A federal appeals court has overturned the convictions of former Pilot Flying J President Mark Hazelwood and two others in connection with a long-running scheme to defraud trucking companies.

According to the Knoxville News Sentinel, a three-judge panel for the 6^th Circuit U.S. Court of Appeals ruled that prosecutors should not have been allowed to play audio recordings of Hazelwood making racist comments during the 2018 trial.

Hazelwood was convicted in 2018 after a four-month trial of conspiracy to commit wire fraud, wire fraud and witness tampering. He was sentenced to more than 12 years in prison and ordered to pay a $750,000 fine.

Hazelwood and sales representative Heather Jones were found guilty of conspiracy to commit wire fraud and mail fraud. Former Pilot Flying J president Scott Wombold was found guilty of a single count of wire fraud. Hazelwood was also found guilty of witness tampering, and another count of fraud.

The appeals decision means not only Hazelwood, but also Wombold and Jones, will get new trials. All three have been allowed to remain free pending the appellate court decision.

The fraud case dates back to 2012, when the FBI discovered that Pilot Flying J sales employees were operating a fuel-rebate scam that victimized trucking companies. The trucking companies were promised certain amounts back in rebates, but sales staff would reduce the amount at a later date to increase profits. The FBI found that over the course of several years, Pilot Flying J defrauded as many as 5,500 customers of more than $56 million in owed rebates that were not paid.

Pilot Flying J reached settlement agreements with the authorities and customers in 2014, for $179 million in total.

However, the appeals court said the playing of the recording at trial could have prejudiced jurors into deciding the case based on the racism in the recording and not on the actual allegations of fraud.

“The offensive language heard on the recordings was meant to depict a person whose scandalous personal beliefs transgress society’s sense of morality and human decency,” the opinion stated. “For that reason, the inflammatory nature of Hazelwood’s comments created a strong risk that the jury would convict him based on factors other than the charged conduct.”

Many of the trucking company owners targeted by the alleged fraud were Hispanic, according to testimony in an earlier trial, where the use of the code word “Manuel” allegedly referred to this practice and was heard in recordings.

The recording that the appeals court said should not have been allowed was from a private party. A mole working the FBI and IRS made the recordings during a 2012 sales executives’ meeting at the lake house of former Pilot Flying J Vice President John “Stick” Freeman. The recordings captured Hazelwood and sales executives using racial slurs and mocking Pilot Flying J board members.

“Degrading African Americans and women during a private party is not probative of motive to conspire with others to defraud trucking companies of fuel discounts.”

The third judge dissented, noting among other factors that “both the fraud scheme and the recordings depict ‘bad or unintelligent business decisions’ that, if made, put Pilot’s business publicly at risk.”

No word yet on whether prosecutors will appeal to get a hearing with the full appellate court.