Yeah, that definitely sucks for sure. Sometimes its the way the cycle of business goes. I for one think its completely unacceptable to hear "we're just so busy" as an excuse for poor work. It's like saying "we've got a lot of people paying us, so we're just going to do 3/4 of the work on each so we can collect all the $". Makes me FURIOUS.
He's lost more than your business; I doubt I'd go there after hearing this.