A dispute involving a wealthy Dallas heir and a prominent Dallas plaintiffs lawyer has moved from the federal courthouse to the state criminal courthouse — sort of. On Feb. 14, a criminal court judge is scheduled to hear arguments over whether she should quash several mortgage fraud indictments returned against Albert G. Hill III.

Hill III alleges in a motion he filed in State of Texas v. Albert G. Hill III that his former civil lawyer Lisa Blue Baron had "strong motive and frequent opportunities to influence" Dallas County District Attorney Craig Watkins to indict Hill III.

Watkins and Blue both deny those allegations in pleadings filed in the criminal case against Hill III, which is pending in Dallas’ 204th District Court.

Last year, three Dallas plaintiffs lawyers — Blue of Baron and Blue, Charla G. Aldous of the Aldous Law Firm, and Stephen F. Malouf of Malouf & Nockels — won a $21 million attorney fee judgment against Hill in Campbell Harrison & Dagley, et al. v. Albert G. Hill III, et al. in U.S. District Court in Dallas. Blue, Aldous and Malouf, collectively referred to in court documents in that case as "BAM," had represented Albert G. Hill III, Erin Nance Hill and their minor children in the 2010 settlement of Hill v. Hunt, et al., a complicated trust dispute action in which Albert and Erin Hill and their minor children had refused to pay BAM. [See "BAM! Counsel Win $21 Million in Fees From Clients Who Wouldn't Pay" Texas Lawyer, Jan. 30, 2012, page 1.] Albert and Erin Hill and their minor children appealed that decision to the 5th U.S. Circuit Court of Appeals, and the appellate court dismissed the appeal on Oct. 26, 2012.

Criminal Case

A Dallas County grand jury indicted Albert G. Hill III on March 31, 2011, on multiple counts of "making a misleading statement" to obtain a loan from a bank.

On Nov. 16, 2012, Hill III filed a 36-page motion to quash his indictments, alleging "prosecutorial misconduct." Among the many allegations in the motion to quash are that Watkins deprived Hill III of "due process" by indicting Hill III "to assist the D.A.’s friend and benefactor, Ms. Blue, by impairing the Hills’ ability to contest Ms. Blue’s enormous fee claims." The motion to quash also notes that Blue has made political donations to Watkins’ campaign.

"In the BAM v. Hill case, the Hills stood between Ms. Blue and tens of millions of dollars. Blue had both strong motive and frequent opportunities to influence D.A. Watkins to hamstring the Hills in their defense of the fee litigation by unveiling criminal charges on the eve of trial in that case," the motion to quash alleges.

Alan Loewinsohn of Loewinsohn Flegle & Deary who represented BAM in the fee litigation, filed a motion for protective order on Jan. 28, seeking to quash subpoenas Hill III is seeking of Loewinsohn and his firm in the criminal case.

In an affidavit filed Feb. 12 in support of Loewinsohn’s protective order, Blue strongly denies the allegations that she sought to influence Watkins to indict Hill III. She states that she learned about a criminal investigation of Hill III in the media.

"After I learned about a potential investigation of Al III for alleged criminal conduct, I had a meeting with Terri Moore, the then First Assistant District Attorney. I recommended to Ms. Moore that Al III not be indicted," Blue states in the affidavit.

"After I no longer represented Al III or his wife, Erin, I received two phone calls from District Attorney Craig Watkins wherein, at the very beginning of the conversations, District Attorney Watkins used the word ‘Hill’ or ‘Hills’ (and in one of the conversations I recall he also used the word ‘indictment’ or ‘indict’). On both occasions, I immediately stopped the conversation and told Mr. Watkins that I no longer represented Al III (or his wife, Erin) and could not talk to Mr. Watkins about the Hills," Blue states.

"At no time have I ever suggested, recommended, demanded, or even intimated that I wanted Al III or his wife Erin be investigated, indicted, charged, prosecuted or convicted of any crime," Blue states.

Watkins also strongly denies the allegations in a Feb. 6 response to the motion to quash the indictments, referring to Hill III as a "spoiled child who should not be coddled by this court." The motion also alleges that the trial court has no basis to review the indictments against Hill III.

"The judiciary’s authority to review how the State prosecutes cases is narrow, limited to constitutional allegations related to the protected classes of race, sex, religion and national origin. The defendant raises no such allegation."

"Considering the sum and the source of the complaints, there is only one universal connector, and it Albert G. Hill, III, himself," the DA’s response motion states. "He hired lawyers to defend his interests and then tried to defraud them. He now appears before this Court, carrying the same baton of dishonesty, and attempts to defraud justice. His next victim is likely among us, and it will undoubtedly be someone who tried to help him."

Blue and Watkins both did not return calls for comment. George Milner III, who represents Hill III, declines comment. Aldous declines comment, and Malouf did not return a call for comment.

UPDATE:

A hearing on whether the mortgage fraud indictments against Albert G. Hill III should be dismissed ended abruptly on Feb. 14 after a Dallas County assistant district attorney told the trial court judge that Watkins refused to testify and was sick

As a standing-room-only courtroom full of criminal-defense attorneys, civil litigators and elected officials looked on, 204th District Court Judge Lena Levario repeatedly asked Dallas County ADAs Russell Wilson and Theresa Guerra Snelson where their boss was.

"He is not going to be making himself available," Snelson told Levario, explaining that Watkins believed it would be "inappropriate" for him to appear in the case. Snelson also told Levario that, while Watkins was inside the courthouse, he was sick and was not in a condition to testify.

"Him violating a court order is a serious matter," Levario told Snelson, reminding prosecutors that their boss was subpoenaed to testify in the case. After prosecutors asked for a continuance to give Watkins time to recover from his illness, Levario granted their motion, resetting the hearing on the motion to March 7.

That ended the unusual hearing in which Blue, the only other witness called to testify, took the stand and refused to answer questions, taking the 5th Amendment on the advice of her attorney Terrance J. Hart of Bracewell & Giuliani in Dallas. The remainder of the hearing concerned arguments over whether Watkins violated Hill’s equal protection rights by indicting him and whether there was evidence to prove that allegation. Lawyers approached the arguments in the case as if the allegations Hill presented in his motion were true.

"If the case was born of corruption and was indicted, that is enough," argued Hill’s attorney John Hueston, a partner in Los Angeles’ Irell & Manella, who alleges there was a "corrupt deal" to get Hill indicted.

"And this case has all the hallmarks of a case that would not normally be accepted by this office," Hueston argued.

At one point in the hearing, Dallas County ADA Michael Casillas argued, "[W]e don’t think Mr. Watkins would take a bribe if his life depended on it."

Wilson pointed out that Hill’s equal protection argument failed because Hill is not a member of a "protected class."

He also argued that Hill could not prove that he was treated differently than other criminal defendants, denying that Hill was singled out.

"There is not support of that," Wilson argued.

Wilson also argued that there is no appellate decision supporting Hill’s position that his indictment should be quashed.

"They can’t cite a case supporting their position because there is none," Wilson argued.

"And the reality is: We see cases like this all of the time," Wilson says. "There will always be someone saying, ‘This shouldn’t be prosecuted.’ But you won’t have law enforcement agencies that will say, ‘It’s OK to lie on applications for loans.’ "

Wilson objected to the evidentiary hearing going forward, but Levario overruled his objection.

"I think they have a right to a hearing on all of their issues," Levario said.

After the hearing, Wilson said he will file a petition for writ of mandamus with Dallas’ 5th Court of Appeals to prevent the case from going forward, noting the precedent it could set.

"We think it’s an important case for prosecutors throughout the state to conduct their investigations unfettered," Wilson says.