I would go to small claims court, honestly. Get a lawyer and sue them for medical bills and emotional distress. It is likely they would have to surrender the dogs hafter that.
If that's a no-go, I would get a neighborhood petition and take it directly to animal control and city council. They can't continue to dodge this forever. Yes, they might put the dogs down -- but it sounds as if the dogs are not having a good life and are keeping other dogs at risk for death too. You have to pick your battles. If you contact the SPCA and tell them about any inhumane conditions the dogs are being kept in, they should also be on it.
If none of that works and you want to keep your own dog from being at risk, you should just buy a nice dog run if he needs to be kept outside. Get one with a roof so no one can get in. It'd be safer than just installing a new fence. Or get your neighborhood to pitch in and purchase a wireless fence for the owners. Not that they deserve "gifts" but it might be worth it.