Dropped Third

[Bandit]

Ok I believe I called the rule correctly but can't find it in the ASA book to back me up. Help Please. Nobody on base, no outs, drop third strike comes into effect, the catcher has the ball rool up her catching arm and go inside of her chest protector. Batter-runner goes to first. My partner calls her safe which I agree. Defensive coach says ball never touched ground (good point, on his part) discussion between partner & I comes to the conclusion that catcher never controlled pitch. Did we blow it ?