo discusses a Good Faith Estimate of the loan terms

provided to the McCloskeys and states: “I am cushioning everything so that we can be

presently surprised at closing instead of outraged.” Estimates and non-finalized terms

portray the lack of an intent to be bound. Again, the parties appear to be striving to enter a

contract, with specific terms, at the closing date. 

Once the McCloskeys satisfied the initial conditions, Mayo informed Mr.

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13

McCloskey that she received “a commitment from Underwriting for the rate we want, and

it lists some conditions that I need your help in completing before we go to docs.” While

NovaStar may have determined that the McCloskeys qualified for a loan at a certain rate,

Mayo did not present the McCloskeys with an offer to accept. Rather, Mayo indicated that

the parties can now proceed to closing the loan. The parties’ intent to enter a contract at

the “closing” is supported by Mayo’s July 24, 2003 communication. On July 24th, Mayo

informed the McCloskeys that NovaStar’s commitment was good until August 16th and

that the loan had to be closed by August 11th. If the parties previously entered into a

binding contract, NovaStar would not be able to place an expiration date on its

commitment. This was not a case of the parties agreeing to the essential terms and

intending them to be binding at present, with the intent to adopt a formal document with

additional terms at a later date. See Flight Sys., Inc. v. Elec. Data Sys. Corp., 112 F.3d

124, 129 (3d Cir. 1997) (noting that the existence of a contract had been alleged because

there was an offer and acceptance, i.e., a meeting of the minds, and “[t]he fact that the

parties intended subsequently to execute a signed writing does not preclude a finding that a

contract was formed”); Shovel Transfer & Storage, 739 A.2d at 136. 

Even accepting Mr. McCloskey’s version of the events of June and July 2003, the

parties did not intend to enter an agreement to refinance the McCloskeys’ mortgage until

they held a “closing.” The parties never closed on the loan and, therefore, never entered

into a contract. Accordingly, the plaintiffs’ fail to establish the existence of a genuine

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NovaStar also claims that the breach of contract claim cannot be sustained because it was

6

fraudulently induced to enter into any alleged contract with the McCloskeys. NovaStar bases this claim

on the McCloskeys’ misrepresentation of their income. See infra Part III.B.1. If a party’s manifestation

of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which

the recipient is justified in relying, the contract is voidable by the recipient. See Allegheny Int’l. Inc. v. J.

Daniel Snyder, 954 F.2d 167, 178-79 (3d Cir. 1992) (emphasis added); Coll. Watercolor Group, Inc. v.

William H. Newbauer, Inc., 360 A.2d 200, 206 (Pa. 1976) (noting that a “contract is voidable for

fraudulent inducement ‘where a party is induced to enter into a transaction with another party that he was

under no duty to enter into by means of the latter's fraud’” (quoting RESTATEMENT CONTRACTS § 476

(1932))); RESTATEMENT (SECOND) OF CONTRACTS § 164. See also RESTATEMENT (SECOND) OF

CONTRACTS § 162 (defining a fraudulent misrepresentation and a material misrepresentation). Fraud

consists of anything calculated to deceive. Silverman v. Bell Sav. & Loan Ass’n, 533 A.2d 110, 113-14

(Pa. Super. Ct. 1987) (discussing the requirements to prove fraud). Fraud is proved when it is shown that

the false representation was made knowingly, or in conscious ignorance of the truth, or recklessly

without caring whether it be true or false. Id. And if a party has the power to avoid a contract due to

fraud in making the contract, its refusal or failure to perform is not a breach. RESTATEMENT (SECOND)

OF CONTRACTS § 385 cmt. a. See College Point Boat Corp. v. United States, 267 U.S. 12, 15-16 (1925);

Mardell v. Harleysville Life Ins. Co., 31 F.3d 1221, 1231 n.16 (3d Cir. 1994). Here, assuming the

existence of a contract, the McCloskeys’ misrepresentation of their income could very well make the

contract voidable by NovaStar, especially since the disparity between the McCloskeys’ actual income

and reported income was over twenty-thousand dollars, which appears to be at the very least reckless. 

See infra Part III.B.1. However, given that no contract existed between the plaintiffs and defendant, I do

not need to decide the merits of this argument.

14

issue of fact with respect to the intent of the parties and the plaintiffs’ breach of contract

claim must fail as a matter of law.6

The plaintiffs hope to save their breach of contract claim by categorizing the

various conditions created by NovaStar as conditions precedent to a contract to extend the

loan. The plaintiffs’ own account of the events fails to establish a valid contract to provide

the refinancing. The various conditions that NovaStar placed on the McCloskeys did not

relate to NovaStar’s duty to perform under a contract; rather, the conditions related to the

McCloskeys’ ability to qualify for a specific loan. Once the McCloskeys satisfied those

conditions, NovaStar committed to refinancing the mortgage at the quoted rate. 

Unfortunately for the McCloskeys, the parties never closed on, and the McCloskeys never

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“The Statute of Frauds is satisfied by the existence of a written memorandum signed by the 7

party to be charged and sufficiently indicating the terms of the oral agreement so that there is no serious

possibility of consummating fraud by its enforcement.” Keil v. Good, 356 A.2d 768, 771 (Pa. 1976).

See 33 PA. STAT. ANN. § 1 (Pennsylvania’s Statute of Frauds, which applies to all interest in land).

15

accepted, that commitment. As the Pennsylvania Supreme Court recently noted: “‘A

condition is an event, not certain to occur, which must occur, unless its non-occurrence is

excused, before performance under a contract becomes due.’ ‘In order for an event to be a

condition, it must qualify a duty under an existing contract.’” Shovel Transfer & Storage,

739 A.2d at 139 (quoting RESTATEMENT (SECOND) OF CONTRACTS § 224, cmt. c)

(emphasis added) . Here, the McCloskeys’ loan qualification hinged on certain events;

however, the satisfaction of those events did not give rise to any duty to perform on the

part of NovaStar. That is because no contract existed between the parties. The events

were not conditions because they were independent of an existing contract. 

In addition, plaintiffs’ request for additional discovery on this matter will not alter

the outcome. First, the McCloskeys’ own account does not establish a contract. Second,

the only additional person that can shed light on the intent of the parties is Mayo and her

deposition would not aid this court in its decision. Mayo’s position is adequately

represented in the email correspondence discussed above. In addition, Mayo’s August 7,

2003 email, sent to the McCloskeys after NovaStar denied the loan, details Mayo’s

recollection of the events. Mayo talks in indefinite terms and estimates — language not

indicative of a firm, binding contract. 

2. Statute of Frauds7

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McCloskeys argue that several “time-honored exceptions” to the Statute of Frauds apply to this 8

case. I note that several of the McCloskeys’ arguments misstate or misunderstand the law. First, the

McCloskeys contend that an exception to the Statute of Frauds exist where the “acts and declarations of

the parties” prove the existence of the agreement. See Kurland v. Stolker, 533 A.2d 1370, 1373 (Pa.

1987). Kurland discusses the requirements that must be met in order for a court to order specific

performance of an oral contract for real estate. A party must provide “indubitable proof” of the existence

of the oral contract and may do so through evidence of the “acts and declarations of the parties.” In other

words, the acts and statements of a party are evidence a party can use to prove an exception to the Statute

applies. Second, the McCloskeys argue that Mayo’s deposition, and her likely admission of the existence

of a contract between the parties, will eliminate the Statute of Frauds defense. Although the admission of

a defendant of a contract’s existence in his pleadings or testimony will take a contract out of the Statute,

Mayo is not a defendant or party to the contract. See Eastgate Enters., Inc. v. Bank & Trust Co. of Old

York Rd., 345 A.2d 279, 281 (Pa. Super. Ct. 1975); FED. R. CIV. P. 32; Advest, Inc. v. Kirschner, No. 92-

6656, 1994 U.S. Dist. LEXIS 954, at *3-5 (E.D. Pa. Jan. 21, 1994).

16

NovaStar also raises a Statute of Frauds defense to the breach of contract claim. 

NovaStar argues that under Pennsylvania law a mortgage agreement must be in writing

and satisfy the Statute of Frauds and any alleged agreement between the McCloskeys and

NovaStar is oral and outside the Statute. The McCloskeys do not dispute that mortgage

contracts fall under the Statute of Frauds. See Eastgate Enters., Inc. v. Bank & Trust Co.

of Old York Rd., 345 A.2d 279, 281 (Pa. Super. Ct. 1975) (“To be valid, a mortgage must

be in writing.”). Rather, the McCloskeys contend that due to the circumstances

surrounding the alleged agreement to refinance their mortgage the Statute of Frauds does

not apply.8

Since I have determined that no contract existed, I do not need to reach the question

of whether any exception to the Statute of Frauds applies to the facts of this case.

B. Promissory Estoppel Claim

1. Unclean Hands Defense

In the alternative to their breach of contract claim, the McCloskeys allege that they

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Shoemaker v. Commonwealth Bank, 700 A.2d 1003, 1006 (Pa. Super. Ct. 1997) (stating that to 9

maintain an action for promissory estoppel, a plaintiff must allege “(1) the promisor made a promise that

he should have reasonably expected would induce action or forbearance on the part of the promisee; (2)

the promisee actually took action or refrained from taking action in reliance on the promise; and (3)

injustice can be avoided only by enforcing the promise”).

17

detrimentally relied upon promises NovaStar made to refinance their mortgage. NovaStar

does not contest the merits of the promissory estoppel claim, but raises the equitable 9

defense of “unclean hands.” NovaStar contends that the promissory estoppel claim fails

because any promise it made with respect to the refinancing was based on the

McCloskeys’ false representation of their income. The McCloskeys argue that sufficient

factual issues surround any alleged income misrepresentation that this court cannot grant

NovaStar summary judgment based on this affirmative defense.

The parties do not dispute that the promissory estoppel claim is one that sounds in

equity. Thus, the equitable maxim that “he who comes into a court of equity must come

with clean hands” applies. A court can bar a plaintiff from recovering on an equitable

claim “when ‘some unconscionable act of [the plaintiff] has immediate and necessary

relation to the equity that’ the [plaintiff] seeks . . . .” New Valley Corp. v. Corporate Prop.

Assocs. 2 & 3 (In re New Valley Corp.), 181 F.3d 517, 525 (3d Cir. 1999) (quoting

Keystone Driller Co. v. Gen. Excavating Co., 290 U.S. 240 (1933)). See also Precision

Co. v. Automotive Co., 324 U.S. 806, 814-16 (1945); Lucey v. Workmen's Comp. Appeal

Bd., 732 A.2d 1201, 1204-05 (Pa. 1999) (“[Unclean hands] is a self-imposed ordinance

that closes the doors of a court of equity to one tainted with iniquity or bad faith relative to

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 17 of 30
18

the matter in which he seeks relief. . . .[I]t does require that [the plaintiff] shall have acted

fairly and without fraud or deceit as to the controversy in issue.”). “The doctrine is not a

matter of defense to the defendant. Rather, in applying it courts are concerned primarily

with their own integrity, and with avoiding becoming the abettor of iniquity.” Ne.

Women's Center, Inc. v. McMonagle, 868 F.2d 1342, 1354 (3d Cir. 1989) (internal

quotations and citations omitted). “[T]he primary principle guiding application of the

unclean hands doctrine is that the alleged inequitable conduct must be connected, i.e., have

a relationship, to the matters before the court for resolution.” New Valley Corp., 181 F.3d

at 525; see Ne. Women’s Center, Inc., 868 F.2d at 1354 (noting that the same principle

applies under Pennsylvania law). Fraud, deceit, unconscionability, or bad faith on the part

of the plaintiff can allow a court to invoke the unclean hands doctrine. The Third Circuit

has detailed the type of conduct that qualifies as unclean hands: “Accordingly one's

misconduct need not necessarily have been of such a nature as to be punishable as a crime

or as to justify legal proceedings of any character. Any willful act concerning the cause of

action which rightfully can be said to transgress equitable standards of conduct is

sufficient cause for the invocation of the maxim by the chancellor.” Monsanto Co. v.

Rohm & Haas Co., 456 F.2d 592, 598 (3d Cir. 1972) (citing Precision Co., 324 U.S. at

814-16); see also Shapiro v. Shapiro, 204 A.2d 266, 268 (Pa. 1964) (“Application of the

unclean hands doctrine is confined to willful misconduct which concerns the particular

matter in litigation.”). The Third Circuit has suggested that a plaintiff’s negligent acts are

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 18 of 30
The borrower’s income will almost always be relevant in the application for a mortgage loan,

10

whether it is a “Stated Income” loan or otherwise. That is because a loan by definition must be repaid. 

Therefore, the misrepresentation of the McCloskeys’ income is directly connected to the promissory

estoppel claim at issue. The question that is left to be resolved in applying the unclean hands defense is

whether that misrepresentation was willful.

This amount was calculated by adding the following numbers, each rounded to the closest full

11

dollar amount: (1) Mrs. McCloskey’s income of $38,931.00; (2) interest of $1,869.00; (3) Social Security

income of $14,384.00; (4) dividends of $10,163.00; and (4) rental income of $112,350.00. 

19

insufficient for a court to utilize the doctrine. See S & R Corp. v. Jiffy Lube Int'l., Inc.,

968 F.2d 371, 377 n.7 (1992) (stating that the unclean hands defense would have been

unsuccessful if asserted because neither fraud, unconscionability, or bad faith was alleged

and that at best the plaintiff complains that the defendant was negligent). 

In this case, factual issues remain regarding the willfulness of the plaintiffs’

misstatement of their income. Without further discovery, this court cannot fairly exercise 10

its discretion under the unclean hands doctrine. Giving the McCloskeys the benefit of

every doubt and crediting them with every possible cent of income, NovaStar has failed to

demonstrate bad faith or misconduct on the part of the McCloskeys so as to bar their

promissory estoppel claim.

Mr. McCloskey represented to Mayo that his and his wife’s annual income was “in

the ball park” of $200,000. As paper discovery has borne out, the McCloskeys’ actual

income in 2003 was $177,697. While it is debatable whether $177, 697 is in the ball 11

park of $200,000, the McCloskeys’ account of events reveal that the numbers do not tell

the entire story. For example, the plaintiffs claim that Mayo guided Mr. McCloskey

through the application process. The application was completed over the phone and Mayo

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 19 of 30
The defendant dedicates a portion of its unclean hand argument to the fact that the application

12

was in Mr. McCloskey’s name and therefore, only Mr. McCloskey’s income should be considered when

calculating the actual income. While the loan application indicates that it only applies to Mr.

McCloskey, the plaintiffs claim that Mayo instructed them to submit the application only in Mr.

McCloskey’s name, but to include the income of both Mr. and Mrs. McCloskey. I have accepted this

contention as true, i.e., NovaStar knew that any income information provided by Mr. McCloskey and the

income information in the application represented the McCloskeys’ joint income. Therefore, any unclean

hands argument cannot be based on Mr. McCloskey including Mrs. McCloskey’s income in the loan

application process.

See supra Part III.A.2 n.7 (defining Pennsylvania’s Statute of Frauds).

13

20

knew that Mr. McCloskey was basing the income information on his “recollection.” I 12

acknowledge that several facts support NovaStar’s position that the McCloskeys’ income

misrepresentation was willful, especially Mr. McCloskey’s verification of the couple’s

income under penalty of criminal and civil liability when he executed the loan application

and returned it to NovaStar; however, Mayo had advised the McCloskeys that they had

been approved for the loan prior to the application being returned. Therefore, I am not

comfortable prohibiting the promissory estoppel claim based on the record before me. To

exercise this court’s discretion under the unclean hands doctrine based only on numbers,

and without clear proof of willful deceit, would be an abuse of discretion.

2. Statute of Frauds Defense

NovaStar also argues that under Pennsylvania law the Statute of Frauds bars

plaintiffs’ claim for promissory estoppel. The McCloskeys dispute NovaStar’s

representation of Pennsylvania law.

In Pennsylvania, a mortgage is an interest in real property and it must satisfy the

Statute of Frauds. See Linsker v. Savings of Am., 710 F. Supp. 598, 600 (E.D. Pa. 1989) 13

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 20 of 30
Any remedy ultimately granted for a successful promissory estoppel claim “‘may be limited as 14

justice requires.’” Green v. Interstate United Mgmt. Serv. Corp., 748 F.2d 827, 830 (3d Cir. 1984)

21

("‘[A]n oral agreement to lend money to a borrower in consideration for a mortgage must

be in writing pursuant to the statute of frauds.’” (quoting Bozzi v. Greater Del. Valley Sav.

& Loan Assocs., 389 A.2d 122, 123 (Pa. Super. Ct. 1978))); Eastgate Enters., Inc. v. Bank

& Trust Co. of Old York Rd., 345 A.2d 279, 281 (Pa. Super. Ct. 1975) (“To be valid, a

mortgage must be in writing.”). A party cannot avoid the dictates of the Statute of Frauds

by relying on an estoppel theory of recovery. See Polka v. May, 118 A.2d 154, 156 (Pa.

1955) (“[T]he principle of estoppel may not be invoked against the operation of the statute

of frauds . . . .”). However, Pennsylvania’s Statute of Frauds only makes an oral contract

for an interest in real property unenforceable; it does not void the contract. See Fannin v.

Cratty, 480 A.2d 1056, 1059 (Pa. Super. Ct. 1984) “[The] statute of frauds has been

construed as permitting recovery of damages for breach of an oral agreement to sell land. 

Generally, the measure of damages in such a case is the money that was paid on account of

the purchase and the expenses incurred on the faith of the contract. Where the oral

agreement has been obtained by fraud, however, the buyer may recover as damages the

loss of his bargain . . . ." Weir v. Rahon, 421 A.2d 315, 317 (Pa. Super. Ct. 1980). See

also Polka, 118 A.2d 154; Fannin, 480 A.2d 1056. Therefore, a plaintiff is permitted to

pursue a promissory estoppel claim even when the underlying promise is subject to the

Statute of Frauds, but his recovery is limited to reliance damages in the absence of fraud. 

See Josephs v. Pizza Hut of Am., Inc., 733 F. Supp. 222 (W.D. Pa. 1989). See also 14

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 21 of 30
(quoting RESTATEMENT (SECOND) OF CONTRACTS § 90) (noting that Pennsylvania has adopted the theory

of promissory of estoppel established by section 90 of the Restatement (Second) of Contracts). 

22

Green v. Interstate United Mgmt. Serv. Corp., 748 F.2d 827, 830 (3d Cir. 1984); Milandco

Ltd. v. Wash. Capital Corp., No. 97-8119, 2001 U.S. Dist. LEXIS 20770, at *24-25 (E.D.

Pa. Dec. 12, 2001); Burns v. Baumgardner, 449 A.2d 590, 595-96 (Pa. Super. Ct. 1982).

Turning our attention to the defendant’s argument, plaintiffs’ promissory estoppel

claim involving NovaStar’s promise of a certain mortgage rate falls under the Statute of

Frauds. The Statute of Frauds may prevent the specific enforcement of the promise, but it

does not bar the promissory estoppel claim itself. At most, the Statute of Frauds limits the

relief available to the plaintiffs (and given the plaintiffs’ argument that NovaStar’s

conduct was fraudulent no restriction on recovery may apply). Therefore, the plaintiffs

have the right to pursue further discovery on their promissory estoppel claim. 

Accordingly, I will deny the defendant’s motion for summary judgment with

respect to the promissory estoppel claim.

C. Fraud Claim

NovaStar argues that the plaintiffs’ fraud claim must fail because they cannot

demonstrate that they justifiably relied upon any alleged false misrepresentation made by

NovaStar regarding the refinancing. Much like the unclean hands argument, NovaStar

relies on the McCloskeys’ understatement of their income in the loan application process

to support its position. NovaStar believes that the McCloskeys “cannot reasonably (or

fairly) contend that they justifiably relied on any representations made by NovaStar as to

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 22 of 30
 “[I]t should be noted that a mere breach of good faith, or a broken promise to do or refrain 15

from doing something in the future is not fraud, although ‘a statement of present intention which is false

23

its ‘willingness or ability’ to approve a loan when those alleged representations of

‘willingness or ability’ were induced by Mr. McCloskeys’ false statement of this financial

status.” Def.’s Mem. Law Supp. Mot. Summ. J. at 15. The McCloskeys contend that,

viewing the record in their favor, summary judgment is not appropriate at this point in the

case. The plaintiffs argue that they were justified in relying on NovaStar’s promised

mortgage loan because of the circumstances surrounding Mr. McCloskey’s income

representation and Mayo’s directives to Mr. McCloskey.

Under Pennsylvania law, “to recover on a claim of fraud, the plaintiff must prove

by clear and convincing evidence six elements: 1) a representation; 2) which is material to

the transaction at hand; 3) made falsely, with knowledge of its falsity or recklessness as to

whether it is true or false; 4) with the intent of misleading another into relying on it; 5)

justifiable reliance on the misrepresentation; and 6) the resulting injury was proximately

caused by the reliance.” Viguers v. Philip Morris USA, Inc., 837 A.2d 534, 540 (Pa.

Super. Ct. 2003) (citing Debbs v. Chrysler Corp., 810 A.2d 137, 155 (Pa. Super. Ct.

2002)). A recipient of a fraudulent misrepresentation of intention is justified in relying

upon it if the existence of the intention is material and the recipient has reason to believe

that it will be carried out. See RESTATEMENT (SECOND) OF TORTS § 544 quoted in Mellon

Bank Corp. v. First Union Real Estate Equity & Mortgage Invs., 951 F.2d 1399, 1412 (3rd

Cir. 1991). In determining whether reliance is reasonable, the degree of sophistication 15

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 23 of 30
when uttered may constitute a fraudulent misrepresentation of fact.’” Lind v. Jones, 135 F. Supp. 2d 616,

621 (E.D. Pa. 2001) (quoting Mellon Bank, 951 F.2d at 1409). The McCloskeys fraud claim rests on

NovaStar’s alleged misrepresentation of its intent to enter into a loan agreement with the McCloskeys at

the rate of 4.75% and 1 3/4 points. The McCloskeys believe NovaStar was executing a “bait and switch”

tactic when it promised them the mortgage loan at the 4.75% rate, i.e., it promised the McCloskeys a low

rate in order to induce the McCloskeys to deal exclusively with NovaStar and once the McCloskeys

committed to NovaStar and had no other refinancing alternative, NovaStar raised the interest rate on the

loan.

24

of the parties and the history, if any, behind the negotiation process are relevant factors. 

See Mellon Bank, 951 F.2d at 1411-12; Greenberg v. Tomlin, 816 F. Supp. 1039, 1056

(E.D. Pa. 1993). 

 Based on Mr. McCloskey’s affidavit and the other information in the record before

me, NovaStar’s intention to refinance at a certain rate was material to the McCloskeys’

decision to deal with NovaStar and the McCloskeys had reason to believe that a national

mortgage company would follow through with that commitment. Although it appears that

the McCloskeys are well versed in real estate transactions based upon the several pieces of

investment property they own, the communications between the McCloskeys and Mayo

show a lack of emphasis on a Stated Income loan borrower’s income. Mayo implied that

the income of the McCloskeys was of minimal importance to the loan approval. Mayo

was more concerned about the McCloskeys’ assets and NovaStar only sought verification

of the McCloskeys’ income after it had already made a promise to refinance the mortgage. 

In addition, Mayo knew that the income information she collected from Mr. McCloksey

over the phone was an estimate and based upon Mr. McCloskey’s memory. This

bargaining history, viewed in the McCloskeys’ favor, supports the McCloskeys’ reliance

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 24 of 30
25

on NovaStar’s commitment to lend despite the McCloskeys’ understatement of their

income. 

NovaStar would like this court simply to look at the discrepancy between the

plaintiffs’ stated income and actual income and find in its favor. However, Mr.

McCloskey reveals that there is more to this refinancing. The tax forms and loan

application cannot be viewed in isolation. A borrower’s misrepresentation of his income

to a lender is a factor to consider when determining if it was reasonable for a borrower to

rely on any refinancing commitment made by a lender, but it cannot be the only factor. 

Therefore, I will deny NovaStar’s request for summary judgment on the fraud

count. Additional discovery must occur. Then, after the presentation of the plaintiffs’

case at trial, this court can better examine the fraud claim as required by Pennsylvania law. 

Lind v. Jones, 135 F. Supp. 2d 616, 621 (E.D. Pa. 2001) (“Pennsylvania law requires the

trial judge to decide as a matter of law before he submits a case to the jury whether

plaintiffs' evidence attempting to prove fraud is sufficiently clear, precise, and convincing

to make out a prima facie case.”). 

D. Plaintiffs’ Motion Pursuant to Federal Rule of Civil Procedure 56(f) 

The plaintiffs moved for a continuance under Rule 56(f) of Federal Rule of Civil

Procedure. The plaintiffs filed a brief and an affidavit of counsel in support of their

motion. They requested the court to delay any ruling on the summary judgment motion

until NovaStar produced certain e-mails and the McCloskeys had an opportunity to

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26

conduct several depositions. As I have decided the motion for summary judgment, this

motion is denied. However, I will discuss briefly my reasons for not granting the motion. 

Rule 56(f) provides: 

When Affidavits are Unavailable. Should it appear from the affidavits of a

party opposing the motion that the party cannot for reasons stated present by

affidavit facts essential to justify the party's opposition, the court may refuse

the application for judgment or may order a continuance to permit affidavits

to be obtained or depositions to be taken or discovery to be had or may

make such other order as is just.

FED. R. CIV. P. 56(f). According to the Third Circuit, a Rule 56(f) motion must go beyond

generalities and “must identify with specificity what particular information is sought; how,

if uncovered, it would preclude summary judgment; and why it has not previously been

obtained.” Lunderstadt v. Colafella, 885 F.2d 66, 71 (3d Cir. 1989). See Insulation Corp.

of Am. v. Huntsman Corp., No, 98-6336, 2000 U.S. Dist. LEXIS 481, at *20-21 (E.D. Pa.

Jan. 18, 2000). 

As evident from the discussion above, there was no need for this court to delay the

resolution of the summary judgment motion. NovaStar sought summary judgment on the

promissory estoppel and fraud claims based on the McCloskeys’ willful misrepresentation

of their income. The affidavit of Mr. McCloskey provided the strongest evidence of the

intent of the plaintiffs and resulted in the denial of the motion for summary judgment on

those counts. The additional evidence sought in the Rule 56(f) motion for the promissory

estoppel and fraud claims was cumulative or irrelevant. 

With respect to the breach of contract claim, the plaintiffs failed to identify how any

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 26 of 30
27

of the proposed discovery would preclude summary judgment. The breach of contract

claim failed because the evidence clearly showed that the parties never manifested an

intent to be bound. Neither the deposition of Mayo nor NovaStar’s internal email

communications would have changed that result, especially since the McCloskeys did not

even claim that they accepted any offer from NovaStar. As for the deposition of Mayo, the

McCloskeys sought to have Mayo testify about the emails discussed above and the

existence of an agreement. The McCloskeys failed to specify, as required by the cases

interpreting Rule 56(f), what particular facts would have been uncovered by Mayo’s

deposition, beyond what is contained in the emails and Mr. McCloskey’s affidavit. See

Chestnut Hill Acad. v. Graphic Arts Mut. Ins. Co., No. 4-1560, 2005 U.S. Dist. LEXIS

14776, at * 17-22 (E.D. Pa. July 22, 2005) (“The cases granting Rule 56(f) motions

emphasize the importance of specificity on the part of the non-moving party with respect

to both the facts it expects to uncover through additional discovery and the necessity of

those facts to the defense of the motion.”). Moreover, the emails speak for themselves and

reflect Mayo’s view that the parties were working towards a future contract. Likewise,

any internal communications of NovaStar were irrelevant; they could not establish what

was lacking — a manifestation of the parties’ mutual assent to the terms of a bargain. The

plaintiffs were present and participated in all communications that could have created a

binding contract; however, by their own account, no contract was formed.

Therefore, I declined to grant the plaintiffs’ motion pursuant to Rule 56(f) and I

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 27 of 30
28

now deny it.

IV. CONCLUSION

For the foregoing reasons, I will grant NovaStar’s motion for summary judgment as

to the breach of contract claim. The parties did not intend to enter into a contract until

they closed on the refinancing loan, which never occurred. I will deny the summary

judgment as to the promissory estoppel claim and fraud claim. 

I will give the parties ninety (90) days to conduct any needed depositions and

additional discovery on the remaining counts and the remaining counterclaim. At the close

of the ninety days, I will place this case in the court’s trial pool. 

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 28 of 30
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

RICHARD F. MCCLOSKEY and

ROSEMARIE K. MCCLOSKEY, : CIVIL ACTION

Plaintiffs, :

:

v. : NO. 05-1162

:

NOVASTAR MORTGAGE, INC., :

Defendant. :

ORDER

AND NOW, this 21st day of August, 2007, upon consideration of defendant’s

Motion for Summary Judgment (Docket No. 56), and the responses thereto, it is hereby

ORDERED that the motion is GRANTED in part and DENIED in part. I will grant

the defendant summary judgment on the breach of contract claim, but deny summary

judgment as to the promissory estoppel and fraud claims.

IT IS FURTHER ORDERED that the plaintiffs’ Motion to Compel the

Production of Documents Withheld in Discovery and Motion Pursuant to Fed. R. Civ. P.

56(f) (Docket No. 69) is DENIED.

The parties shall complete all discovery on the remaining claims and counterclaim

by November 20, 2007. On November 20, 2007, the case shall be placed in this court’s

trial pool. Counsel, parties, and witnesses must be ready to start trial upon 72 hours

telephone notice.

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 29 of 30
2

BY THE COURT:

 /s/ Lawrence F. Stengel 

LAWRENCE F. STENGEL, J.

Case 2:05-cv-01162-LS Document 84 Filed 08/22/07 Page 30 of 30