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What kind of dispute they file? Item Not Received or Significantly Not As Described? If the phone was picked up, they can't file or will lose an Item Not Received claim because that's not covered by purchase protection. If buyer file Significantly Not As Described claim, at worst you will lose but item will have to be returned before a refund is issued. If buyer fails to return item as requested by PayPal, you will win the claim. Although, it may not stop the buyer from filing a chargeback or a bank reversal from their financial institution.
These will be the possible outcomes should you escalate the case to PayPal to step in and make a ruling.