While none of us approve of the breeding of teacup shelties, I do not think she should be reported or watched. With the AR fanatics out there, we don't need to be encouraging them to go after the average breeder out there who are just breeding their pets. In the eyes of the AR people, we are one in the same, and, according to them, we should all have people watching us, and laws pushed through to keep every single one of us from breeding dogs.
The better thing to do is try to educate, both this breeder, and potential sheltie buyers, and to speak with your wallet, and not buy a puppy from them.
All it takes is one nut to harm someone really doing nothing wrong. When I still lived in the city, my new neighbor decided he didnt like my dogs barking (despite him having two yorkies who started it every time) so he would regularly call animal control. I had countless different officers out who never saw anything wrong. Then I had an AR nut out, and was constantly harrassed, and watched, and they sent fake puppy buyers to try to get access to my home (didnt work... I didnt have puppies, and knew very well no one had given a potential buyer my address to come see puppies so I told them no I did not have puppies, and no, I would not let them in), and this continued as they were on a witch hunt, with their new AR dog laws, and were looking to set an example, so I finally moved out of the city. No breeder, so long as they are taking care of their dogs, should have to deal with the **** I dealt with.
We don't have to like what another does. We don't have to buy their puppies. We need to educate them... but in the end, we all have to stand together, as the AR people are after us ALL, and if we don't, we will all lose our rights to breed dogs, and eventually, to even own dogs.