Passing a preceding runner

[Little Jimmy]

Working in the C ball world last weekend. This convoluted play happened.

I am in C slot. Runners at 1st and 3rd. No outs. B1 hits sky high ball toward pitcher. It looks like she catches the ball, but then drops it. Plate ump signals fair ball. Correct call. R1 on third decides to go toward home but then retreats to 3rd. But pitcher picks up ball and looks toward 2nd. R1 then takes off for home, stops, retreats back to third but finally goes all the way home. Play at plate. R1 is out.

Pitcher now throws toward 2nd (with fielder off the bag). R2 hasn't made it all the way to 2nd yet. R2 must think that there was a catch because she seems confused. She goes back and forth in between bases (touching neither one) with no one tagging her. Meanwhile R3 has attained 1st and is standing on it. R2 then must have decided a catch has been made so she heads toward the 1st base dugout, passing in front of R3 . When R2 gets close to dead ball territory (but not in), R2 breaks for 2nd and makes it with no play made on her. Now R3 decides to step into the dugout. I call her out for leaving the field of play.

So...was R3 out for passing a preceding runner even though she was standing on 1st and R2 passed her going to the dugout? I honestly was so confused by the whole situation that I did not call R3 out. And I think I was wrong. What say you?