Passing a runner = dead ball?

[bainsey]

R2 is on second, R1 is on first. One out.

B3 lines a shot to the outfield fence. As an outfielder retrieves the ball and fires it into the infield, R2 & R1 round third, and R1 overtakes R2, R1 commits the second out. R2 retreats to third.

B3 gets caught in a rundown between first and second, and is tagged for the third out. Someone questions whether the passing of a runner kills the play. Umpire rules passing a runner does not kill the play, and rules the inning is over.

Is the umpire correct?