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IN THE UNITED STATES COURT OF APPEALS
2
FOR THE FIFTH CIRCUIT
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_______________
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No. 94-10375
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_______________
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RESOLUTION TRUST CORPORATION,
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in its corporate capacity,
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Plaintiff-Appellant,
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VERSUS
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CHARLES D. ACTON,
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DAVID CLAYTON,
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WILLIAM F. COURTNEY,
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RICHARD L. DAVIDSON and
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JOHN R. RITTENBERRY,
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Defendants-Appellees.
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_________________________
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Appeal from the United States District Court
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for the Northern District of Texas
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_________________________
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(April 4, 1995)
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Before SMITH and BARKSDALE, Circuit Judges, and BUCHMEYER, District
Judge.*
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23
JERRY E. SMITH, Circuit Judge:
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Plaintiff, the Resolution Trust Corporation ("RTC"), appeals
25
a summary judgment in favor of defendants, Charles D. Acton, David
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Clayton, William F. Courtney, Richard L. Davidson, and John R.
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Rittenberry. Finding no error, we affirm.
* District Judge of the Northern District of Texas, sitting by designa-
tion.

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I.
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A.
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Defendants are the former directors of HeritageBanc Savings
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Association ("HeritageBanc"), a state-chartered, federally-insured
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savings and loan association based in Duncanville, Texas. In April
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1989, HeritageBanc was placed into conservatorship. On August 9,
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1989, the RTC succeeded the Federal Savings and Loan Insurance
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Corporation as HeritageBanc's conservator. The bank was placed
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into receivership in April 1990 by the Office of Thrift Supervi-
37
sion. The RTC was appointed the receiver and became the bank's
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successor in interest. The RTC, in its corporate capacity,
39
purchased several of the bank's assets, including the claims at
40
issue in this case.
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The claims surround the operation of the bank from 1983 to
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1988 ("the relevant time period"). On April 1, 1992, the RTC
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brought this case against five of HeritageBanc's directors,
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asserting state claims for breach of fiduciary duty, negligence,
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and gross negligence.
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Acton was the president and chairman of the board of
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HeritageBanc from 1962 until the conservatorship. Rittenberry was
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an executive vice-president and director. The three other
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defendants served as outside directors for at least twelve years,
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including the relevant time period.
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Acton's wife, two daughters, and father-in-law were officers
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of HeritageBanc and Oak Tree Land Development Company, Inc. ("Oak
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Tree"), a subsidiary of HeritageBanc. Acton's two sons-in-law,
2

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Patrick McElroy and Edward Cummings, were active in the operations
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of the bank. Cummings also allegedly ran Oak Tree and was the
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highest paid individual associated with HeritageBanc.
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The RTC's claims focus on the defendants' alleged failure
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adequately to oversee the actions of Acton and the members of his
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family. Specifically, the RTC alleges that the defendants bear
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responsibility for the approval of a series of real estate loans
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that went sour.
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Oak Tree was formed in January 1984 as a wholly-owned
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subsidiary of HeritageBanc. The RTC alleges that Cummings remained
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a de facto officer of Oak Tree after the acquisition. The RTC also
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asserts that, at the time of the acquisition, HeritageBanc shifted
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a large amount of its resources from home lending to the riskier
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commercial real estate market.
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In April 1984, the Texas Savings and Loan Department required
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HeritageBanc to reduce its investment in Oak Tree to below a 10%
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cap within 18 to 24 months. The RTC alleges that HeritageBanc
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circumvented this requirement through a series of transactions that
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form the basis of the RTC's allegations.
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Block A Transaction
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Cummings and HeritageBanc owned tracts of land in a
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subdivision called Hollywood Park. HeritageBanc sold one tract to
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Cummings at $0.64 per square foot and financed the transaction with
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a loan. The Duncanville Planning Commission revised the relevant
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plat and combined Cummings's new tract with other land he owned and
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called the new land Block A. Four months after the initial sale,
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HeritageBanc bought Block A from Cummings for $6.50 per square
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foot.
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Whittern/Turner Loans
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In 1985, HeritageBanc provided all of the financing for Ollie
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Whittern to buy two tracts of land, owned by HeritageBanc and the
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other by Cummings. The RTC alleges that Cummings was intimately
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involved with the discussions leading up to the deal and signed the
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contracts of sale for both tracts on behalf of himself and Oak
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Tree. The RTC alleges that the transaction provided a sizeable
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profit to Cummings.
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Danny Smith Construction Loans
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The RTC alleges that a series of loans were made to an officer
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and employee of Oak Tree named Danny Smith, who personally owned a
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company called Danny Smith Construction. In 1985, the bank
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allegedly loaned him $2.8 million for the purchase and development
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of land owned by Oak Tree. Smith was earning $86,000 a year at the
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time, and the company was worth approximately $49,000. The bank
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supposedly represented to Smith that he would not be personally
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liable in the event of a default. The company became insolvent by
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1986, but the company was subsequently loaned $374,000. Later
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loans of $160,000 and $611,576 were also made to Smith.
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Berkeley Development Loans
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The RTC alleges that a transaction almost identical to the
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Danny Smith loans took place involving Chris Escobedo, an Oak Tree
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employee, and his company, Berkeley Development. An initial loan
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of $4,250,000 was made to purchase and develop Oak Tree land.
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Again, Escobedo apparently was told that he would not face personal
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liability. At the time of the loan, Escobedo had an income of
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$41,960, and Berkeley Development was a company formed solely for
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this transaction. Later, another $1,500,000 was loaned to Berkeley
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Development, though it was insolvent.
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Whittern/Turner, Danny Smith Construction, and Berkeley
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Development defaulted on the loans. The loss is estimated at
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$7,000,000. There does not appear to be an allegation that any of
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the defendants personally profited from the transactions.
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B.
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The RTC commenced its suit on April 1, 1992. The RTC filed a
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motion to strike certain affirmative defenses, including those
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based upon the statute of limitations. The RTC argued, at that
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time, that the adverse domination doctrine had tolled any statute
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of limitations. The court converted the motion to one for partial
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summary judgment.
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On July 9, 1993, the district court granted the RTC's motion
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and dismissed the affirmative defenses based upon the statute of
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limitations. By January 4, 1994, all five of the defendants had
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filed motions for reconsideration of the dismissal of the
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126
limitations defenses in light of FDIC v. Dawson, 4 F.3d 1303 (5th
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Cir. 1993). The district court reconsidered and reversed its
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earlier ruling on the defense. RTC v. Acton, 844 F. Supp. 307
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(N.D. Tex. 1994).
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Because of the court's refusal to toll the statute of
131
limitations in this case, all claims before April 5, 1987, were
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time barred. The RTC claims that all of the original loan
133
transactions in this case originated before that date.
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The RTC filed a report on the impact of the rulings at the
135
direction of the court on February 2, 1994. Clayton and Davidson
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also filed a statement with the court on that day. The RTC then
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filed a response. The RTC argued that the limitations ruling made
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it impossible for it to pursue the post-April 5, 1987, claims, as
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those transactions are "interrelated" with the pre-April 5, 1987,
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transactions. As a result, the RTC sought a final judgment on all
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the claims so that it could pursue this appeal. Defendants
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maintain that the RTC had $700,000 in claims that emanated from
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loans made after April 5, 1987, which it now has forfeited. Final
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judgment was entered dismissing the RTC's claims on the merits on
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March 15, 1994.
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II.
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On appeal, the defendants raise a number of preliminary issues
148
that are meritless. According to the RTC, the only issue for this
149
appeal is whether gross negligence is enough to establish adverse
150
domination. Courtney alleges that the RTC has failed to challenge
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151
a finding of fact, conclusion of law, or ruling of the district
152
court. The district court obviously concluded, as a legal matter,
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that the RTC had not established adverse domination. As a result,
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all of the RTC's claims that were dated prior to April 5, 1987,
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were dismissed. Courtney's claim is absurd.
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Clayton and Davidson ask this court to determine whether the
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RTC has waived the right to pursue claims dated after April 5,
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1987. The RTC may or may not have foregone the pursuit of possible
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post-April 5, 1987, claims in order to pursue this appeal, but this
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issue is not properly before us now.
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Defendants aver that the RTC failed adequately to plead
162
adverse domination and cannot raise the defense. There is no
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mention of this argument by the district court. It appears that
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the defendants are the ones who are now raising the argument for
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the first time on appeal. In any event, this court has held that
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a party need not plead adverse domination in its original or
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amended complaint. See Dawson, 4 F.3d at 1308. Defendants had
168
ample opportunity to present affidavit evidence and brief the issue
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for the district court. See id.
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III.
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We now review the summary judgment on the limitations issue.
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The RTC's claims are founded on Texas state law. To be validly
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pursued by the RTC, state law claims must be viable under the
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applicable state statute of limitations at the time federal
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regulators take over. Randolph v. RTC, 995 F.2d 611, 619 (5th Cir.
7

176
1993). In addition, the RTC must comply with the applicable
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federal limitations period when bringing suit. See Dawson, 4 F.3d
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at 1307; 12 U.S.C. � 1821(d)(14).
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The Texas statute of limitations for negligence and breach of
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fiduciary duty is two years. TEX. CIV. PRAC. & REM. CODE ANN.
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� 16.003(a). The same period applies to allegations of gross
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negligence. See American Centennial Ins. Co. v. Canal Ins. Co.,
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810 S.W.2d 246, 255 (Tex. App.))Houston [1st Dist.] 1991), aff'd in
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part, rev'd in part on other grounds, 843 S.W.2d 480 (Tex. 1992).
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The applicable state limitations period for all of the state claims
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in this case is two years. The conservatorship of HeritageBanc
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began on April 5, 1989. The RTC therefore is time-barred from
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pursuing claims arising from conduct that occurred prior to April
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5, 1987, unless limitations is tolled.
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This court in Dawson, 4 F.3d at 1310, held that in order for
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the government to obtain a tolling of limitations under the
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doctrine of adverse domination, it must prove two things. First,
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it must show that a majority of the bank's board was composed of
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alleged wrongdoers "during the period the [RTC] seeks to toll the
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statute." Id. Whether there exists a genuine issue of fact on
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this element is not in dispute on this appeal. Second, the RTC
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must show that those directors were "more than negligent for the
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desired tolling period." Id. at 1313.
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The district court found that limitations had not been tolled,
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because the RTC failed to allege that the directors had been more
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than negligent. Acton, 844 F. Supp. at 317. The court noted that
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202
the Dawson panel had refused to state exactly what level of
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culpability above simple negligence would be sufficient to toll the
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statute. The RTC argued that allegations of "gross negligence"
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were enough. The district court, however, found as a matter of law
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"that gross negligence is a degree of negligence for statute of
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limitations purposes." Id. As a result, the court decided that
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summary judgment was proper for defendants on the limitations
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issue.
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IV.
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The district court's dismissal of the RTC's claims was based
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solely upon the resolution of a pure question of law. We now
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decide whether meeting the gross negligence standard is sufficient
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to trigger the doctrine of adverse domination under Texas law.
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While the Dawson court specifically did not decide this issue, we
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are guided by Dawson.
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The level of culpability required to trigger adverse
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domination is a Texas state law question, though "Texas case law
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provides little guidance to this court on this issue." Dawson, 4
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F.3d at 1311. It is plain that no court in Texas has invoked the
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adverse domination doctrine based upon the "mere negligence" of a
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majority of the directors. Id.
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The court in Dawson held that the doctrine of adverse
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domination is "very narrow." Id. at 1312. According to the court:
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If adverse domination theory is not to overthrow the
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statute of limitations completely in the corporate
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context, it must be limited to those cases in which the
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culpable directors have been active participants in
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229
wrongdoing or fraud, rather than simply negligent.
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Id. We are given two pieces of relevant information. First, the
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relevant conduct must be more than "simply negligent," and second,
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it must amount to active participation in wrongdoing or fraud.
233
In Burk Royalty v. Walls, 616 S.W.2d 911 (Tex. 1981), the
234
court recounted the history of "gross negligence" in Texas. It
235
defined the standard as
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that entire want of care which would raise the belief
237
that the act or omission complained of was the result of
238
a conscious indifference to the right or welfare of the
239
person or persons to be affected by it.
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Id. at 920. In 1987, the Texas Legislature modified the common law
241
definition:
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"Gross
negligence"
means
more
than
momentary
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thoughtlessness, inadvertence or error of judgment. It
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means such an entire want of care as to establish that
245
the act or omission was the result of actual conscious
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indifference to the rights, safety, or welfare of the
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person affected.
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TEX. CIV. PRAC. & REM. CODE ANN. � 41.001(5). According to the Texas
249
Supreme Court, this statutory definition, as compared to the common
250
law definition, "emphasizes that the evidence must 'establish' the
251
defendant's actual conscious indifference, rather than raise the
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mere belief that conscious indifference might be attributable to a
253
hypothetical reasonable defendant." Transportation Ins. Co. v.
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Moriel, 879 S.W.2d 10, 20 (Tex. 1994) (emphasis added). This
255
definition of gross negligence plainly contains a subjective
256
component.
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There is no doubt that gross negligence and simple negligence
258
are separate standards at some level of analysis. Moreover, it is
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259
more difficult for a party to establish gross negligence than to
260
show simple negligence because of the subjective component of gross
261
negligence. See Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d
262
322, 326 (Tex. 1993). The Texas Supreme Court, however, has stated
263
that "[n]o exact line can be drawn between negligence and gross
264
negligence." Williams v. Steves Indus., 699 S.W.2d 570, 573 (Tex.
265
1985).
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Thus, while gross negligence certainly is "more" than simple
267
negligence under Texas law, the question is whether it is
268
sufficiently "more" to encompass the requirement that the directors
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have been active participants in wrongdoing or fraud. We conclude
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that it is not.
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While there is a difference between negligence and gross
272
negligence, it is only a difference of degree and not kind. See
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Trevino v. Lightning Laydown, Inc., 782 S.W.2d 946, 949 (Tex.
274
App.))Austin, 1990, writ denied). Gross negligence has a
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subjective component but not an element of intent. Wal-Mart
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Stores, 868 S.W.2d at 325. The plaintiff must show "actual
277
conscious indifference" rather than purposeful conduct. Id. at
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325-26; Moriel, 879 S.W.2d at 20. Gross negligence in Texas is
279
akin to criminal recklessness. Moriel, 879 S.W.2d at 20 n.10.
280
Dawson requires intentional conduct. The words "active
281
participants in wrongdoing or fraud" are more consistent with
282
intentional conduct than with negligent conduct. The fact that the
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Dawson court required not only fraudulent conduct or wrongdoing but
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also "active participation" therein is significant.1
284
285
Furthermore, the Dawson court was very critical of the way
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that the doctrine of adverse domination had been "liberally-
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applied" in other federal courts:
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Federal district courts have liberally applied the
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doctrine in favor of government-appointed receivers when
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they sue the directors of a failed bank, regardless of
291
the nature of the claims. The court in Hecht [RTC v.
292
Hecht, 818 F. Supp. 894, 896, 898 (D. Md. 1992)] applied
293
the doctrine in a case in which the RTC alleged breach of
294
fiduciary duty, negligence, gross negligence, and breach
295
of contract, but did not allege any form of self-dealing
296
or fraudulent conduct.
297
Dawson, 4 F.3d at 1312 (emphasis added). Our court in Dawson
298
rejected this liberal application. Therefore, the implication is
299
that some sort of self-dealing or fraudulent conduct is required
300
and that the level of culpability associated with that conduct is
301
distinct from gross negligence. The self-dealing or fraudulent
302
conduct must be more than negligent or grossly negligent to
303
constitute an active participation in wrongdoing or fraud.
304
This court's most recent relevant, though not controlling,
305
pronouncement came in RTC v. Seale, 13 F.3d 850 (5th Cir. 1994).
306
In that case, the RTC pled adverse domination and argued gross
307
negligence. The court, however, rejected the argument because the
1 For example, in Texas fraudulent conduct does not necessarily involve
an element of intent:
The essential elements of fraud do not include knowledge of
falsity or an intent to deceive except in certain circumstances.
Thus, a person who negligently makes a misrepresentation may be
liable for fraud, that is assuming other elements to be present,
fraud may be found where a person with a duty to know facts that
are susceptible of being known makes a false statement with
respect to those facts.
Donald P. Duffala, FRAUD AND DECEIT, 41 TEX. JUR. 3D 254 (citations omitted).
12

308
RTC's proof was no more than conclusory assertions. The court did
309
not state whether gross negligence would suffice, but we did say
310
that the "RTC has not created any fact issues of regulatory
311
violations or fraud, concealment or other illegal activity
312
amounting to more than negligence." Id. at 854-55.
313
One possible implication from this language is that some sort
314
of intentional conduct, rather than some degree of negligence, is
315
required. Of course, the court also may have understood gross
316
negligence to constitute enough culpability for the doctrine of
317
adverse domination and simply may have felt that the RTC had not
318
created an issue of fact under that standard. Either way, the
319
Seale court's pronouncement does not constitute a holding that
320
binds us on this issue.
321
Because we conclude that the difference between gross
322
negligence and negligence in Texas is more one of degree rather
323
than kind, and in light of the plain desire of the Dawson court to
324
limit the doctrine of adverse domination to "active participants in
325
wrongdoing or fraud," we reason that an allegation of gross
326
negligence is not enough to toll limitations in this case under the
327
doctrine of adverse domination. The district court, therefore, was
328
correct to dismiss the RTC's claims as time barred under the state
329
statute of limitations.
330
AFFIRMED.
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