I also think he is with grandma. I would simply copy the contract she signed, hightlight the section stating there are no refunds and e-mail it to her.

I would also include a short note telling her you are sorry things didnt work out but you wish her the best.

I also feel that this isn't so much a negative way to start the new year but a positive one; You stood your ground and adhered to your policies as well as dodged a bullet in having to deal with a potentially difficult child.

Hoping you fill the space soon!