I'm so sorry. I don't know what I would do in your shoes. I just went through small claims court and even if the judge awards on your behalf, it can be a pain in the butt to collect if someone isn't willing to pay up.
If you are going to sue, make sure you keep record of everything the breeder gave you, every phone call, vet record etc etc.
The best option would be if the lady returned your money AND let you keep the dog(if you are able to afford to keep her with her medical conditions). I am sure you'll need the money for vet bills in the future.
If she does take the pup back, she may put it to sleep...but my guess is that she will just sell it on down the road to another unsuspecting pet parent because she'll want the money
Wondering if there are any places online where you can report bad breeders??