It seems to me that PayPal's responsibility ended when they delivered the check to the correct recipient, and that's what they paid for with the $1.50 fee. But

It seems to me that PayPal's responsibility ended when they delivered the check to the correct recipient, and that's what they paid for with the $1.50 fee. But that didn't happen, so it's PayPal who's been defrauded and separately from that they still owe the funds to the account holder. But IANAL also. Being USPS there are probably special laws about it.