Seth,
LT has the best practices in regards to designers protecting their works. No other site looks after both Client and Members like LT does.
Granted you had a bad experience with one member which is unfortunate, however the LC was justified you might not think so as you put it's your contest.
There is along section in the FAQ dedicated to both Clients and Designers, both a dry read but the information is well worth the read.
Support asked a ton of question to get to the the issue which is a good thing for both you and designers though it is an inconvenience for you.
My advice step back have the contest extended or start a new one, this time take the experience and info and turn it into a positive.
My personal thoughts no designer like to see a contest refunded, ever!
Best regards
Scott