It strikes me that where the agency -- PADI -- has an issue with their instructor, they have an obligation to assess and train ongoing candidates of that instructor.
Aren't all instructors working under the auspices of a dive "shop"'s course director? They need to do some work in reallocating students under the circumstances described by the OP.
PADI allows independent instructors. For example, I have my own business, and no relationship with a course director.
@rkasbaum, If you want to send me a copy of your paperwork, I'd be happy to take a look at it.