What does your lawyer tell you?
I am not a lawyer, I only know what I am supposed to do as a real estate agent.
Basically, by law, when my client hires me, I get signatures for a "consent to Dual Agency" meaning that should the situation come up, I am allowed to entertain it ... else I can't practice Dual Agency at all and if I have a buyer who wants to buy the house, I would have to have another agent designated to represent either the Buyer or Seller because I can not represent both. If my client DOES sign the consent form, then when the situation actually comes up, I must have two copies of " Notice of Dual Agency" signed one by the seller and one by the buyer each acknowledging that they are being notified that Dual Agency is taking place in the case of a specific offer (address and name of buyer and seller would be on both forms and it is effective only for that transaction).
Consult your attorney on what your options are. Does he recommend a counter suit? A motion for dismissal?
Unfortunately, under our laws, there is no requirement that the person suing you has to have good cause to sue you. If they don't have grounds, they'll lose their suit, but if they're using a lawyer who gets paid based on funds awarded, there is little down side for them but it will cost you to have to defend, regardless whether you're right or wrong.