Apple sent "new" activation locked phone to me. Refused refund/replacement. Need help.

TL:DR Version

1) I ordered a NEW iphone 12 from apple.com

2) The phone arrived dead out of the box. It never turned on nor charged.

3) I took it to an Apple store for a return/replacement WITHIN the 14 day window for returns

4) The Apple store told me that the phone was activation locked to an icloud account that was not mine. They asked me if I had bought the phone refurbished or if I recognized the icloud account. No and no. They recognized the legitimacy of my receipt and did not question that I had bought the phone myself from Apple. I told the Apple store reps that the phone had never turned on nor had it been activated while in my possession.

5) The Apple store refused to replace the phone. They said it needed to be sent to Apple for repair. Not ideal but... fine.

6) Apple just sent me an email saying the phone has "been damaged or modified in such a way that it is not covered" by Apple's warranty. They are sending the phone back to me. Presumably still not working.

7) I am out $779 with a bricked phone now outside of the 14 day return window. Due to no fault of my own, with no clear path to resolve the situation.

Can someone please advise me on what to do from here? It would be ideal to have someone from Apple reach out to me for a resolution. While it is a "small issue" in regards to Apple's sales volume, it seems like large issue to send a customer a faulty phone and to stick them with the bill. I understand that the situation is complicated (how did an activation locked phone get sent "new" to me?) and I sympathize with that, but it is wrong to pin responsibility on me.

Note: I now feel like I should have made a bigger deal about getting the phone replaced and not "repaired" while I was at the Apple store but my feeling at the time was that the situation would work itself out because I was not at fault. I could not imagine Apple failing to fulfill it's duty. Perhaps I should not have left the Apple Store without getting my replacement or refund. For what it's worth the reps there were kind, interested, and helpful.

To be clear: I did nothing to the phone other than try to turn it on via charging and the power button. I did not modify it, activate anything, drop or damage it, or even get the phone to power on. It was only in my possession and could not have been modified or damaged by anyone else. The phone was dead out of the box and (as I found out at the Apple store) activation locked out of the box. None of this was done by me nor was it my fault.

I had hoped the email from Apple Repair would give me a contact email or number to call about my case but they did not.

My first computer growing up was a G3 iMac running OS 9 and I have been an iPhone owner since the original model. I have owned an iPhone, a 3GS, a 4S, a 7 Plus, and a XS. I have never had a problem with Apple until now. Please advise/help me.

Thank you.