I feel for you as a parent.
From a safety (and liability) prospective though I would not tolerate a child in group care who repeatedly bites... I would have terminated your son's spot and suggested one-on-one care until he was a bit older or required you to provide a shadow for him the entire time he was in care at your cost. It is simply not fair to the other child any other way. Parents often see growth that they desire to see and it does not always display that same way in a group setting. Don't take that as a failure on your part as a parent but do consider the idea that your son may need one-on-one care until a little older OR a different sort of structure in the school/daycare.
I cannot answer if what the director is doing this is legal as it really depends on the contract you signed however IF your son has bitten multiple children the director also has an obligation to those other children. What you can look at is what sort of deposit you may be able to have applied to your last month tuition or refunded. I would also be looking into other care options ASAP.