I just received same reply as you. I purchased the watch for my wife a month ago. I don't remember what warranty it includes, but I doubt its out of warranty... In other words, this is not likely an AppleCare issue.
I don't remember if they required an AppleID during the initial support request on their web site, but if they did, I would have used my AppleID rather than my wife's. After all, I did pay for for it, and my AppleID email address is in their purchase records. For what it's worth, I unpaired the watch from her iPhone before sending it in... as per their instructions.
I had the same experience as LGIR627. Original watch was returned, reflashed back to watchOS 3.1.