Is it correct to say this?
Her not paying attention to the class annoys me.
Is it correct to say this?
Her not paying attention to the class annoys me.
Yes, it is correct to have such a possessive structure as a subject:
The Other Side of the Couch: The Healing Bond in Psychiatry Gail Albert - 2011
Meanwhile she's already called back twice. Her not leaving a last name suggests that she believes I know her when I don't. And the number of calls suggests that she feels I'm a very important—and powerful—figure in her life.