I've often found that those sorts of people are simply the worst clients to deal with, if only because they force me to miss other clients with the attention I pay to them and then turn around and not pay.
What sort of referrals is this guy going to get you? More people like him? You seem to be making enough to not need his business. Your personal safety should come first, I would go with A and let him harass someone else.
Granted, I live in MN where most of my clients were nice people, but still.