Neighbor blaming us for her basement flooding during hard rains

What is the name of your state? TN, Knox County

We bought our house, which sits on a hill, in 06/1999. Next door neighbor downhill from us claimed that previous owner filled in drainage ditch on his property (now our property) that caused water damage to her basement in the past. She asked that we allow a landscape company to come onto our property to build up a berm so water would drain toward street - we allowed access. Approx 06/2002 we installed a chainlink fence, and because of the berm there is a 9" - 10" ditch, so our dogs could get under the fence. We put a piece of 1/4" steel wire border fencing, a brick, 1" thick stone paver, and approx 3" round by 12" long piece of wood in the ditch under the fence to keep the dogs in (my husband started with the fencing, and kept adding to it until the dogs could no longer get out). These items were laying in the ditch under the fence, (next to ,not on top of, each other), and have been there for over a year. There were no problems until 06/14/04, when all of Knox county was under flash flood warnings due to hard rains. We are not in a flood zone. On 06/15/04 neighbor calls and tells us that she is going to sue us because the ditch was so blocked that water flooded her basement. She also said she did not call us when it was raining because she didn't want to bother us. She has lots of plants, flowers, etc on the side of her house, and the morning after the rains, they did not look like they had been damaged. Because the brick, paver and log bothered her, my husband moved them (had he not moved them, she would have and would have made it possible for our dogs to get out, and then she would have called animal control) before I got home to take pictures, (it was supposed to continue to rain), but I had him place them back where they were to take pictures when he returned home, and then remove them again.

My question is, with the heavy rains, and the ground already being partially saturated from previous rains, do we have any legal liability, and what should we do at this point?

Thanks!

Actually, the ditch and berm are on her property (sorry that wasn't clear), but because of their fence and the lay of the land, the landscaper could not get the equipment needed to do the job to where it was needed... we allowed them to damage our yard with a bobcat, etc (which they poorly fixed and it took two to three years to look normal again) to build up the berm...

We have been working on getting our house on the market for a few weeks now, and just want to keep the peace long enough to get the house sold and move.