"lets say the ISP does not have a business relationship with either Netflix (because its illegal under net-neutrality)"
That is not illegal under net neutrality, and it is basically irrelevant. Netflix, like any Internet user (yes, that is what Netflix is) must contract with some ISP (probably many ISPs given their scale). Net neutrality does not prevent ISPs from selling rack space in their data centers and allowing companies to colocate their servers with the ISP's routers.
Net neutrality is really about the logic ISPs use for routing, and the basic requirement is that routing decisions should not be based on the sender address or the application. There is plenty of room for argument about how strictly that should be enforced e.g. some experts support different priority classes for different application types while others believe in a stricter form of net neutrality. The general idea is that the performance of Internet applications should depend solely on technical details and that ISPs should not be allowed to impose artificial or arbitrary restrictions. There are plenty of legitimate questions over what is truly a technical reality and what is artificially imposed by an ISP (e.g. if an ISP uses the same physical infrastructure for Internet and non-Internet services, is it artificially constraining the Internet users by denying them capacity that is not being used for the non-Internet services?) but for colocation there is no real debate and nobody is claiming that is a NN violation.