I Acquired A Piece Of Character Design In 2014. Now Somebody Is Claiming To Have Copyrighted That Character And Is Seeking Legal Action Against Me For Using/claiming It. What's Next?

In 2014, an artist was offloading character designs. Along with the designs, they had two documents outlining the rules. As part of the document, they stated they would revoke ownership should the person receiving any of their character designs violate their posted rules. Somebody violated the agreement, and the character design was revoked.
I later received the character design after it changed hands twice. The person who had it originally contacted me privately to request that I relinquish ownership to them. I refused as I intended to use the design, and because relinquishing the design to them would mean I would violate the agreement as well.

Two years later, they contacted me privately again, stating that they would no longer use or claim ownership of the design and that they would redevelop the image of the character while maintaining the original lore they developed before the design was revoked.

Two days later, they publicly released the redesigned character.

8-9 years later, they have returned, claiming to have ownership of the character and are threatening to take legal action against me. They alleged that they have registered copyrights for the character and that they legally own it.

I remember seeing somewhere that having a registered copyright on something doesn't necessarily mean you will win court cases, especially since there is no check done at the time of registering to ensure that something isn't already copyrighted.

So I'm curious if people can register copyrights under somebody's nose, then turn around and threaten legal action.

Location: Wisconsin