While this is definitely a bunch a hot air, unfortunately they could frivolous sue you to simply win on financial grounds alone (in particular they could sue you in a location where the cost of travel would be expensive and if you ignored it they get a default judgement, or sue you in both state & federal courts for slightly different things and drown you in legal costs).

I'd evaluate what your endgame is. If your endgame is to keep the domain then I'd get a lawyer in order to make it clear that you will respond to legal challenges (and, yes, the bill is going to run up). If you were willing to sell, for a price, then you should try to figure out how much a legal challenge would cost them and set a price a bit higher than that.

Is it fair? Absolutely not, but the US legal system is set up so that those with the deepest pockets often win. It isn't a fair fight for normal citizens, and even having the law on your side is often not enough because it is a financial battle more than a legal one.

Either way may be wise to lawyer up today, either for a better selling price, cause them to back off entirely, or move it into the "bury you with costs" phase of bullying.