Since CPS is already involved, and assuming your niece has good insurance coverage, I wouldn't immediately go to a lawyer. It sounds like "nursemaid's elbow" and it happens. It's horrid, but it isn't necessarily a sign of abuse. So now that CPS is investigating the daycare, I feel like I'd be reassured that the other kids there are safe, which would be my primary concern (once I got over the initial insanity, of course) And as long as I wasn't out of pocket for a lot of money, I wouldn't really see the point in any lawsuit at least until the CPS investigation is over (depending on what they find and how it's handled)
As for the lying and coverup - I would absolutely be telling other parents and no way would my kid return there.