Take a photo of your fallen wall and post it here. When the builder is building the new wall with stacked concrete bags take more photos. I've never heard or seen his solution before. His corrective measures are a long way from good engineering as I know it. Also, I've never, ever heard of a wall falling down from the very first hard rain. That staggers me. While there are differences based on product, height and existing soil types here is your basic retaining wall formula: A. Compacted CA-6 gravel base. B. Level wall construction within the stated limits of the specific wall product. C. Roughly 1' of free draining CA-7 gravel behind the wall. D. Perforated drain tile behind the wall (probably) with the tile "day-lighted" through the wall face if the wall is tall enough. E. Geotextile fabric as a separator between the free draining gravel and the existing subsoil. It sounds like he is going to use the concrete bags sort of like a C.M.U. substitute or as a substitute for the free draining gravel. The CA-7 gravel is what reduces the surcharge, which is what you want to avoid with wall construction. If soil is behind the stacked bags of concrete then the surcharge will be against the stacked bags, eventually pushing the wall forward again. What area of the country are you in? Do you know the name or manufacturer of your wall product? If you do, call the manufacturer immediately. The manufacturer has a vested interest in their products being installed correctly and will normally have field reps available for just this type of thing. Again, post some photos in this thread tomorrow.

That wall is just so pretty like it is, I wouldn't touch it. The art is lovely and against brick it wouldn't display as well. The brick I can see looks relatively new, so I don't think the bricks would match even if there is some behind the sheetrock. Could be cinder block or other cheap chimney material used in those days. I would leave well enough alone! Sometimes it is best to leave the "can of worms closed!" Merry Christmas!

You won't know what is in there until you take it apart. Sometimes during construction they box in areas just because it was the easiest solution. I was able to expand 2 showers by about a foot by removing boxed in sections. There wasn't a reason for them, they just built them that way. Just be prepared, and have the budget, to move any weird things you might find.

What type of build is the home (tract/developer, custom, semi-custom)? If a tract type home, he his partially correct in the fact that cosmetic may not be a successful fight. As far a the hole in the grout, if waterproofing correctly that should not make a difference performance wise. Do you know what or how the shower was constructed?