Fraud/Duress Allegations Can Defeat a Release at the Pleading Stage in Confession-of-Judgment/MCA Litigation

Case: Dual Diagnosis Treatment Ctr., Inc. v. Yellowstone Capital W., LLC, 2026 NY Slip Op 03292 (App. Div. 2d Dep’t May 27, 2026).
Procedural posture: Appeal from CPLR 3211 dismissal; order modified to reinstate several claims against certain “VCF defendants.”

1. Introduction

This case arises from a set of alleged merchant cash advance (“MCA”) transactions secured by affidavits of confession of judgment and followed by collection efforts. Plaintiffs (Dual Diagnosis Treatment Center, Inc., doing business as Sovereign Health of California, and related parties) sued multiple defendants, including Viceroy Capital Funding (“VCF”), Richmond Capital (“RC”), their principals/agents, and attorney Marcella G. Rabinovich.

The central issues on appeal were whether a settlement release barred the action under CPLR 3211(a)(5), whether documentary evidence warranted dismissal under CPLR 3211(a)(1), and whether the complaint stated viable claims under CPLR 3211(a)(7)—particularly where plaintiffs alleged that judgments by confession and related restraints were procured through fraud, misrepresentations, and false sworn statements, and that the release itself was executed under duress and unfair circumstances.

2. Summary of the Opinion

The Appellate Division, Second Department modified the Supreme Court’s order. It reinstated (as against the VCF-related moving defendants):

• First cause of action (declaratory relief),
• Second cause of action (to vacate judgments by confession),
• Fourth cause of action (abuse of process), and
• Fifth cause of action (Judiciary Law § 487, asserted only against attorney Rabinovich).

The court affirmed dismissal of:

• Third cause of action (constructive trust),
• Sixth cause of action (RICO), and
• Seventh cause of action (accounting).

3. Analysis

3.1. Precedents Cited (and How They Drove the Outcome)

Release as a CPLR 3211(a)(5) defense: fraud/duress defeats dismissal

• Sacchetti-Virga v Bonilla, 158 AD3d 783 (2018): The court relied on this rule directly—dismissal based on a release should be denied where fraud or duress in the procurement is alleged. Here, although defendants submitted a release that “by its terms, barred this action,” plaintiffs’ allegations raised fact questions as to fraudulent procurement and unfair circumstances.
• Warmhold v Zagarino, 106 AD3d 994 (2013): Cited in support of the same principle that allegations of fraud/duress preclude dismissal on a release defense at the pleading stage.

CPLR 3211(a)(1): documentary evidence must “utterly refute”

• Silber Inv. Props., Ltd. v BJG Islandia Realty, LLC, 236 AD3d 953 (2025): Provides the strict “utterly refutes” and “conclusively establishes a defense” standard. The Second Department held defendants’ submissions did not meet this high bar.
• Ofman v Tenenbaum Berger & Shivers, LLP, 217 AD3d 960 (2023): Reinforced that if documentary evidence does not conclusively defeat the pleaded facts, CPLR 3211(a)(1) dismissal is improper.

CPLR 3211(a)(7): pleading standards—favorable inferences, but not conclusory

• Acala v Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., 222 AD3d 706 (2023) and Leon v Martinez, 84 NY2d 83 (1994): The foundational “accept as true,” “benefit of every favorable inference,” and “fit within any cognizable legal theory” standard.
• Perez v Y & M Transp. Corp., 219 AD3d 1449 (2023) and Doe v Bloomberg L.P., 36 NY3d 450 (2021): Emphasize that the “ultimate question” is whether plaintiff can succeed on any reasonable view of the facts stated.
• Polite v Marquis Marriot Hotel, 195 AD3d 965 (2021): Used as the court’s counterweight—conclusory allegations and bare legal assertions are insufficient. This case was pivotal to the RICO dismissal.

Declaratory relief: existence of a justiciable controversy

• Anson v Incorporated Vil. of Freeport, 193 AD3d 799 (2021): Declaratory judgment accrues when there is a bona fide, justiciable controversy.
• Cong. Machon Chana v Machon Chana Women's Inst., Inc., 162 AD3d 635 (2018): Defines “justiciable controversy” as a real dispute between adverse parties involving substantial legal interests with practical effect.
• Chalem v Bonime, 155 AD2d 360 (1989): Supports allowing declaratory claims where parties dispute validity/voidness of agreements.

Vacating judgments by confession: fraud/misrepresentation/falsity suffices to state a claim

• Oakshire Props., LLC v Argus Capital Funding, LLC, 229 AD3d 1199 (2024): The central authority for pleading a cause of action to vacate a judgment by confession by alleging fraud, misrepresentation, misconduct, or falsity in a supporting affidavit. The court applied it to hold plaintiffs adequately pleaded that the confessions were obtained by “fraud, misrepresentations, and false sworn statements.”

Constructive trust and accounting: fiduciary relationship required

• JPMorgan Chase Bank, N.A. v Roseman, 137 AD3d 1222 (2016): Used to reject constructive trust where only a conventional business relationship is pleaded and no fiduciary relationship is alleged.
• Greenberg v Wiesel, 186 AD3d 1336 (2020): Applied to dismiss the accounting claim for lack of a confidential or fiduciary relationship.

Abuse of process: elements and sufficiency

• Busiello v Whelan, 240 AD3d 736 (2025): Supplies the three-element test for abuse of process. The court held plaintiffs’ allegations (process used to freeze accounts and exert economic pressure to secure settlement) were sufficient at the pleading stage.

Judiciary Law § 487: attorney deceit/collusion with intent to deceive

• Garanin v Hiatt, 219 AD3d 958 (2023): Defines the statute’s core requirement—deceit or collusion by an attorney with intent to deceive the court or any party. The court held the complaint’s allegations against Rabinovich (false affidavits supporting confessions; acting on confessions absent default; misrepresenting representation status; collusion to commit “fraud on the Court”) sufficed.

RICO: pleading a “pattern of racketeering activity” with specificity

• Simpson Elec. Corp. v Leucadia, Inc., 72 NY2d 450 (1988): Quoted for what RICO prohibits under 18 USC § 1962. The court then used Polite v Marquis Marriot Hotel to conclude plaintiffs’ RICO allegations were too conclusory (similar conduct against others; reinvestment in “unlawful schemes”) to survive dismissal.

3.2. Legal Reasoning

(a) Release defense (CPLR 3211(a)(5))—why dismissal was improper

Defendants’ strongest threshold argument was the settlement release. The Second Department accepted that the release, on its face, would bar the action. But it held that plaintiffs pleaded enough to create fact issues about:

• Fraud in procurement (allegedly false statements and sworn submissions used to obtain confessions and restraining actions); and
• Duress/unfair circumstances (alleged account restraint/freeze used as leverage to force settlement).

Under Sacchetti-Virga v Bonilla, those allegations are sufficient to defeat dismissal because the validity/enforceability of the release cannot be resolved as a matter of law on a motion to dismiss.

(b) Documentary evidence (CPLR 3211(a)(1))—why defendants’ papers did not “utterly refute”

The court emphasized the narrowness of CPLR 3211(a)(1): documentary evidence must conclusively establish a defense and utterly refute the complaint’s factual allegations. Even if some submissions qualified as “documentary,” they did not conclusively negate the pleaded fraud/false-affidavit and improper-collection narrative.

(c) Failure to state a claim (CPLR 3211(a)(7))—claim-by-claim sorting

• Declaratory relief (reinstated): Plaintiffs alleged a concrete dispute over whether the settlement agreement was void for fraud and whether plaintiffs’ performance obligations under the MCA agreements were void due to breaches. That created a practical, justiciable controversy.
• Vacatur of confessions of judgment (reinstated): Allegations that confessions were obtained via fraud, misrepresentation, and false sworn statements fit squarely within Oakshire Props., LLC v Argus Capital Funding, LLC.
• Constructive trust (dismissal affirmed): Plaintiffs pleaded, at most, arms-length commercial dealing. Without a fiduciary relationship, the equitable remedy of constructive trust was unavailable as pleaded.
• Abuse of process (reinstated): The alleged use of judgments/restraints to freeze accounts and force a settlement plausibly alleged a “collateral objective,” satisfying the Busiello v Whelan framework at the pleading stage.
• Judiciary Law § 487 (reinstated against Rabinovich): The complaint alleged intentional attorney deceit and collusion—false affidavits, use of confessions absent default, misstatements about representation, and “fraud on the Court”—sufficient under Garanin v Hiatt.
• RICO (dismissal affirmed): The court treated plaintiffs’ “pattern” allegations as conclusory and lacking the factual specificity required to plead civil RICO.
• Accounting (dismissal affirmed): No confidential/fiduciary relationship was pleaded; thus the accounting claim failed under Greenberg v Wiesel.

3.3. Impact

• Releases in MCA/confession-of-judgment settlements will be harder to wield on a motion to dismiss when plaintiffs plausibly allege that the release was a product of coercive collection leverage (e.g., account restraints) and fraud in obtaining or enforcing confessions of judgment.
• Confession-of-judgment challenges remain viable at the pleading stage when grounded in specific allegations of falsity and misconduct in supporting affidavits (Oakshire Props., LLC v Argus Capital Funding, LLC).
• Attorney exposure under Judiciary Law § 487 is reinforced in the confession-of-judgment context: pleading intentional deceit/collusion tied to court filings and enforcement steps can survive dismissal.
• Equitable remedies remain cabined by fiduciary principles: conventional lender/merchant (or MCA-provider/merchant) relationships, without more, will not support constructive trust or accounting claims.
• Civil RICO remains demanding: New York state courts will dismiss RICO claims pleaded in generalized terms about “similar conduct” toward others absent concrete, particularized facts showing a racketeering pattern and enterprise conduct.

4. Complex Concepts Simplified

• CPLR 3211(a)(5) (“release”): A signed release can bar a lawsuit, but not if the plaintiff plausibly alleges the release was obtained by fraud or duress—then the release’s enforceability becomes a fact issue.
• CPLR 3211(a)(1) (“documentary evidence”): Dismissal is permitted only when documents (like contracts, deeds, judgments) conclusively disprove the complaint. If documents merely conflict with allegations, dismissal is not warranted.
• Confession of judgment: A procedure allowing entry of judgment based on a debtor’s signed affidavit—powerful for creditors, but vulnerable if the supporting affidavit is false or the judgment was procured by misconduct.
• Abuse of process: Misusing legal process (like enforcement tools) not primarily to achieve its lawful purpose, but to pressure the other side into some collateral outcome (e.g., forcing a settlement).
• Judiciary Law § 487: A New York statute imposing civil liability on attorneys for intentional deceit or collusion aimed at deceiving a court or a party.
• Constructive trust / accounting: Equitable remedies that typically require a special trust-like (fiduciary or confidential) relationship; ordinary commercial dealings generally do not qualify.
• RICO: A federal statute targeting participation in an “enterprise” through a “pattern of racketeering activity.” Civil RICO claims must be pleaded with concrete facts, not broad assertions of wrongdoing.

5. Conclusion

Dual Diagnosis Treatment Ctr., Inc. v. Yellowstone Capital W., LLC is a pleading-stage roadmap for MCA/confession-of-judgment litigation: a facially dispositive release will not end a case on a motion to dismiss where the complaint plausibly alleges the release was procured by fraud/duress and unfair circumstances. The decision also underscores that specific allegations of false sworn submissions can sustain claims to vacate confessions of judgment, that abuse-of-process and Judiciary Law § 487 claims may proceed on well-pleaded misuse/deceit theories, and that constructive trust, accounting, and civil RICO remain constrained by demanding doctrinal prerequisites.