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.
Nope. Dogs are fine in the bulkhead. Granted this was the front bulkhead row in Y, but the bulkhead rules in F are no different. So I don't think we have a good explanation for the downgrade. Paid F pax should always be downgraded last but I doubt there is any automation around this and it is likely the staff in BUF guessed and went by status.