I'm based in the UK so I shouldn't really comment on US law -- but I'm intrigued that a supplier suggests you can only sue them in their home state.

The fact of downloaded goods suggests to me that the transaction could arguably be said to have occurred in California and thus be under you local courts.

Under UK law I have issued proceeding in London against a firm 200 miles away in northern England and the defendant claimed he could transfer the case to his locality, but as it was a mail order transaction (and thus delivery was in London) I think he backed off and it was heard in London. Of course we don't have a Federal system of Government so no local laws.

I think I would speak to the supplier's local Better Business Bureau anyway because (based solely on your story) it sounds like highly unreasonable business conduct.