It's only pre-action at the moment, so there's a chance to still avoid full on action.

I'm well aware of how real and serious this is though. That it could bankrupt me if only the slightest thing goes wrong (for me).

This is when being a bootstrapped sole founder is no fun... there is no safety net, nothing to catch you. I can't even afford representation, so I'm representing myself (nightmare!). I'm spending more time reading and researching rather than coding.

What I've learned most of all, is that right and wrong don't really matter.

If it's going to go to court, if it involves a jury (the action I'm involved in definitely would)... then all bets are off.

And all the while life goes on hold and projects are put on pause.

From the outside everyone has their views and express them frequently. This is all detached and partisan though, the reality is that it really can bankrupt you, or takeaway your future, or drain your current assets and reserves. It demands being treated with respect even if you believe your position is sound and the case unfounded.

The hardest bit, as you rightly say, is the gut wrenching fear and stress. The way it affects your sleep. The way it's hard to work or relax because your thoughts are always on the legal action. It affects everything.

You should come to the Hacker News London meet-up and let me buy you a pint or twelve.

Legal Aid is available for a very limited few (the most needy - which I actually would've met the criteria for being on a Ramen wage) and only in certain circumstances. The action against me includes a claim of defamation and this precludes Legal Aid.

Pro bono is available, but generally comes with many restrictions. Example: Must live within this catchment area, or be a woman victim of abuse, etc.

Where pro bono isn't restricted I've found that the lawyers are over-loaded and unable to take on any more. I've contacted a number of lawyers, and with the kindest apologies they've had to decline but then recommend someone else. The recommendations have formed a large circular loop, I've tried them all.

There are legal clinics. Attending a CAB (Citizens Advice Bureau) will generally see you referred to one. By and large these are operated by local small solicitor firms. Some legal clinics are much better funded and organised.

I attended SWLAC (South Westminster Legal Advice Clinic). Which is sole-funded by a barrister who wishes to remain anonymous. Largely these clinics deal with housing issues and fairly simplistic cases for the most vulnerable. So when I presented my case to them for advice (how to respond, interpreting the law and whether I'd got it right), they were quite challenged by it. For an hour on a Tuesday evening it's perhaps beyond their scope though they did their best.

Home insurance policies sometimes include Legal Defence cover. So I tried mine, which does have that cover. However I found that this cover is only available for a limited range of actions against you, and again does not cover anything that includes defamation.

The action against me purposefully conflates 2 things together... my role as the operator of a web site, and my role as a user of my own service. The claimant has attempted to argue that my use of my own service somehow removes the defences afforded to the operator of a site and would make me liable for the statements made by others on the site. The third party comments being the ones which are claimed to be defamatory.

There is more to it than this (but not much more), but as it may go to action I limit what I will say publicly.

This does a lot to discourage nuisance lawsuits.

In the US defendants generally can't recoup costs unless the claim is declared a "frivolous lawsuit".

If drawing and distributing a picture of someone in a negative fashion were a punishable offense, every political cartoonist in America would have been put on the chopping block long ago.

"Except for there is no law being broken here."

Sounds very black & white, doesn't it? The thing is, it doesn't matter. The actual determination of whether or not you've broken the law occurs very late in civil proceedings. A judge doesn't rule on whether or not you've broken the law, a jury does. The judge can only rule that the claim made against you does or doesn't past certain "tests". I can assure you that if a lawyer digs deep enough, he will find some circumstance under which these tests will pass and you will end up sued.

Of course, Carreon is representing himself in the matter, and we all know what they say about a lawyer who has himself for a client...

How do the little guys defend themselves against this garbage?

If you're smart, you figure out how much legal help you can afford. There is some help available pro-bono, some through legal clinics.

It's helpful to figure out what you feel that you should do, and what you actually need to do. Getting the other side to spin its wheels can be helpful, though for a morally motivated pro se opponent, this can be challenging (by "morally motivated", I mean an opponent who's motivated by their own moral outrage, not necessarily acting morally), as they are essentially gifting themselves their own legal services. Being prepared can be helpful, but that can cost.

Often you don't need to do too much, sometimes that's not the case. And law can very much be a war of attrition.

There are some countermeasures which can be taken, generally launching a countersuit, making disclosure demands, etc., though these also have their own costs, and if your opponent doesn't have deep pockets, they're not particularly effective and/or interesting to your own legal counsel (who after all is looking for their billable hours or 30% contingency).

A very good rule of thumb is not to do business with assholes (or marry one), though this won't cover you in all cases (e.g.: Oatmeal vs. FunnyJunk).

There are also personal liability policies available, though they can be expensive. On the positive side, they make your problem your insurance company's problem, and they may be motivated to respond effectively to shut down your opponent. More often these or other legal insurance policies will cost a fair bit up-front and pay for a small fraction of legal costs.

I'm not from money. I'm the son of factory worker and a stay and home mom who cleaned houses to help pay the bills. This whole ordeal is utterly terrifying. I (along with my other partners) bootstrapped our company on money earned and saved by working our assess off. I personally contributed over $60,0000 to start our company, and that money came from nothing. I earned it fixing computers and working on our startup in-between customers and at night.

The thing that keeps me going is anger. That's the only emotion that trumps my fear. I'm outraged at the absurdity of the allegations levied against me.

Employees remain liable for their own actions, though the corporation may also be liable for its employees actions. (See "detour and frolic" doctrine.)

Officers can be held liable for their decisions in running the corporation. However, officers are usually indemnified (by the corporation) for lawsuits against them if they were properly acting in their capacity as officers.

Investors can be held personally liable for any of the corporation's liabilities if the corporation is "undercapitalized", i.e., it does not hold sufficient liquidable assets or insurance to cover its current predicted exposure to the sum of its liabilities. This usually describes most S-Corps and smaller C-Corps, especially solely-owned corporations.