I know what they're doing is empty threat. Small claims are only valid for two years from the point of the incident. (At least that's how it is in Canada I believe)
mykwyner, I really like your example! very clean-cut and brief, and yet there's nothing missing. It's very cynical and has "I couldn't care less" attitude that my letter doesn't have. Mine's just very... wordy.
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In America we call this "calling his bluff."
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You mean the small claims company is calling their bluff? or is it you, as a person writing the reply to the company, calling your bluff?