What to do about family 'friend' threatening animal control on our puppy

My sister’s long time best friend has had declining mental issues dealing with multiple stress and sleep problems. Recently, she came over. Knowing she doesn’t like young dogs (ours is a couple month old puppy of a ‘non-agressive breed’ for those wondering), my sister was going to meet the friend in the driveway but wasn’t immediately outside. So I opened the door when she came up to the house to say hello, and my kids opened the door farther which let the puppy out. Dog jumped up excited to greet and the friend got very mad… This is not someone with dog related trauma, she loved her dogs growing up. Our puppy was not biting/nipping or mean spirited in the LEAST, and literally walked 3 feet to exit the door and jump up to the person, did not run at nor intimidate. She was happy to see someone we were happy to see, and was removed from the friend immediately because she is not allowed to jump up to greet us.

Now, this ‘friend’ is upset the dog snagged her clothes, which I am fine with paying for because they were professional wear (outer cardigan and legging). But she is ALSO threatening assault charges against the PUPPY v.i.a. animal control! As she put it, had she not been wearing layers there would be gauges all down her side. My puppy’s nails are slightly long, but as many times as she’s jumped on us learning to stay down she’s barely left red marks that soon faded, I also don’t see her being able to reach ALL the way up her side even though pup is tall. I don’t necessarily think she’d lie about it, but I wouldn’t have thought she’d ever act like this and my family is shocked to the point she is banned from coming over anymore. This, being, claim a 4 month old dog ‘assaulted’ her, let alone OUR family puppy. It’s left my sister very upset, she’s her only friend because of her own social anxiety. I see it as a possible manipulation to get my sister to move in with her, she’s been controlling of their friendship and openly opinionated about convincing her that she is bossed around at home for years. My sister doesn’t want to rent from her because of her abrasiveness over long periods of time but she is welcome to move out.

What would you do? Can she even call in a report with the truth or would she be thought of as obserd as we are feeling this is? And if she’s tries to lie does a.c. call me and let me know so that I can tell them exactly what happened and how confused we are? It’s as ridiculous to me as me saying I’ll sue for her bopping and swatting at my puppy who got one excited jump up.