Court rules on fraud claims in Dual Diagnosis case against Viceroy

A New York appellate court has ruled on a significant case involving allegations of fraud and abuse of process against Viceroy Capital Funding and other defendants. The case, Dual Diagnosis Treatment Center, Inc. v. Yellowstone Capital W., LLC, centers on claims made by the Dual Diagnosis Treatment Center regarding financial dealings that they allege were fraudulent. The ruling affects the treatment center and its financial partners, potentially allowing them to pursue claims they previously could not.

The court's decision, issued on May 27, 2026, modifies a previous ruling from the Supreme Court of Kings County. The plaintiffs, Dual Diagnosis Treatment Center, Inc., and others, appealed an order that had dismissed several of their claims against the defendants, which include Viceroy Capital Funding and Richmond Capital. This case is significant as it addresses serious allegations of financial misconduct in the merchant cash advance industry.

Background

The parties involved in this case are the Dual Diagnosis Treatment Center, Inc., and several defendants, including Viceroy Capital Funding, Richmond Capital, and attorney Marcella G. Rabinovich. The treatment center alleges that the defendants engaged in deceptive practices related to merchant cash advance agreements. These agreements were secured by affidavits of confession of judgment, which the plaintiffs claim were based on false statements.

According to the complaint, the defendants created a situation where the treatment center was pressured into executing a settlement agreement under duress. The plaintiffs assert that the defendants acted in concert to mislead them into a series of unfavorable transactions, which ultimately led to the freezing of their bank accounts and significant financial distress.

The case reached the appellate court after the Supreme Court granted the defendants' motion to dismiss the complaint, leading the plaintiffs to appeal the decision. The plaintiffs sought to recover damages for multiple causes of action, including abuse of process, violation of Judiciary Law § 487, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

The Ruling

The appellate court ruled that the Supreme Court's dismissal of several claims was improper. The court modified the earlier decision by allowing the plaintiffs to proceed with their claims for abuse of process and violation of Judiciary Law § 487. The ruling stated, "The allegations in the complaint adequately raised questions of fact as to whether the VCF defendants procured the release by fraud and whether the release was executed under circumstances that indicate unfairness."

Judges Lara J. Genovesi, Linda Christopher, Lillian Wan, and Donna-Marie E. Golia concurred in the ruling. They emphasized that the plaintiffs had sufficiently alleged that the defendants engaged in fraudulent activities, which warranted further examination in court.

Specifically, the court found that the plaintiffs had raised valid points regarding the abuse of process claim, stating, "The complaint sufficiently stated a cause of action against the VCF defendants to recover damages for abuse of process." Additionally, the court noted that the plaintiffs had adequately alleged fraud in their claims against attorney Marcella G. Rabinovich, allowing those claims to proceed as well.

Impact

This ruling has significant implications for the Dual Diagnosis Treatment Center and similar entities in the financial sector. By allowing these claims to move forward, the court has opened the door for the treatment center to potentially recover damages for the alleged fraudulent actions of the defendants. This case highlights the importance of accountability in financial transactions, particularly in the merchant cash advance industry, which has faced scrutiny for its practices.

The decision also sets a precedent for how courts may handle claims of fraud and abuse of process in similar cases. It underscores the necessity for plaintiffs to have the opportunity to present their evidence and arguments in court, especially when allegations of wrongdoing are involved. The ruling may encourage other businesses that feel they have been wronged in financial dealings to pursue legal action.

What's Next

The case will now return to the lower court for further proceedings, where the plaintiffs will have the chance to present their claims against the defendants. It remains to be seen whether the defendants will appeal this ruling or if there are other related cases pending. The outcome of this case could influence future litigation in the realm of financial fraud and abuse of process.