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By cowering, the dog is showing submission to you. It could be that it has been beaten and the closer you came the more it cowered. Did you raise your voice? If so that could have caused it.

As for calling animal control, you really have no proof unless you hear or see it happening. There is not much that they can do without some proof of some kind.

Hopefully your neighbor was just spouting off and will not harm the dog. However, I suspect that he has in the past but again, only a guess.