Here's my own final summary. After many back and forth with Gary from Waterfield, he was adamant the case was fine. I then wanted to make sure it's not my APM, went to Apple and said there is an issue with my APM and Apple agreed to replace my APM. The replacement unit had the same exact problem in my Waterfield case.
Reported this back to Gary, and I felt he just wanted to end this and immediately offered a refund. I used the refund and re-ordered another Waterfield case which finally arrived today. This new case works perfectly - the difference is that the butterfly magnet in the new case is 0.5cm higher. The APM is very sensitive in my opinion with the magnet placement.
I have reported this back to Gary, I just hope he takes note of this that as much as he produces high quality products, sometimes 1 or 2 will have a small defect.
Thanks all for this thread and all the information within! Hope this helps anyone else in the future.
See my message above. I'm not convinced that the positioning of the magnets is the problem. My original case--the one that initially caused me to contact Gary--has the magnets in a higher position than the replacement case Gary sent me. Both cause the same problem--the APMs intermittently failing to connect until re-plugged into power. I'm hoping that the latest firmware update has fixed the problem... time will tell.
I haven't been bothered enough by the issue to seek a replacement pair of APMs from Apple. Push come to shove, I will just store the APMs on the plush of the top half of the case far away from magnets while I am at home and then, on the rare occasions when I travel, will store them in the case with butterfly up knowing that I might have to plug them back into power briefly if I encounter a problem. Not a biggie for me but I'm not carrying my APMs outside of the house very often.
I, too, really appreciate everyone's posts with their experiences. My conclusion is that the only consistency in this whole mess is the inconsistency. And, yup, a simple power button that obviates the need for the stupid magnets in the first place is the obvious answer. C'mon AAPL, you can do it!