Best strategies when a bad client refuses to complete payment and demands existing payment returned after work has been delivered

Question

So, built and shipped to Testflight and Android beta software for a friends/family round "funded" startup client. It's a client-server-AI app that I felt was more than reasonable for $10k.

We had an informal agreement, because I considered the scope minor and the payment was supposed to be in full. The founder agreed to the software features and asked to pay a 50% down instead of the full amount. I have informally agreed to help with the YC video as founding CTO, but it has become clear that our standards for making a competitive pitch are at a mismatch (I am perhaps more draconian).

Founder decides to ask for the 50% back:

Any lawyer looking at this situation would clearly see that our email exchange explicitly outlines that we both agreed that the YC video was included in the scope of work. As such I need to ask that you please return the $5000 that I sent you upfront.

Because the client has mentioned that ridiculous-in-this-context keyword "lawyer", I feel like it is no longer appropriate for me to reply at all.

I have, in fury, written this draft email (unsent):

If you would like, I can generate an additional invoice for the additional thus un-billed work I have put in for the YC founder video. The fact remains that, I have built and delivered the working software we discussed, priced at the agreed-upon rate, and that invoice needs to be paid. 

Good lawyers and good business folks value work that has been done for a project. It is in my nature to offer goodwill advice, so I highly advise that we end our relationship professionally, with you completing the payment. I will not be responding to further communication that I feel are outside of a professional context.

The founder has also asked for the YC video to be included in scope, but if we are to be detail-oriented, was not clear if this was just me advising on talking points for the video or actually making the founder video.

TBH, this insight on character comes at the right time - it's appalling how early a founder can choose to breech trust, so I am glad I will not be wasting further work time with this person.

Answer 1

First off, in the US, involving a lawyer will cost far more than $5,000 for any substantial legal effort. (30 years ago, a lawyer told me that I needed to be talking about $20,000 just to break even on a lawsuit. Double that amount today.) So, mentioning a lawyer is simply intimidation.

You have the $5,000. From my experience with kind of client, you are not likely to see the remaining payment.

It might be best to cut your losses and stop communicating with this client. A letter from a lawyer is meaningless. That just means that the client paid the lawyer to write a letter. Having a lawyer write a letter is a common intimidation step. It does not mean that there will be any legal action.

A (very) few clients will actually file a lawsuit which must be addressed. Such a step is vindictive, not a step that makes business sense. At that point, they are just trying to harm.

To get more advice in your situation, you will need to talk to your lawyer.