I'm also refraining from commenting (more than I already have). I feel like the two parties need space and time to find the right resolution, and I doubt that the peanut gallery is helping matters much. I have some opinions about the matter but I'm keeping them to myself.
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It's a mess and no mistake, but while I see #1's point, #2 has done more than they could be reasonably expected, and way more than they could legally be required, to do.
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There are at least three different ways #1 could have prevented/ameliorated this, and they didn't want to do any of them. Good for them for following their principles, but as a wise man once said: "I've always found ideals, Don't take the place of meals!"
End of conversation
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