If you think you can win, yeah small claims court is where to go. You don't need a lawyer for it I don't think, and many places they won't allow the other side to have a lawyer either. I don't know how it would work with Lastpass though, since it's a company, and I don't know how that works in small claims court as most times those are just between people (like renters and landlords). Since it's <$5000 I think small claims court is the only place you can go? It takes more money to end up in a larger court, like if you had damages and asked for $1m.

It seems pretty shitty, but if you missed your deadline and the contract says that you can't get to it, then you can't get to it. But fight it anyway. I wouldn't call it a ransom though, they're asking for payment, and they may be right or not, depending on the terms.

Good luck.