I've been SCAMMED over $700 - do I have a strong case in court? / Should I sue?

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Long story: I recently began selling items on eBay (mainly NorthFace jackets) on behalf of this guy in Dallas - who his 'manager' was in Florida... I would receive $10/commission per/item and $5 commission if other sellers forwarded me their buyers (the buyers would send money to my paypal account because the other sellers didn't have one) I would take the remaining $$$, convert it to a money order (big flag that I missed due to my naivity: why didn't they take PayPal?), and mail it to the guy in Dallas, who in turn, would take out his commission and mail the rest to Florida and then the Florida man would get the order from a wholesaler... But then problems arose: people never got their items. 45 days went by and nothing. The guy in Florida stated the Chinese New Year and just waiting on delivery. (this was back in January) So then PayPal froze my account because of the high recent volume of transactions going through my account...(I was doing about 5-6 orders/day) I got emails stating that PayPal wanted to "part ways with (me) in ways that best suited (my) business". So all the people that bought a jacket and never got one wanted a refund. (almost a dozen in all total people) So, anyone who knows PayPal knows that, PayPal will refund the buyers because they have asked the seller to leave. Now, I am getting calls at ALL hours of the day from I.C. Systems - PayPal's debt collection agency; letters from them, and email. I owe them $714.xx! Big questions: Can I sue the guys? Small Claims Court? - items I have: receipts of money orders mailed to the guy in Dallas...emails...testimony from another guy just like me who was scammed (although he lives in Turkey)...testimony from angry buyers...all of their contact information (both guys) (email, address, names, phone numbers, where they work) Can PayPal do this? They asked ME to part ways with THEM. I really need help! This was back in January! And the mess is still not over... Thanks, Joe P.S. And a warning: I got this job from Craigslist. If you come across anything similar to this: please, don't fall for it like I did. You'll get in a HUGE mess.