Every lawyer is different. I would tell them to sue you. Tell them you will then cross claim against them for breach of fiduciary duty by the HOA president in hiring a relative and will conduct discovery on all the kickbacks the president probably received. Their legal basis for damages is also flawed in my analysis. Of course, this analysis is limied by the brief facts above and is not legal advice.
The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
You're being sued, so you need to hire a lawyer immediately defend you.
If I were your lawyer I'd check the governing CC&Rs to see what they say about conflict of interest, and see if the president violated his fiduciary duty by hiring his relative, and possible cross-claim against the president (which will trigger the HOA's D&O insurance) as well as maybe the HOA itself (same).
"Counterweight" lawsuits give you leverage and may force the HOA to settle if they have something (a lot, perhaps) to lose. I'm guessing your CC&Rs have an attorneys' fees clause too, so you need to hire a lawyer to leverage that as well. Hire one now. A strong response may nip this dumb lawsuit in the bud, as it should be nipped.
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I hope you have some money to hire a local atty. The info from the answers above is good. Were there any witnesses to the contractor swerving at you and the dogs? Did he get close to you? Did you actually fear he was going to hit you? You may have been assaulted by the contractor. He could possibly be charged criminally, or sued civilly. I hope you have proof in addition to your word.
You need to see a local atty right away for advice and help.