This isn't an occupancy issue, it's a business service issue and you are on the property of someone else. It would be the rules of shopping at Target and when they can refuse you service and there are a lot of cases where the airline can refuse service and post 9/11 the airline and security have even more rights. The pilot should have left and evaluated the situation and said that we don't think you can handle your respoinsibilities on this plane and we'll work with you on getting you to your destinate at the counter. Final word of the pilot.
No, it's an occupancy issue. Their business model involves having people rent out portions of their property for a set period. He had paid to occupy that seat and had taken up occupancy, which makes it very different than merely having a ticket and not being on the plane yet. The pilot doesn't get the final word, the law gets the final word and if the law is unclear, it's interpreted in the most adverse way for the people who wrote the unclear rules. The pilot also had numerous untried options available to him before calling the police and the police had numerous untried options available to them before dragging him off - most notably having the guy finish the call with his lawyer and maybe getting an opinion on the matter from somebody who wasn't completely uninformed about what the actual rules were.