Sounds more like the dog had a specific issue while in your care. No doubt it got into something
it shouldn't have.
The dog was sick one time several weeks after you acquired it and has been fine since.
You owe the breeder $500.
When you own dogs you are going to have vet bills.
When you own dogs they are not going to get sick when its convenient for you.
If this is too much for you to deal with return the puppy to its breeder and the problem will
be solved.
If she does take you to court you will lose. You can not get a free dog out of it.
Either she gets the dog or the money.
ADD: Low blood sugar is very common in toy breed dogs. It means you were not adequately feeding the puppy and keeping the blood sugar at a healthy level. It has nothing to do with the breeder.
This is why people are told not to take toy breed puppies home until they are 12 weeks old. Had you waited until after Christmas things would have been fine. Lesson learned. Next time don't give into the pressure of a 12 year old wanting a living thing for Christmas.
The breeder did not sell you a sick puppy, you made it sick by not monitoring its food intake.
By the way your math is quite wrong, you stated you bought the puppy on the 9th and it got sick on Christmas Eve, where I live that is December 24 and that is 15 days that you had the puppy not the ten you claim, which is a moot point.
Give the woman the $500 or be prepared for her to demand in court you return the puppy. I am sure your daughter would be really upset to lose the puppy now.