When a Paypal transaction is disputed by a customer PayPal removes the funds from the receiving account and places them on hold until the dispute is closed. When the money is removed from the seller Paypal account a status of Reversed is returned to JVZoo which removes the product from the customers JVZoo account. It also shows the status of the Seller portion of the account as refunded, and the transaction status as Reversed. If you try to refund in JVZoo at this time you will see the Partial Error stating that "One or more payments cannot be refunded at this time". This is because the system views the seller payment as refunded at this point in the dispute process.
As the seller, you have two options of how you want to close the dispute: (1) you can refund the dispute in PayPal to close it, or (2) you can challenge the dispute within PayPal.
After the dispute is settled, and only if it was settled in the customer’s favor, to refund the transaction go to the Sellers tab > Reports > Transaction Report. Enter the information to search for the transaction and then process the refund.
If you have not previously refunded through the Partial Error you won't get the warning, however if any portion of the transaction was previously refunded before the dispute was closed you will see the Partial Error again and you can continue with the refund to complete the refund.