That's actually pretty standard for copyright infringement - and this goes well above copyright infringement. Impersonating someone to steal or defraud a company or person is definitely illegal, and seizing the assets used to commit fraud is a reasonable response.

If there were grey areas (e.g. the cloudflaresucks.com example given above, or a parody), I would get the concern. But this seems pretty cut and dry

The concern isn't about the matter itself, it's about companies seizing private property without having to go through the court system. Seizing the domain is likely a reasonable response, but why exactly should businesses be allowed to play judge and enforce the law like that?