4L80 damaged

[adzints7]

I have a LS swapped k10 suburban that is running the FiTech ECU with transmission controller. This system requires a VSS installed into the rear position on a 4L80. A few months ago I noticed that my VSS sensor on my 4l80 was on the forward position, not the rear. I did not do the install and this is on a new crate tranny from GM behind a 5.3 LM7 and in front of an NP205 T-case in my 1972 K10 Suburban. I identified the incorrect location and switched the sensor location...did not shift or work. I spoke to FiTech a few times and ultimately they determined that if it was running and shifting before then leave it in the forward position. fast forward a few months and 2 weeks ago I had a somewhat separate failure at my transfer case, which has now been rebuilt. During this rebuild, it was identified that the 4L80 output shaft was incorrect and slightly contributed to the transfer case failure. So the 4L80 went into the shop for a output shaft swa and I am being told that I did not have the rear reluctor in order for the rear sensor to work...thats fine. The shop that did the initial install had ordered a 4wd transmission but should not have. Either way, they are now saying that the VSS being installed in the forward position caused damage to internal components in the 4l80 as well as the converter, requiring a rebuild. They are stating the bill is $1600. I am not paying that, but I am sure they will try to get something for it. Transmissions are not within my comfort zone at all but I am skeptical that there is so much wrong with the transmission just from the wrong sensor.

So, does anyone have any ideas if these claims are realistic? Can the use of the forward VSS create such damage? FYI the truck shifted and ran through the gears fine, although there were occasional hard shifts. I adjusted the speedo correction per FiTechs instruction and ensured my initial setup was correct...several times. I am frustrated with this shop, but they are trying to remedy the mistakes and acknowledging the part they played in the failures we are dealing with. I just want to make sure this doesn't happen again and whether this is that last time I am going to deal with this shop.