Is this ethical?

Last June we picked up a customer who we run a PPC campaign for. The campaign is spread over 13 counties. Since then we have talked to them about doing organic SEO. Several meetings were scheduled and canceled over the months. One of them was a no-show and I probably should have billed them for it.

Anyway, last month they decided to do organic SEO. Each month we would target two main keywords and a few secondary keywords. We would set up 2 landing pages with an EMD, create a video for each main keyword and submit it to 3 video sites, and set up 6 other web properties for each main keyword.
Then backlink most of the properties.

We did the work the first month and accomplished our goal of 2-4 properties on the first page of Google for each main keyword.

3 weeks later they emailed and said it was too expensive and they are putting SEO on hold and will do it in-house now, whatever that means.

Here is my question: I know this niche very well now after working with them. My thought was to create rental sites for the biggest cities that we have not yet targeted organically and offer them to the original client first and then to their competitors if they don't want them.
What are your thoughts?