Given that it's a flight to Dallas... my guess is that every other passenger in F had status and there was an aircraft swap from a 16F 737 to a 12F A320. AA will downgrade no-status passengers before status passengers (it's basically reverse upgrade list order). The downgraded passengers should have been listed as DSR, which would have put them above almost anyone else on the upgrade list.
The AA and airport employees should have demonstrated more compassion -- it sounds like a manager came by to tell her the reason for the downgrade, and told her that she can request a refund. However, that manager should have told her that she could wait for the next flight with F seats!
That could be right. It was the reason given. And I only bought one week earlier so it may have changed before I bought it. But it does not explain why two others got the open seats as upgrades.
My personal theory is that the dogs couldn't be placed in the front row as it is a bulkhead. And, since those were the seats assigned on the upgrade list, 1C and 1D, their system disqualified her with dogs and put two others in there instead. Still, it feels like a human could have looked at this situation and made a better call. Move around the other paid Firsts.