Sorry to hear it, LittleBeast. I feel your pain. I just had almost the EXACT same thing happen on my recent rebuild. Had a local shop rebuild the motor, and ended up with coolant leaking and mixing in the oil as soon as I got the car home. Luckily I noticed it before driving any real distance, and immediately had the VX towed back to the shop who performed the work. The head gasket was found to be leaking and needs to be replaced. Incredibly disappointing.

I wish you luck. Attorneys fees can quickly exceed the cost of the work here, so I would guess your best bet would be filing in small claims court if it goes that way, and if you have the time and patience for such an adventure. Sometimes threatening to might be enough for them to accept some responsibility.

I would say that the fact the shop actually recommended "stop leak" to you and advised you to continue driving the vehicle after you reported a coolant leak puts the liability square in their court, given the fact that A.) their recommendation did not resolve the leak you reported to them following their work and release of the vehicle to you, and B.) led directly to the overheating and head gasket failure. Regardless of whether the thermostat was "bad" to begin with, no reasonable shop should release a vehicle leaking coolant following a rebuild, period. They should have identified the problem and recommended a course of action for repair when you made them aware of the coolant leak.

However, if they advised to you replace the water pump and thermostat at either the time of rebuild or when the leak was reported, and you declined to have this work performed, you may not have a ton of options here.

Just my opinions. I am not an attorney, and this is not legal advice. :-)

Anyway, I feel for ya. Sucks man.