Should we settle out-of-state business dispute with local third-party entity???

Here's the short version:

- We contacted an out-of-state IT company about a program they advertised.

- IT company proposed a service contract, but we refused to sign because we were not convinced their program would work.

- IT company offered to set-up a demo website showing they could customize their program. However, their demo never worked, so we chose another company.

- Now IT company's local salesperson is using his local business entity to sue us in small claims for work (the demo website) he claims we authorized.

Oddly, the IT company has never billed or even contacted us after we walked-away nor is it registered in the state. So it seems the local rep is suing on his own behalf. (We suspect he promised us as a client to the IT co. so they would set-up the demo).

Should we settle or even recognize the local sales rep's standing? Couldn't the out-of-state co. use the settlement to sue us?

We would contact a lawyer, but the cost would exceed settlement.