As per all other answers, both observers are "right", i.e., their observations construct pictures of the world that are ultimately consistent with the pictures constructed by all other observers. And that's regardless of any apparent contradictions, which usually arise from erroneous arguments subtly based on absolute space/time notions.
Let me illustrate that by elaborating what I meant by "ultimately consistent" in the first sentence, by way of the following textbook example (sorry, I can't recall which textbook), describing a situation that leads to an even more blatant apparent paradox.
A car is driving along at a speed close to light's, and comes across a large pothole in the road, let's say at time $t=t_0$. From the driver's point of view, the pothole's extremely foreshortened, and so he drives over it without problem. But from the point of view of a bystander standing on the road's shoulder, it's the car that's extremely foreshortened, and it therefore falls into the huge pothole.
Now, at some much later time, $t\gg t_0$, all observers looking at the car must agree that it's either continuing on its journey along the road, or that it's lying in a mangled heap at the bottom of the pothole that's what I meant by "ultimately consistent". So which is it??? And what physical argument justifies your answer?
I've left an empty "Edit" below, and for the time being, I'll leave you to ponder the problem and post your solution under that Edit (or as a followup comment, an edit to your own question, a separate answer, whatever). If you haven't, then I'll eventually (sometime after Xmas) post the solution.
E d i t
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As per the link/hint I gave @chaimp below, Extended Rigid Bodies in Special Relativity,
the answer emerges from the fact that the relativistic car is no longer a "rigid body" in the usual sense. And it "falls" into the pothole by what appears to observers to be a dog-leg-like procedure, whereby it seems to bend its way through the pothole, as I've tried to ascii-illustrate below.
In terms of the above link's torque discussion, as the car begins to go over the pothole, gravity is like a torque force acting on the front end of the car. So that front end falls into the hole. But, by virtue of the car's speed $v\sim c$, the "signal" that the front end is falling hasn't reached the back end yet, whereby the car takes on a "bent"-like shape.
+------\\\\
+-------\\\\ <--car
+-------------------+ \\\\ +-------------------+
| | \\\\ | <--pothole | <--road
+-------------------+ \\\\ +-------------------+
\\\\--------+
\\\\-------+ ----> v ~ c
I also tried to google the problem and find the textbook containing it, but wasn't successful. Anybody else recall this problem, and also its source?