Is this call reversible?

[artsypants]

This is in high school fast pitch softball. With a runner on first, the batter hits a pop up on the first base foul line. The catcher tries to make the catch but misses the ball. The plate umpire calls a foul ball, however the batter continued to first and the base runner to third. The offensive team argued that the catcher touched the ball in fair territory. The umpires conferred. The field umpire thought that the catcher touched the ball in fair territory, so the plate umpire allowed the batter to remain on first, but sent the base runner back to second. Is this the correct call? If so, how can play be continued any at all when an umpire calls "foul ball" if that is considered the signal for a dead ball?