If you leave someone with a -ve rep and he/she does the same in retaliation, can the mods remove it?
No, moderators cannot intervene in the trust system, it is moderated by the community and unregulated, only the person who left the feedback can remove it.
However, you should not be much bothered by retalliatory feedbacks with no basis. Users can check the reference and decide if a feedback is worth taking into consideration.