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Here is information from the PayPal site about what a seller can do about a dispute:
Step 1 - Receive notification of dispute
By opening a dispute, a buyer is asking for your help to resolve a problematic transaction before escalating it to a PayPal claim or filing a credit card chargeback. Common reasons for opening a dispute include:
They haven't received the purchased item.
The item received is significantly different from your description.
You can communicate directly with the buyer to clear up any misunderstandings and resolve the issue. If you agree to a solution, PayPal protects you if the buyer later files a chargeback.
Step 2 - Negotiate to resolve dispute
Once a dispute is opened, you and the buyer have 20 days to resolve it or escalate to a PayPal claim.
You can review the buyer's message and post a reply in the Resolution Center. This is your opportunity to communicate directly and resolve the issue. Communicate clearly and include suggestions about how you can resolve the dispute, such as through a full or partial refund.
PayPal can view all posted messages in case the dispute is escalated to a claim.
We hold all funds related to the transaction until the dispute is resolved or closed. The buyer is less likely to escalate a dispute to a PayPal claim if you are working together on a solution.
Step 3 - Dispute is closed or escalated to a claim
The buyer can close a dispute at any time if you reach an agreement.
If you are unable to resolve the issue, you or the buyer may escalate it to a PayPal claim within 20 days of opening the dispute. We automatically close disputes after 20 days. A closed dispute cannot be reopened or escalated to a PayPal claim.
The buyer is less likely to escalate a dispute to a PayPal claim if you are working together on a solution.
Step 4 - We investigate and resolve claim
By escalating a dispute to a claim, you or the buyer is asking PayPal to review it and decide the outcome.
We try to resolve cases within 30 days, but complex cases may take longer to investigate, deliver a final decision, release any funds, and close the case.
You and the buyer may be subject to specific deadlines for new information. We use the messages exchanged in the Resolution Center, along with other details, to determine the outcome.
You can track the progress of your claim and respond to requests for information in the Resolution Center.
We notify you when we come to a final decision.
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sounds like the worst case scenario is that PayPal holds what was paid by the buyer while the transaction is in dispute - if they resolve against you, they may refund some or all of the buyer's money
Good luck~