Just as an update to close this thread.

I got a phone call from AC customer relations today.
They did a complete investigation into this. Here is what they found:

1. There was positive space on this flight. Seats were available to be booked using IKK. It was an IT issue with flights being loaded from AC to AE/
2. They went back to the conversations. They admitted I was given the wrong info by both the AC concierge and AE agents. They have contacted the concierge to help correct their understanding.
3. She apologized and offered to make the booking for me.
4. They offered me a gift card