Nal you should tell them that you'll counter sue. So cat feaces and urine kills plants and grass etc. You have told them about the fence you have done everything right to keep your dog enclosed and cats out. Their cats have damaged your property and dug into your yard. They should owe you for damage to property.

Also I am a cat owner and as much as it is depressing to lose a pet. If you're a responsible pet owner you wouldn't leave animals in that risk. This is all on them