I'm Doug, and I'm very sorry to hear of your situation.
Anytime someone makes a demand for money and says that if you don't pay that money that they will sue you in court for the money that is never considered extortion, but rather a civil demand.
Extortion requires that someone demand something of value to which they are lot legally entitled with the threat that if the thing is not given, the they will report you to law enforcement authorities and allege that you have committed a crime---a criminal
act for which you can be criminally prosecuted.
The initially letter that you received demanding $25,000 was simply posturing by the other side---asking for more than they though they could ultimately get. But none of the demands amounts to the violation of any law. Also, the fact that they have dropped their demand by 80% would indicate that they believe you have a pretty strong defense to their original claim. I wish you success.
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