Okay, so here's the hypothetical deal:

An author writes a Halloween story about a place that really does exist. Legends about this location have existed for decades--since the early 1900s--a bona fide ghost town, a town that no longer exists but people in the area retell paranormal legends about the place. Now, in the author's story, there are no paranormal events--it just serves as the setting for a tongue-in-cheek Halloween story.

So, the EIC of the house releasing this story gets a letter from the company that owns the land this ghost town sits upon, threatening to sue the company for 'tying the property to alleged paranormal activity.'

So here's the question..or two: first off, do the hundred years plus of folklore about this location constitute public domain? And second, can anyone actually stop the publication of a book because of the setting?

I think I know the answers to both questions. I'd be curious to see if I were right. There is at least one prior example of this company's attempted suppression of an article and a book which lists the town as a setting.