if someone used a collection agency on me in a situation like you describe mister nice guy would go by by.

i am no lawyer but i think they need a written and signed contract to bill you for services rendered like they are doing with a collection agency.
i would take a trip to my lawyers office ASAP to find out what you can legally do. i would push to counter sue for everything you possibly can including getting $$$ for damaging your credit rating.

you probably won't get any $$$ but you will get the satisfaction of forcing them to declare bankruptcy to avoid paying you. it will cost them $$$ just to declare bankruptcy.