If you bought a long block and took it to the shop then they have no responsibility for any internal issue that may arise. If it was a short block it would be a completely different story. I would not remove and reinstall the engine for free. If the shop dropped something in the intake that could have caused that damage it would have been noticed as soon as it was fired up. Not only would the techs know immediately, they customer would hear it loud and clear. Have you ever heard a nut or washer in a combustion chamber? It sounds like a blender full of rocks, not possible to miss that. As much as I'm sure you don't want to hear this, you have no chance of winning any suit or getting anywhere with a complaint. I would, and I have in the past for customers, offer you a remove and replace at a discounted price just to be nice. No way would I even think about covering the whole thing though.