There is a company out of Florida named SBT that offers complete replacement engines at very reasonable prices, if they do not have your motor in stock you can ship them yours and they will rebuild it for you. Most engines complete are under $1k. They offer a no-fault warranty for up to 2 years depending on which package you get and they can provide all gaskets and a great swimsuit calendar.
I would trust their engines more than one rebuilt by a local dealer. If you have to have it done get the motor from a company like this and have the dealer put it in. Make sure that they go over every spec/setting during installation to look for any possible causes of the last problem.
Trying to battle it in court will probably lead to more legal fees than the repair is worth and you still get no guarantee of winning. What were the other two repairs that it has had since purchase for?
I have been down this road before on a Yamaha. I bought a 97 GP1200 that was blown up and had Adventure Suzuki/Yamaha (no longer in business) rebuild it. It lasted 5 hours before grenading. The machine was partially disassembled for inspection when I brought it to them so they claimed that they could not properly diagnose the problem the first time. I bought one of the remanufactured engines from SBT or one of their competitors and everything was good.
The one thing that you may want to consider would be is it really worth rebuilding at this point? Put $2600 into a machine that is worth $2500-$3k anyhow and you are still majorly in the hole. Someone else had posted $600 to have a few pistons replaced, I think that you will find this to be rather light, speaking from recent experience. Was their offer of $800 including your trailer or is there a trailer involved? The trailer is worth $3-500 alone if you have one.