If they simply exported models from a Pokemon game and ported them to Palworld: That’s a straight up, cut and dry copyright violation.

If he made them entirely by hand and just are the artist’s own rendition of a real Pokemon… I’m not sure. Fanart is usually considered fair use, and it generally seems like that’s how most mods are treated… But there is a chance that even a free, handmade Pokemon fan mod could damage sales of the actual Pokemon games if people think Palworld is a better Pokemon game than Pokemon. Based on that, they very well could have a case against it.