Of course it's not a good idea - but companies do run out of money. When they do, the relevant question isn't, how do we inflict further punishment; it's, how can we maximize the chances of people getting paid.

The developer could have just sued for the money owed him, without adding the incendiary copyright-infringement charge.

This was an example of a circular firing squad (well, to the extent you can have a circle with two people). It looks to me as though all hands played it badly.