Unfortunately, in California if you signed the contract and the escrow instructions "general provisions," then you almost certainly agreed that in the event of a cancellation, the escrow company will not decide who is right and who is wrong, rather, they will hold the earnest money deposit until such time as both parties sign a mutual instruction telling them how to disburse the money, OR until presented with a Court order. You need to retain counsel at this point, as there is nothing you can do on your own to resolve this matter, unless you can convince the Sellers to sign off. They don't have to give a valid reason - because the escrow company will not get involved in who's right and who's wrong, their reason is irrelevant - and they probably know that and are doing this to hijack you out of some or all of the deposit.

Your post doesn't give enough facts to answer the third question - if you have a valid reason under the contract to cancel, then they should not be able to seek damages from you for the loss of the offer from Chase. But, if your reason is not valid under the contract, then they may be able to in addition to other damages. Being right, however, won't stop them from suing you for anything they feel like. Contact a local real estate litigator - this is likely headed to an ugly end.

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You can't cancel unless there has been a failure of a contingency. "A variety of reasons" does not sound like a serious contingency.