The problem is the repuational damage, and subsequently financial damage to the brand. A not ingsificant number of people unsubscribed and stoped watch watching their videos. More importantly sponsors could stop sponsoring them because they don’t the association - just as we’ve seen LMG drop sponsors over the years.
If they just settled this quietly, the assumption would be the settlement was an admittion of guilt.
Assuming the allagations are false, the defimation suit is a legimate response - for a business model that relys on sponsors and reputation, having that damaged is a big deal financially.
In realty, there is nothing to gain to from pursing the case - a business going after an individual is a horrible idea for PR and the individual isn’t going to have the money to make up the cost anyways.