I am not a lawyer.
I did get sued once. I replied to the suit, copied the judge, explaining my side of the story. The judge sent the case to a mediator, at which point the other side dropped the complaint. I didn't talk to a lawyer about it, I just wrote down my side in plain english. Attached relevant documentation. Took maybe a half hour. Saved myself 2k.
They were looking for me to just send a check. Many people probably do just that. So I think it is great advice to respond to the letter just clearly stating:
"There are two total contracts at issue here. The first you are totally in breach of in the amount of 15k (see attached documents 1, 2, 3). The second you are in breach of as you did not pay the full 5k (see attached documents 1, 2, 3). In order to be entitled to a return of monies paid, the full sum of 5k would need to be paid. As you did not pay the full amount, you are not entitled to enforce the early departure penalty. I am willing to drop this issue now. If you insist on proceeding, I will ask that you first pay the 2k still owed, with interest, plus the original 15k agreed to, with interest. At that point, once you've satisfied the consideration aspect of the contracts, we can determine what compensation you are owed based on allegations that I failed to uphold my portion of terms."
Whistleblower laws protect you from retaliation from a current employer for reporting unlawful activity by others to the authorities. They do not generally provide any protection if you have been a party to such unlawful activity, as far as I know. For that you would need immunity.
There are lots of laws.
https://www.youtube.com/watch?v=6wXkI4t7nucIf you knew about activity, and didn't report it, until later, after they sued you, I'm guessing some bored district attorney somewhere is going to want to talk to you.
Small little pissing matches between angry children can turn into some very adult conversations very quickly. You may end up looking back fondly at the $400.00 quotes when you start shopping around for someone to defend you against criminal conspiracy charges.
Send a letter. Act dumb. Be nice. Forgiveness is the only path to peace.
"Assuming you heard nothing wrong, saw nothing wrong, and did nothing wrong, about a hundred and fifty thousand dollars." -The West Wing
"You are never in any actual trouble until you are standing in front of a judge." - Me.