Chris.........I feel for you on that one !!! Many years ago, my SCUBA diving store got hit with a similar scam over not posting a sign over my "lead" weights stating that lead was dangerous and a haz. mat. Two other stores in the area got hit too. The scam was legal but they made money by promising not to sue you if you paid them $2000.00 for their "costs" to discover that we were selling haz.mat.
Some of the other stores blew them off and went to court and lost. This ended up costing more than the $2K originally offered.
They had taken photos of my shelf with my diving weights stacked up. My particular diving weights were made by Scubapro. They were encapsulated in thick plastic bags with a clear warning about the lead inside printed in bold print on the outside of the hermetically sealed bags. They said that those were not the issue. It was the other weight belt with 4 regular looking, shiny lead weights attached to a beautiful silver nylon webbed belt with a gold plated buckle that they were making an issue of. I had a small card on that belt that said, "For the diver who has everything". The price tag was $1200.00. What they didn't know was those 4 weights were solid 99.99% silver. I had made a mold from a std. 4 pound lead weight and had 4 of them cast in silver.
My lawyer told them to pay me $3000.00 and I would drop my case for extortion, frivolous lawsuit, false representation, fraud, etc. We settled on $2000.00 plus my lawyers fees. I got lucky......It could have been a lot worse !
I did put up a sign as required later just in case someone else came in to do the same thing. The belt sold around Christmas time for $1500.00....Silver went up .......Bruce