MLH had no authority to kick out the students. The hackathon is run by a separate group of Waterloo students, whereas MLH is a for-profit hackathon organization that just helps colleges with sponsorships.
MLH obviously had a commercial relationship with the University and that would likely entitle them to certain authorities. Unless your privy to the contract, or the University has officially stated otherwise, what source are you using to back this up?
But I can say that even if it ends up that they technically had the authority to do this, then us Hack the North organizers were mislead to an extraordinarily large degree about the nature of the relationship between MLH and Hack the North.