A federal judge erred in freezing the $42 million in assets of Unity House and appointing a receiver to take control of the nonprofit labor benefits organization after its head, Anthony "Tony" Rutledge Sr., was charged with mail and wire fraud, a federal appeals court ruled yesterday.

The U.S. 9th Circuit Court of Appeals set aside the court order by U.S. District Judge David Ezra, who issued the injunction after the federal government's takeover of the organization in December 2004 while Rutledge faced pending federal charges accusing him of wire and mail fraud related to his position as head of Unity House.

The decision, however, may not have much of an impact since Ezra ended the government's takeover on Feb. 6 when he sentenced Rutledge to three years' probation as part of an agreement for his guilty plea to filing a false tax return in 1997. The other charges were dropped.

But Ezra gave the company, which was appointed as the receiver, four more months to complete ongoing lawsuits and financial negotiations.

As part of Anthony Rutledge's plea agreement, he agreed to permanently sever his ties to Unity House.

Rutledge's attorney Jeffrey Rawitz of Los Angeles said his client was "very pleased" that the appeals court affirmed his long-held belief that the takeover was illegal.

Federal lawyers tried to justify the takeover by alleging Rutledge used fraud to gain control over the organization and its assets, which would then be subject to forfeiture.

In the unanimous opinion by the three-member appeals court panel, the court held that those allegations weren't enough. The government did not show that the assets were obtained through the mail and wire fraud, the court said.

Unity House was founded in 1951 by Rutledge's late father Arthur Rutledge. The organization administers programs and money for active and retired members of the Teamsters and hotel and restaurant employees unions in Hawai'i.

Reach Ken Kobayashi at kkobayashi@honoluluadvertiser.com.