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@h2o
Basically, BLB was (in legal jargon) the bailee of your cranks, and owed you a duty of care. They should have called you before grinding them. They didn't, so they are in breach of that duty.
The 165 vs 170 things smells fishy to me. Look for more historic auctions so that you have a representative sample, don't rely on just one. An average of ebay auctions seems to me to be a legally robust market pricing of a second hand good.
PS. Don't let them fob you off with 'it was the only way to do it'. You did not assign them the right to destructively remove the cranks, they would have had to have called you and asked for permission, and given you the option to take your bike to an alternative LBS.