Unfortunately not the first time I heard of flying schools doing this.
They capitalize on the dream of kids who, maybe rightfully so, assume that the school doesn’t shaft them as much as the signed contract allows them to.
It is a quite short sighted when a school terminates you in the theoretical phase. Sure you could argue that you can’t follow the learning curve, but it is not an indicator of your ability to follow the flying learning curve. Using myself as an example I hit a nearly 100% average on the atpls, but had the upmost trouble with simple vfr flying.
I am not aware of the extent of your finanical loss, but you could view leaving that school as an upside. I do not believe that a school with that kind of training mentality can bring you to your full airman potential.
Try to get some money back and don’t give up - you’re empty handed at the moment so it can never get worse
for others: let this be a warning, don’t put your funds in the hands of a flight school, go modular.