So, what do you think? Is this morally justified? Or am I fooling myself? ;)
Key questions for petty property disputes
Is the financial dispute petty or existential? At the PMR as well well as NPMR ruleset levels, it is normally most efficient to laugh off petty property disputes. If a friend asks for your cloak, give it to him. If a man strikes you on the cheek, give him the other. When a man asks for your car or house, or pulls out a knife, or aims a nuclear missal at you, that's a completely different matter. This sounds like something greater than petty, but not existential (in the sense of "big")...the grey zone.
Is the person part of your social circle or an arms length person. An easy way to parse this out is to divide the world into people you break bread with, vs those you may have only a temporary practical one off interaction. As this is an estranged former friend, it sounds like this is in another grey zone. This pertains to the implied PMR social contract of friends and associates watching each others back and fair trading in favours, and whether this person is part of your social contract circle.
Another aspect of this is friends and relatives who are not fair traders, but are takers, which appears to apply in this scenario. Indeed, you are not helping takers by enabling their anti-social behavior. Takers love to attach themselves to spiritually motivated givers, and givers need to become effective and look beyond intent to how their giving impacts the taker over the longer term as well as the giver's personal sustainability, emotionally as well as financially. With some of these unprofitable associations, I suggest gradual friendly distance. With relationships of duty, having your own Arab spring and taking over leading the relationship rather than being taken advantage of.
Should this go bad, suing is rarely profitable by the lower or higher ruleset, should have all emotion removed from the motivation, and the risk reward should be overwhelming. Consider the emotion and effort that will go into the suit and if your time would be better spent doing something productive. Consider the teaching of the Nazarene and make your best effort to settle before actually going to court, and use this experience to make yourself very very wary of legal entanglements with others. Some people go to court too often, and some people don't go to court when they should. Further, there is nothing more expensive than a cheap lawyer.
Choose your intent the best you can then stop fretting about it.
Ultimately, he sounds like fresh high entropy meat and the system is doing its thing on him, which is apparently negative feedback so that he can eventually wake up to the process. You may wish to brief him on the model and the implications of his behavior, so that when he reaches bottom, he will think of what you have told him, and out of desperation, form a decisive loving Intent toward others.
One thing you do not want to do is interfere with the system's Super High Intensity Training (SHIT) that is directed to him, if he is generally a person of physical and mental capacity, lacking only in quality of consciousness or awareness of his QoC.
If you are a very subtle person, I could imagine you pushing the limit of this and suing him with a noble intent directed at educating him, but this is tricky territory.
I once lent a young friend some money, and they were not paying it back as agreed. It was a lot of money for them, but not for me. My concern was that by forgiving the loan, I was leading them into something damaging to them, so I insisted that the loan be repaid, which was difficult and a challenge for the person, but they did it, and were very proud of this. I then turned around and gifted the money to them, as the point was made and the lesson was learned.
So one tool is to insist on order, discipline and fair exchange to such situations, but remove self interest by directing the benefit of the action to someone other than yourself, if you are in a position to afford this sort of thing.