You violated their ToS. They provided evidence that you did it.
However, even with that, from their ToS (bolding mine):
We may close (upon which the account's Monero balance will be forfeited), suspend, or limit your access to your account or to other Services we offer, and/or limit access to your Monero balance for up to 180 days (or longer if pursuant to a court order or other legal process) if you violate these Terms of Service or any other agreement you enter into with LocalMonero, or as otherwise specified in these Terms of Service or other agreement you have entered into with LocalMonero.
You agreed when you signed up that they could take your XMR if you broke any rule OR any agreement.
So, all you are doing now is just yelling that someone did something they said they were going to do, and you agreed to.
-Dave