This is so incredibly sad.
If that dog gets out regularly, it can't be the first time it's attacked someone/something. I would definitely expect compensation from the owners for vet bills, and pain/suffering.
I hope Merlot has a speedy recovery. I can't blame you for being freaked out about going for walks now. I think that I will be too after hearing about what happened to Merlot. Pretty sad that you can't even go for a nice leisurely walk with your pet.