No idea if you should sue or not, but surely in this case it would be the credit card company who didn't investigate the chargeback who is the culprit, Paypal is somewhat beholden to their investigation. By just approving any chargeback and not doing any investigations to appeals they are abusing the system
You're assuming that Paypal didn't purposely withhold any provided proof of scam, to avoid further action on this issue. That appears to be exactly what Paypal did.
