The definition of a chop block is a block (from an offensive player) below the waist from behind. The way I see it, the block by James was perfectly legal. You see offensive backs do that sort of block all the time. As far as being already engaged by an offensive lineman previous to the "chop block," I don't know if that's legal or not.
The big play
As I remember it, that's called a crack-back block. And Yes, even if the block by James was "technically" a block below the waist on a D player while engaged by another blocker. The D lineman was breaking away when James went for the low block. I would not have thrown the flag.