One extra thing a lot of articles haven't pointed out is that the mod was locked behind a patreon paywall. Sticking mods behind paywalls has been a hot subject (to put it gently) in the community for a while now. Not to rush to the defense of the most profitable franchise in the world, but yeah that's absolutely gonna get you shut down.
My guess is Palworld has done their homework on how to be "legally distinct" enough. It's quite a different gameplay loop, after all and Nintendo can't copyright "cute little animals that do the manual labour for the humies" otherwise things like Digimon already wouldn't exist.
And a broken clock is right twice a day. Sure this one is legit, it's still Nintendo's legal department. Just because they're right this time doesn't change anything.