The actions the lady has taken speak volumes. If she was truly that concerned about the claimed condition this dog has, then why on Earth would she have bred him and risked passing it on to his pups?
I can understand expecting you to pay at least a portion of the vet bills IF there was a diagnosis made, but from what you are saying, there has been no proof of that, right?
I agree with what others are saying. If the story is as you claim, you are not at fault. I would meet her threats head on with an attorney.