Refund Coming to Convicted Former Blackhawk Worker

(CN) - With Blackhawk already on the hook for defrauding the government, regulators improperly seized money from one of the defense contractor's convicted former employees, the D.C. Circuit ruled.

"There is something very wrong with this picture - so wrong Stevie Wonder could see the flaw from a phone booth in Chicago," Judge Janice Rogers Brown wrote in a concurring opinion.

Though the government has gone to great lengths to loot the pockets of the employee at issue, a woman named Shawn Hughes, Brown noted that "there is no evidence the government ever sought to criminally prosecute Blackhawk - the most culpable party - a corporation that, so far as this record shows, has yet to pay a cent."

"The fact that the government cannot is deeply disturbing," Brown added.

Greg Smith, an attorney for Hughes, said in an interview his client's "greatest sin" was doing as her "corrupt employer" told her to do.

That lost Hughes "her job, her livelihood, and her liberty," Smith wrote. "And then the government came after her again."

The dispute stems from the Treasury Department's seizure of a $10,000 tax refund Hughes had been expecting in 2013.

Hughes needed the money: her home was on the verge of foreclosure, and her future earnings were in jeopardy after working for Blackhawk put her behind bars.

Four years earlier, Hughes had pleaded guilty in Washington to making false statements to government authorities, based on her work at Blackhawk.

Following the directions of her supervisors, Hughes had certified that Blackhawk guards received training that they had not in fact possess, enabling Blackhawk to charge the government more for their services.

Hughes was not alone in taking the rap for the fraud. Douglas Brown, the owner of DB Training Services, pleaded guilty as well, and a federal judge entered a $1 million judgment against Blackhawk.

Though the court held Hughes and Brown jointly liable for $443,330 in restitution, it noted that their actual responsibility for that amount could be negligible, assuming Blackhawk paid its fine.

Hughes fought to have her tax refund returned, but the Treasury Department told the court that Blackhawk had not contributed a single cent in restitution, and that the government's default judgment against the company was exempt from bankruptcy discharge.

Though the trial court found the penalty seemed unduly harsh to Hughes, it said it lacked the power to modify the sentence, which already sent Hughes to prison for a month.

Reversing that finding Tuesday, the D.C. Circuit said Hughes' sentence manifested a clerical error that the lower court should have corrected.

Ordering that Hughes win the return of her tax refund on remand, the three-judge panel noted that government officials should have told the court about "the assets in the Blackhawk bankruptcy estate, the status of the government's claims to those assets, government proceedings if any against principals or shareholders of Blackhawk, or any pursuit of Brown, DB Training or their assets."

The error in the sentencing order involved the note by the trial court that Hughes would have to pay "at a rate of not less than $50 each month," if Blackhawk failed to pony up its fine.

Such language "must mean that a rate of not less or more than $50 each month was required," according to the lead opinion by Senior Judge Stephen Williams (emphasis in original).

The judgment would otherwise be "virtually meaningless," the ruling states.

The rate is "especially clear in light of the court's plain expression of intent that the Blackhawk fine could offset the entirety of Hughes' restitution," Williams wrote.

While the lower court said that "the 'restitution [is] immediately payable,' this boilerplate language is controlled by the specific and repeated references to payments beginning only after the Blackhawk payment has been subtracted," the panel ruled (brackets in original).

Though the decision was unanimous, Judge Brown questioned why the government "wasted no time" to go after Hughes' supposed debt through the Treasury Offset Program.

"Paying off this $442,000 debt at $50 per month would take nearly 740 years; seizure of her tax refund may have reduced the reckoning by about 20 years," Hughes wrote.

Such liability would let the government seize Hughes' future tax refunds, and even her Social Security payments, the judge added.

"The point is, no matter how much suffering the government inflicts on Ms. Hughes, the [Justice] Department will never recover the full amount it is allegedly owed," Brown wrote.

Smith, the attorney whom the court appointed to represent Hughes, said the appellate victory "truly couldn't have happened to a nicer person."

Now that U.S. District Judge Rosemary Collyer can impose "the sentence she has said she intended all along," Hughes' "nightmare" is nearing an end, he added.

In lieu of comment on the ruling, Bill Miller, a spokesman for the U.S. Attorney's Office in Washington, sent along the government's court filings from 2011 and 2013.

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