Wow, that is harsh - if there was no argument with the CFI and the student accepted / acknowledged what had happened and their proportion of blame. We are all human, we all make mistakes, thats part of lifes learning curve. It's not about the mistakes but how they are put right.
Was the instructor working on an employed basis or self employed? If the instructor was employed and felt so strongly that they left after the incident due to the way that the CFI handled things then maybe a thought to be considered is action for constructive dismissal.
With regards the student, hopefully they will have now gone to a school which recognises them as a revenue providing customer, and treats them as such.
Frankly I do wonder if there is more to this than meets the eye, it's surprising that the name of the training organisation has not been published, it's not libel IF what has been printed is true.