In general I agree with you. If the person threatens this, stop talking to them immediately. However, to OPs point, most people who say that they will sue dont even have grounds for a suit.

As an example, i run a small publishing business. I had one guy talking to me abiut publishing a book for him. We went as far creating a cover and a mockup and then he kept making more and more outlandish requests. I dropped him. He was pissed and said he was going to sue. I laughed and asked for his attorney's phone number, Id call him myself. The publishing contract allows either party to terminate the agreement for any reason. He had no grounds for a suit, and he knew it.