Yeah, legally it’s fine. Societiarily, it’s not really fine. If you are building a service and I put on my business cards this is the address you can reach me at through this service, removing that address without warning is unacceptable. If you want me to trust the service you are building is reliable and worthy of my business then you better be prepared to treat the data the service owns and the choices the users make with lots of respect.
For example, if your lemmy instance owner took your name and started using it for their own purposes without warning but sent you a quick message that read “I took your account name, but hey, as compensation you can just tell me what other handle you want and you can have it. Also, I know I am really awesome, so if you want to meet people who have talked to me, let me know and I can set that up.” What would you do? Would you stay on that instance or would you go find a service that you feel is reliable and trustworthy?
Honestly, I can probably safely assume you’d find another service because your account age is the same as mine and that is around the time that Reddit started to show they were not a trustworthy service. So kind of proof that this is legally fine but societally not going to instill trust.