Depends on how you interpret Lawful. I think 2E mentioned that even a Paladin wouldn't abide by a law they found unjust, and the whole "lock people away without trial" thing might qualify. Then again, under a more rigid interpretation of Lawful Good, there is no motive to save Imoen (she violated the law) or pursue Irenicus (violated the law, already being punished, can only accomplish revenge, revenge incompatible with justice).
She broke no law. Using magic is not tolerated, but is not officially legislated against. The Cowled Wizards, who maintain the unjust 'law', are not law makers. They are uncontrolled, even by the Athkatlan government -- the government tolerates the wizards because it serves their interests to do so. No paladin worth his/her station would uphold such an unjust punishment.
Edit: Correction. Using unlicensed magic
is not tolerated. Bribes are the only way to become 'licensed', or "sanctioned" as the Cowled Wizards put it. Bribes are unlawful.
If it weren't for states actually playing a role in punishing the unlicensed practice of law, there would be a perfect bar association joke in there somewhere :) After all, you can only be a member after you pay an exorbitant fee to take the test and then become a member so long as you abide by the local rules of the profession, but if you haven't paid the fee, trying to practice law will get you in trouble.
In all seriousness, the Cowled Wizards might not be subject to the laws of Athlatka, but the rules they impose on magic users in the city seems to be a form of law in and of itself, especially since Athlatka's tolerance of them could be argued to be equivalent to approval of and adopting it. It might not be "the" law, but it's still an imposed set of rules regulating certain actions, and Athlatka arguably is condoning it by not legislating against them; then again, that could just be because noone wants to say something bad about the nice wizards who can and do chuck people in prison without any form of due process.