It would be one thing if she owned up to here mistake, people make mistakes all the time, but to try and deny it... to outright lie! My opinion of her keeps dropping.
In my opinion if you let her get away with this she will feel empowered to do it again. To run her little teritory (class) as she see's fit, regardless of acceptable professional and legal standards. She, in my opinion needs to be taught a little humility and that her job depends on her treating people kindly, fairly and honestly. If she ends up losing her job (probably unlikely at this point), that is the risk she took when she took her current stance.
Best of luck, I know challenging the institution can be difficult at best.