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.