The mortgage fraud case against wealthy Highland Park resident Al Hill III was dismissed Thursday afternoon after Dallas District Attorney Craig Watkins refused to testify.

In an unusual twist, Judge Lena Levario held Watkins in contempt of court shortly after 9 am when he invoked work product and attorney client privilege in lieu of testifying about his role in the decision to indict Hill in 2011.

"This dismissal brings a gratifying end to a long and difficult defense investigation into prosecutorial misconduct and official corruption," said Hill's attorney, John Hueston, in a statement. "We praise the judge for her courage in affirming that District Attorney Watkins is not above the law."

The district attorney’s office had argued that Hill misrepresented his ownership of a Highland Park home to obtain a $500,000 loan from Omni American Bank, which he has since repaid.

Hill owned only 20 percent of the $2.8 million property, which was owned in majority by the Hill Family Trust. The bank reportedly was not informed of this before executing the loan. It learned of the ownership specifics only after the DA’s office investigated a complaint from Al Hill Jr., the defendant’s father. Similar charges brought against Hill’s wife, Erin, have since been dropped.

Hill believes his case was pursued only because of Watkins’ relationship with attorney Lisa Blue, who previously represented Hill but is now involved in a civil suit against him to recover millions of dollars in attorney’s fees.

The judge granted Hill's motion to dismiss his mortgage fraud charges based on Watkins’ prosecutorial misconduct for selective prosecution. But not before a parade of attorneys made its way to the witness stand.

Three DA prosecutors testified about their role in investigating the mortgage fraud case during a 13-month period.

Although a Power Point presentation replete with images of Erin Hill competing in a Ms. USA contest reflected poorly on DA office decorum, prosecutors Terri Moore and Donna Strittmatter presented a united front in the morning, asserting that Watkins played little to no role in the Hill matter. But when the lead prosecutor on the case took the stand after lunch, a different story line emerged.

Stephanie Martin presented a pitch to Watkins and other members of the DA office prior to taking the charges against Hill to the grand jury. She testified that Watkins asked a number of questions that encouraged her to pursue the case and look into more charges. Hill’s attorneys also presented Martin’s handwritten notes as evidence that she had once thought the case was not worthy of pursuing.

“Before lunch I thought I was going to deny the motion, but now I’m not so sure based on Ms. Martin’s testimony,” Judge Levario said shortly before granting the motion and dismissing the charges. “All of this evidence makes it smell really bad.”

Levario called a brief recess to give Watkins another chance to share his side of the story, but the district attorney declined her offer. Hill's attorneys presented a bevy of evidence showing that Blue and Watkins enjoy a cozy relationship that includes dinners at Al Biernat's and exchanges of poems and phone calls. Blue also contributed financially to Watkins' reelection campaign in 2010.

DA spokeswoman Debbie Denmon said Watkins could face a $500 fine as a result of being held in contempt. However, it’s premature to say if Watkins will be penalized at all. The contempt charge will be taken up in a separate hearing.

“Everyone has the right to due process,” Denmon said.