Legal Question in Business Law in California

Well, probably, but the question is so sparing of background information it is really impossible to tell whether both parties here have their snouts above water. Sounds like there's a lot more going on, and maybe some of it is a breach of contract, a tort, or a crime, which are three of the levels of "illegality."

Legal? Sure. Fair and reasonable? Maybe not. This appears to be a negotiation over some problem. If you want to get actual legal advice, feel free to contact me to arrange to discuss the facts and issues and documents.