All things considered, while this is certainly might feel satisfying, it's a rather irresponsible move on the developer's part. Not only would this sort of behavior turn off future clients (shows that the developer is vindictive and unprofessional), but the dev is almost certainly legally exposed. IANAL, but it would be trivial for the client to show in court that the dev's actions led to quantifiable damages to their business, and might even be open to criminal prosecution.

The correct way to resolve this depends on the contract the dev signed in the first place. If the dev retains IP under the contract, they may be able to take the website down, or revert it to a previous state. If not, I'm not totally sure. Certainly the dev should refuse to perform any work for the client, and probably should solicit legal advice (relatively inexpensive to take a client to small claims court).