That is a built-in feature. When an immediate reply quotes the whole post just above it is removed by the system. Clicking on the Edit Pencil will show you why.
This is completely client-side. Only happens if you try to select a post with a quote to quote and not when using the dedicated quote button on the composer. Also the quoted post must start with a quote for this to happen.
Looks to be a regression on the recent work on this area. Any ideas @vinothkannans?