Paypal is located in CA (part of Ebay), but small claims actions cannot be kicked up to higher courts. At one time attorneys weren't even allowed to represent either party, but that may have changed. But, OP has to file in CA. BIG pain in the rear.
I'd check around to see if there is a class action suit against Paypal/Ebay. There are hundreds of complaints against them every week. I'm sure some lawyer somewhere has initiated a suit and is looking for clients.