That's clearly a bug, and a potentially enormous one at that. The entire concept of being aggressive in recruiting (pulldowns, battles, etc) is based on having a safety net of D3 recruits that you know for sure you can get considered and signed. Having someone on your division's list who won't consider you is ridiculous.
davey, it's small consolation, but I would at least ask CS to have any recruiting money you spent on that guy refunded.