Update on this situation:
I changed most of my PayPal payments to direct deposit this month. Only one MSC pays solely by PayPal, and those fees are very small. They got eaten by the negative balance.
I called PayPal to find out the status of the rejection investigation. No one could tell me anything.
I called Michael Kors to have them reissue the refund. They told me that they have reissued it several times, and each time it was rejected. They are issuing me a check this week for my refund.
I call PayPal to tell them the conversation. They ignored the rejected refund part, and tried to collect the debt.
Needless to say, I will not be using PayPal.
"I told myself to quit you; but I don't listen to drunks." -Chris Stapleton