I would call shenanigans on this. Sure, fallout is supposed to suck, it is not however supposed to randomly take away your character for no apparent reason. I suppose if it was crowded and the GM explained to the player before he chose to resolve the failed roll with fallout that he would be incurring the lawbreaker power then that might be justified, but otherwise it seems like the GM being a vindictive jerk.
I think we all agree on that. His point was that when you have fallout it is uncontrolled magic meaning it can easily do stuff you didn't intend it to...like kill people. Of course the GM should point out before you decide it is fallout that this will/could result in the death of an innocent. That or it would be ok for the GM to rule fallout murdering innocents like that doesn't count as lawbreaking if it wasn't intended.
The problem really is that comparison. Weapon:5 is supposed to be similar to getting hit by a truck, true, however what if I'm using a sleep compulsion (I'm aware that's breaking another law, but meh). What about non-lethal gas? What about bright light? These are examples of something that can only be non-lethal however I could still deal 10, 20, even 30 stress with these attacks. The damage comparison is meant to help one figure out what something might do, however it should not be used as a catch-all rule that encompasses everything. Just because I hit them with a Weapon:5 attack does not mean that I have to kill someone. The context of the attack should also be taken into account.
Putting someone to sleep doesn't imply you have to invade their thoughts (and it certainly isn't enthralling). This can be done without breaking the 3rd law easily enough. In fact, one could theoretically do it either as a physical or mental attack, depending on what angle you wanted to go at.
Hmm, bright light is an interesting thing. I don't think you can easily do that as a stress inflicter. How can you take 3 stress from bright light? I could see a maneuver to temporarily blind someone that is then invoked for effect though. Or I could see it done as a consequence (which in a way, is the most interesting, since it makes sense as a consequence but not so much as a stress...getting zapped with light again and again doesn't seem like something that would result in your defeat).
Even a potentially lethal weapon 5 attack doesn't necessarily kill anyone. People get hit by cars and survive. Heck, people get hit by cars and can walk away with very few injuries -- not a DIRECT hit at a significant speed, mind you, but that's still a hit in game terms. Lethal hits by cars, in game terms, are probably ones with a bunch of extra shifts to hit. But let's consider that for a lot of attacks, you can probably pull your punches in one way or another. Seems to me that if you are doing that you should be able to essentially inflict fewer shifts. Not in the rules, afaik, but then again it doesn't have to be since the victor decides what "taken out" means in general terms (and the loser in specific terms). One of the elegant things about the system is that it doesn't devote a lot of time to make up rules for dealing with such things because it really isn't worth it. If a player wants someone to die by accident, they can DECIDE that happens (or it can be compelled), but there's no reason to ever force a death on the players just because someone got lucky and rolled well.
And, of course, if a GM wants to make an issue of it, that's easy enough with a scene aspect, hostages, or the like.