I'm assuming they've run afoul of something similar to the DMCA safe harbor provisions. Basically under the DMCA a hosting provider isn't responsible for violations due to user submitted content as long as they're responsive to notifications and remove the content quickly when notified.

Now that applies to copyright not domain names, but I'm assuming there's some kind of similar law at play. Meta has said that Freenom has been ignoring complaints about domains registered with them that are being used for phishing attacks. It could also be a DMCA issue because I think it does have some anti-domainsquating provisions in it that prevent you from E.G. registering say cocacola.ml as you aren't the holder of that trademark.

In theory depending on where Freenom is run out of they might be able to just ignore the lawsuit, but it's probable that doing so will get them blocked by various ISPs and organizations.

Registrars not only have rights, but also responsibilities. They physically own the domain names and bear responsibility to ensure their domain names follow international rules.