- Court
- New York Supreme Court, Appellate Division, Second Department
- Case
- Dual Diagnosis Treatment Ctr., Inc. v. Yellowstone Capital W., LLC
- Docket
- 2021-03724
- Filed
- May 27, 2026
- Slip Op
- 2026 NY Slip Op 03292
- Citation
- 2026 NY Slip Op 03292 (N.Y. App. Div. 2d Dep’t 2026)
Background
Dual Diagnosis Treatment Center, Inc. and related plaintiffs commenced an action against Yellowstone Capital West, LLC and other defendants, alleging claims for abuse of process, violation of Judiciary Law § 487, violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), declaratory relief, an accounting, imposition of a constructive trust, and to vacate certain judgments by confession. The plaintiffs alleged that the defendants — including Viceroy Capital Funding (VCF), Richmond Capital (RC), their principals Robert Giardina and Michelle D. Gregg, and attorney Marcella G. Rabinovich — held themselves out as merchant cash advance (MCA) businesses and acted in concert to “dupe” the plaintiffs into an unconscionable series of transactions.
According to the complaint, the plaintiffs entered into MCA agreements with VCF secured by affidavits of confession of judgment. Rabinovich allegedly filed judgments by confession based upon false statements, and VCF then directed a New York City Marshal to serve a restraining notice freezing the plaintiffs’ bank account. This economic pressure allegedly forced the plaintiffs to execute a settlement agreement with VCF “under duress.” The VCF defendants moved pursuant to CPLR 3211(a)(1), (5), and (7) to dismiss, relying in part on a release executed by the plaintiffs. The Supreme Court, Kings County granted the motion in its entirety, and the plaintiffs appealed.
Holding
The Appellate Division, Second Department modified the order, reinstating the first (declaratory relief), second (vacatur of judgments by confession), fourth (abuse of process), and fifth (Judiciary Law § 487) causes of action against the VCF defendants, while affirming the dismissal of the remaining claims. The court found that while the VCF defendants submitted a release that facially barred the action, the plaintiffs’ allegations adequately raised questions of fact as to whether the release was procured through fraud or duress, which would render it voidable, citing Sacchetti-Virga v. Bonilla, 158 AD3d 783.
On the abuse of process claim, the court found the plaintiffs sufficiently alleged that the defendants used the confession of judgment and restraining notice as tools to coerce an unfavorable settlement rather than for their legitimate purposes. On the Judiciary Law § 487 claim, the plaintiffs adequately alleged that Rabinovich engaged in intentional deceit by filing judgments based on false affidavits. However, the court affirmed dismissal of the RICO cause of action and certain other claims that were not adequately pleaded.
Takeaways
This decision is significant for several reasons. First, it applies the well-established principle that a release procured through fraud or duress is subject to challenge, and allegations of duress in the procurement of a release are sufficient to defeat a dismissal motion under CPLR 3211(a)(5). The specificity of the allegations here — describing the economic coercion through frozen bank accounts — was sufficient to raise factual questions warranting denial of the motion.
Second, the case sheds light on the litigation tactics that have emerged in the merchant cash advance industry. MCA agreements, which involve the purchase of future receivables rather than traditional lending, have been the subject of increasing scrutiny. The use of confessions of judgment as leverage to freeze a business’s bank accounts and force unfavorable settlements is a pattern that courts are increasingly willing to examine through the lens of abuse of process.
Third, the Judiciary Law § 487 claim — which authorizes treble damages against an attorney who is “guilty of any deceit or collusion” — survived dismissal. This statute imposes a high standard, requiring a showing of intentional deceit rather than mere negligence, but the allegations here were sufficient at the pleading stage.
Why It Matters
This case is part of a growing body of appellate jurisprudence addressing abusive practices in the merchant cash advance industry. MCA agreements exist in a regulatory gray area — they are structured as purchase agreements rather than loans, potentially avoiding usury laws and other consumer protections. This case demonstrates that even when MCA funders obtain releases from their targets, courts will look behind those releases to examine whether they were obtained through coercion.
For business owners who have been subjected to predatory MCA practices, the decision offers a potential roadmap for challenging judgments and releases obtained under duress. For attorneys, the survival of the Judiciary Law § 487 claim serves as a warning that participating in schemes involving false affidavits or confessions of judgment carries significant professional and financial risk. The availability of treble damages under the statute makes these claims a meaningful deterrent against attorney misconduct in connection with MCA enforcement.