Citizenship is not a "technicality" and violating people is not a technicality either, it is a crime. I hope none of you ever makes the experience of a being abducted by a foreign government. Happened pretty often during the last decade.
If your great granny lives in the U.S. and leaves you a home, your still gonna be bound by the laws of the U.S. when dealing with that property even though you're not a citizen. And a local government can still take that property via eminent domain, even though you're not a citizen.
The Ba'ku are not Federation citizens but are sitting on a planet in Federation territory. Not even Picard cared to argue the semantics of that point.
You can argue the morality of the move til you're blue in the face, but I'm pretty sure that property law is going to come down on the side of Dougherty and Company.