Maybe 502 Bad Gateway is caused because there are too many output addresses.
I've seen this issue with the mass small payments before.
Maybe he should try to send in smaller chunks to all the users that have 0.01 BTC or more. If he is smart he will be able to avoid the required 0.0001 fee.
Then do the same with the smaller amounts ... and for the future double the "miner fee".
Their API worked fine with 138 outputs in the past. Tested with 108 outputs, same issue. Tested with 2 outputs and worked, but 2 outputs are not enough obviously. Anyways, sending the transaction and then responding with an error page is unacceptable so we are working on a solution to replace it. If the test goes well it can be deployed within a few hours.
Exact same problem I had, this is their response:
You can try using an api key with your requests, you might be blocked by our service provider automatically for making too many requests too fast.
If you would like to request a Blockchain API key, then you can do via this form:
https://blockchain.info/api/api_create_code. Just let me know when it is submitted, and I will approve it for you.
As far as the double spend goes, I'm sorry that this happened, but blockchain is not liable for user initiated unintentional transactions.