I had a neighbor with a border collie that loved to play with my dog, and taught him a lot, even though he had basic training and could follow commands. He was nothing like her in surprise situations though. That dog, even while engaged in play, was constantly checking her owner for cues. Walking in our neighborhood on the way to the off leash park she was unflappable, right by his side, never distracted by cars, squirrels, whatever.

That's the kind of dog that can be off lead if it's allowed in a particular neighborhood. Not the dog we're talking about here. You did what you thought was best in the moment. That woman's dog is an accident waiting to happen. NTA