Federation is just a protocol or a shared language so that other activitypub-federated services can act as a user on that instance. Most activitypub software include the ability to block instances for any particular reason. Further, most activitypub software include the ability to host private instances. Nothing about this is against how federation or the fediverse works. It could be considered a dick move, but I think that refers more to federetiquette than the fediverse itself.