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Speak to your lawyer. That is the only real advice anyone can give you. As soon as someone threatens legal action, you should take their word for it, and treat it as such.
If you have model releases, consent videos, 2257, and everything else, your lawyer will tell you what your risk is. If everything is ironclad, the risk is probably minimal, but there is always the opportunity cost of a frivolous lawsuit. He's saying some pretty serious things as you describe it.
This has happened to clients of mine before, and I believe they offered a buyout option, but it has to factor in the cost of the content's monetary generation over time.
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