Thank you so much for the additional information. I am very sorry that you found yourself in such a situation.
As stated earlier, anyone can sue anyone in this country but the question is whether there is a valid basis upon which to sue. In order to know whether or not you have a valid basis, you have to look at the terms of the agreement between you and Paypal which you agreed to when you signed up to use their services. The key section that applies to your situation seems to be the following section:
10.3 Actions by PayPal - Restricted Activities. If PayPal, in its sole discretion, believes that you may have engaged in any Restricted Activities, we may take various actions to protect PayPal, other Users, other third parties, or you from Reversals, Chargebacks, Claims, fees, fines, penalties and any other liability. The actions we may take include but are not limited to the following:
- We may close, suspend, or limit your access to your Account or the PayPal Services (such as limiting access to any of your Payment Methods, and/or your ability to send money, make withdrawals, or remove financial Information). Use the Report Form link to request information in connection with an account limitation, hold or reserve – to access the Report Form, go to https://www.paypal.com/us/webapps/helpcenter/helphub/home/?dwf=neg_infolimit
- We may suspend your eligibility for PayPal Purchase Protection and/or PayPal Seller Protection
- We may contact Users who have purchased goods or services from you, contact your bank or credit card issuer, and/or warn other Users, law enforcement, or impacted third parties of your actions;
- We may update inaccurate Information you provided us;
- We may refuse to provide the PayPal Services to you in the future;
- We may hold your Balance for up to 180 Days if reasonably needed to protect against the risk of liability or if you have violated our Acceptable Use Policy;
- We may take legal action against you; and
- If you violate the PayPal Acceptable Use Policy, then in addition to the above actions you will be liable to PayPal for the amount of PayPal's damages caused by your violation of the Acceptable Use Policy. You acknowledge and agree that $2,500.00 USD per violation of the Acceptable Use Policy is presently a reasonable minimum estimate of PayPal's actual damages considering all currently existing circumstances, including the relationship of the sum to the range of harm to PayPal that reasonably could be anticipated because, due to the nature of the violations of the Acceptable Use Policy, actual damages would be impractical or extremely difficult to calculate. PayPal may deduct such damages directly from any existing Balance in the offending Account or any other Account you control.
- PayPal, in its sole discretion, reserves the right to terminate this Agreement, access to its website, or access to the PayPal Services for any reason and at any time upon notice to you and payment to you of any unrestricted funds held in your Balance.
As you can read, what it states is that, when you decided to utilize Paypal for payment, you agreed that they had the right to hold your money for up to 180 days if they feel that you could be in violation of any of their policies, including their Acceptable Use policy.
They also have the following clause:
"10.7 Actions by PayPal - Account Closure, Termination of Service, Limited Account Access; Confidential Criteria. If we close your Account or terminate your use of the PayPal Services for any reason, we will provide you with notice of our actions. Except as expressly provided otherwise in this Agreement, if we limit access to your Account, including through a Reserve or hold, we will provide you with notice of our actions; we will also provide you with an opportunity to request restoration of access if, in our sole discretion, we deem it appropriate. Further, you acknowledge that PayPal’s decision to take certain actions, including limiting access to your Account by placing holds or imposing Reserves, may be based on confidential criteria that are essential to our management of risk and the security of Users’ Accounts and the PayPal system. You agree that PayPal is under no obligation to disclose the details of its risk management or security procedures to you."
Section 14.3 states that any disputes must be done through arbitration. The exception is for small claims cases.
Now, many parties have been successful at fighting arbitration provisions in contracts. If you are not successful in fighting the arbitration provision, you would have to follow their procedures for arbitration.
In most of the cases that I have found, simply the threat of a lawsuit will cause them to turn over the matter to someone higher up in the chain which will result in either your funds being released before it gets to arbitration or a court or afterwards. A lot depends on the actual specific individual facts of your case, of course.
Please let me know if this has answered your question.