Wow. I mean, yeah, I'd probably call someone's bluff too if they told me they were going to sue me, but at least I wouldn't do it to their face :p. That's just a dumb move. Certainly won't win anybody over, that's for sure.

Which brings up the point that threats mean nothing if you're not actually going to go through with them.

I really hope you can get some sort of agreeable (for you) resolution from this.