Brokers have been doing this for decades; it's clearly within the bounds of what they are allowed to do [0]. Maybe this lawsuit can prove that they are conspiring with hedge funds to manipulate the market (which would be illegal), but just this act alone is not illegal.
Short squeezes happen all the time and RH does absolutely nothing about it. The only time they stepped in was when their partner (Citadel) had an investment in a firm that was losing billions of dollars. I think the burden is on them to prove this wasn't manipulation because it's otherwise so blatant.
Do you actually know the rules? Brokers are highly-regulated, and their job is to give a fair trading platform.