Dayton Securities Associates v. Securities Group 1980

United States Court of Appeals,

Eleventh Circuit.

No. 94-2858.

IN RE: The SECURITIES GROUP 1980, et al., Debtors.

DAYTON SECURITIES ASSOCIATES, et al., Plaintiffs-Appellants,

BEATRICE COOKSON, Plaintiff-Appellant,

v.

SECURITIES GROUP 1980; RICHARD SETH STALEY, Defendants,

LOUIS LOWIN, Trustee for the Securities Group 1980; THE MONETARY
GROU; THE SECURITIES GROUP, Defendants-Appellees.

Feb. 12, 1996.

Appeals from the United States District Court for the Middle
District of Florida. (Nos. 91-994-Civ-J-20, 85-214), Harvey E.
Schlesinger, District Judge, George J. Proctor, Bankruptcy Judge.

Before ANDERSON and CARNES, Circuit Judges, and OWENS*, Senior
District Judge.

ANDERSON, Circuit Judge:

The former limited partners of three limited partnerships

appeal the district court's affirmance of two decisions of the

bankruptcy court. 1 For the reasons set forth in this opinion, we

affirm in part, vacate in part, and remand for further proceedings.

I. BACKGROUND

A. Facts

The appellants are former limited partners in three New York

limited partnerships: The Securities Group ("TSG"), The Monetary

*
Honorable Wilbur D. Owens, Jr., Senior U.S. District Judge
for the Middle District of Georgia, sitting by designation.
1
See In re The Securities Group 1980, 124 B.R. 875
(Bankr.M.D.Fla.1991) and In re The Securities Group 1980, 91 B.R.
143 (Bankr.M.D.Fla.1988).
Group ("TMG"), and The Securities Group 1980 ("TSG 80")

(collectively, the "Limited Partnerships"). The Limited

Partnerships were the general partners of The Securities Groups

("Groups"), a New York general partnership. Groups and the Limited

Partnerships were formed by Charles Agee Atkins ("Atkins") to

engage in various investment activities.

The appellants became limited partners by making initial

capital contributions and agreeing to make additional capital

contributions to the Limited Partnerships (the "Additional Capital

Commitment"). The Additional Capital Commitment was memorialized

in both the signed limited partnership agreements and the

certificates of limited partnership, which were filed in New York

County, New York. If necessary to satisfy the recourse obligations

of the Limited Partnerships, all limited partners agreed to be

personally and severally liable to contribute to their respective

partnerships an amount up to three times their initial capital

contributions. The limited partners were obligated to make these

additional capital contributions on demand, after receiving a

written capital call from the Limited Partnerships.

The limited partners anticipated significant tax benefits as

a result of their investments. Specifically, the potential

liability created by the limited partners' Additional Capital

Commitment enabled the limited partners to take tax write-offs

equal to four times their cash investment. In 1982, however,

changes in the tax laws brought an end to these tax benefits, and

many limited partners wished to sell their partnership interests.

Atkins and others created a new partnership under New York
law, TSG Partners, to purchase the limited partnership interests in

TSG, TMG, and TSG 80. On November 15, 1982, TSG Partners offered

to purchase all of the interests of the limited partners of TSG,

TMG, and TSG 80 for an amount equal to 105 percent of the net asset

value of the Limited Partnerships as of September 30, 1982. TSG

Partners also offered to assume the selling limited partners'

future responsibility for the Additional Capital Commitment. The

limited partners were advised, however, that if they accepted the

tender offer they would still be responsible for the existing

liabilities and obligations of the Limited Partnerships. The

tender offer provided:

As soon as practicable after the Closing Date, the [Limited]
Partnerships intend to file amendments to their respective
Certificates of Limited Partnership to delete the Sellers as
Limited Partners. This will not affect the rights of then
existing creditors of the Partnerships, who may have the right
to make a direct claim against a Seller for up to the amount
of his Additional Capital Commitment if the Partnerships do
not pay such creditors.

In re Securities Group 1980, 124 B.R. at 879 (quoting TSG Partners'

tender offer) (emphasis added).

The vast majority of the limited partners accepted the tender

offer.2 On January 3, 1983, the appellants and TSG Partners

consummated the tender offer transaction. As partial consideration

for the sale, TSG Partners issued promissory notes to the

appellants. On April 1, 1983, TSG Partners paid the appellants

five percent of the note amount. No further amounts on the notes

2
The limited partners who did not accept the tender offer
and remained in the Limited Partnerships are not parties to this
litigation. The appellants are the limited partners who accepted
the tender offer. Where applicable, the appellants will be
referred to as the "former limited partners."
were paid.

B. Procedural History

On May 25, 1984, TSG, TMG, TSG 80, and Groups each filed

voluntary petitions for reorganization under Chapter 11 of the

Bankruptcy Code in the United States Bankruptcy Court for the

Middle District of Florida, Jacksonville Division. Louis Lowin was

appointed Chapter 11 trustee of the bankruptcy estates. On August

15, 1985, the trustee made a written demand on all limited partners

and former limited partners of TSG, TMG, and TSG 80 for payment of

a portion of their Additional Capital Commitment sufficient to

repay the Limited Partnerships' creditors in full. The limited

partners refused to honor the trustee's capital call.

The bankruptcy court confirmed Chapter 11 plans of controlled

liquidation for Groups, TSG, TMG, and TSG 80. Pursuant to such

confirmed plans, the trustee, as post-confirmation administrator of

the bankruptcy estates, began marshalling assets and property for

the benefit of the estates and their creditors. The present action

began as four adversary proceedings filed in bankruptcy court by

the trustee. The bankruptcy court consolidated the four adversary

proceedings for trial on April 5, 1988.

Following trial, the bankruptcy court entered final judgment

against the appellants. In re Securities Group 1980, 124 B.R. 875

(Bankr.M.D.Fla.1991). The court held the appellants jointly and

severally liable to contribute additional capital, in an amount up

to three times their initial capital contributions, to satisfy the

Limited Partnerships' recourse debt obligations that existed on the

date of the appellants' withdrawal. Id. at 897. The court found
that the appellants' withdrawal from the Limited Partnerships

became effective with respect to creditors on January 3, 1983, and

determined that the Limited Partnerships' unpaid obligations to

creditors as of January 3, 1983, totalled $16,114,038.00. Id. at

888. To this figure the court added $4,513,697.00 in "pre-judgment

interest," calculated at the New York statutory rate of 9% per

annum from December 18, 1987, through January 28, 1991, for a new

total of $20,627,735. Id. at 888; see also id. at 895. Finally,

the court deducted $2,140,751.38, the value of the assets of

Groups, TSG, TMG, and TSG 80 as of January 28, 1991, for a final

damages figure of $18,486,983.62. Id. at 889.3

The appellants appealed the bankruptcy court's judgment to the

district court. On June 10, 1994, the district court affirmed the

final judgment of the bankruptcy court in all respects, with little

discussion.

II. ISSUES ON APPEAL

In this opinion we address the following issues:

(A) Whether the bankruptcy court erred in holding the appellants
liable under New York Partnership Law § 106(1)(b).

(B) Whether the bankruptcy court erred in its calculation of
damages by holding the appellants liable for two lease claims,
where the leases were executed while the appellants were
limited partners but where the default in the rent occurred
after the appellants withdrew.

(C) Whether the bankruptcy court properly included a claim of the

3
Although the bankruptcy court's opinion is unclear, it
appears that the $2,140,751.38 figure constituted the "net"
assets of Groups, TSG, TMG, and TSG 80 after certain
administrative expenses had been deducted. The court also stated
that further administrative expenses, as they became finalized,
would be deducted from the $2,140,751.38 figure. Any remaining
partnership assets after the deduction of administrative expenses
would be distributed to creditors. Id. at 889.
 Federal Deposit Insurance Corporation in the damages
calculation.

(D) Whether the bankruptcy court erred when it added interest to
the allowed claims of creditors.

(E) Whether the bankruptcy court erred in failing to apply certain
settlement proceeds to reduce the appellants' overall
liability.

(F) Whether the bankruptcy court erred in subordinating the
appellants' RICO and securities fraud claims to the creditors'
claims against the Limited Partnerships.

III. STANDARD OF REVIEW

We review the bankruptcy court's factual findings for clear

error. In re Sublett, 895 F.2d 1381, 1383 (11th Cir.1990). We

review de novo conclusions of law by either the bankruptcy court or

the district court. Id.

IV. DISCUSSION

A. The Appellants Are Liable Under Section 106(1)(b), New York
Partnership Law

The bankruptcy court held the appellants liable to contribute

additional capital pursuant to New York Partnership Law § 106(1)(b)

(McKinney 1988), which makes limited partners liable to the

partnership for their promised capital contributions, on the

conditions stated in the publicly-filed limited partnership

certificate. We affirm the appellants' liability under §

106(1)(b).4 The certificates of limited partnership for TSG, TMG,

4
The record indicates that the appellants' potential
liability under § 106(1)(b) for the Additional Capital Commitment
overwhelmingly exceeds the aggregate amount of creditors' claims
against the Limited Partnerships, which have been fixed by a
confirmed, non-appealable Chapter 11 plan. In light of this
disposition, we need not address the other grounds upon which the
bankruptcy court and the district court held the appellants
liable. Specifically, we do not address the holding that the
limited partnership agreements imposed a contractual obligation
onto the appellants to make additional capital contributions.
and TSG 80 all state that, if necessary to satisfy the

partnership's recourse obligations, each limited partner has

agreed, upon demand, to make an additional capital contribution of

up to three times the limited partner's original investment. These

certificates were recorded publicly in New York County.

Accordingly, the capital of the Limited Partnerships upon which

creditors properly could rely included the limited partners' stated

obligation to make additional capital contributions. See Arno

Management Corp. v. 115 East 69th Assocs., 173 A.D.2d 258, 260, 569

N.Y.S.2d 656, 657 (1st Dept.1991) (holding that the information

contained in the certificate of limited partnership binds the

partnership and the partners with respect to third parties).

Section 106(1)(b) explicitly provides a means of enforcing a

limited partner's capital commitments that are expressed in the

certificate of limited partnership. It provides:

(1) A limited partner is liable to the partnership

. . . . .

(b) For any unpaid contributions which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.

N.Y. Partnership Law § 106(1)(b) (McKinney 1988). Pursuant to this

statutory provision and the terms of the publicly recorded

certificates, the trustee's capital call triggered each limited

partner's obligation to contribute additional capital to the

partnerships.

Nor do we address the holding that the appellants' sale of their
limited partnership interests in the tender offer transaction
constituted a "return of capital" under N.Y. Partnership Law §
106(4) (McKinney 1988).
 Although § 106(1)(b) speaks of a limited partner's liability

to the partnership, it is clear that § 106(1)(b) also serves to

protect the legitimate expectations of creditors with regard to a

limited partner's promised capital contributions. New York

Partnership Law § 106(3) provides:

The liabilities of a limited partner as set forth in this
section [§ 106] can be waived or compromised only by the
consent of all members; but a waiver or compromise shall not
affect the right of a creditor of a partnership, who extended
credit or whose claim arose after the filing and before a
cancellation or amendment of the certificate, to enforce such
liabilities.

N.Y. Partnership Law § 106(3) (McKinney 1988). Moreover, the fact

that the appellants sold their limited partnership interests more

than two years before the trustee's capital call does not affect

their liability for the additional contributions under § 106(1)(b).

New York Partnership Law § 108(7) provides:

The substitution of the assignee as a limited partner does not
release the assignor from liability to the partnership under
§§ 95 and 106.

N.Y. Partnership Law § 108(7) (McKinney 1988). Plainly, the

limited partners' assignment of their interests, and the

substitution of new limited partners, did not release the original

limited partners from their liability under § 106(1)(b)—at least

with respect to creditors who extended credit or whose claims arose

before the limited partnership certificates were amended.

The appellants attempt to avoid liability under § 106(1)(b)

by arguing that their obligation to contribute additional capital

was eliminated by fraud on the part of the partnerships and their

general partners. The appellants base their fraud defense upon the

following events. In 1987, Atkins and several other general
partners5 were convicted of income tax fraud arising out of

activities related to the partnerships. See United States v.

Atkins, 869 F.2d 135 (2nd Cir.) (affirming Atkins' conviction),

cert. denied, 493 U.S. 818, 110 S.Ct. 72, 107 L.Ed.2d 39 (1989).

Atkins and the others were convicted for using "rigged straddles"

and "rigged repurchase agreements" to create fraudulent income tax

losses, which were then passed through to investors such as the

appellants. Although the appellants apparently were unaware of the

general partners' criminal wrongdoing, the Internal Revenue Service

disallowed all of the appellants' previously-taken tax losses.

The appellants' fraud argument relies heavily on dicta

expressed in Partnership Equities, Inc. v. Marten, 15 Mass.App.Ct.

42, 443 N.E.2d 134 (1982), which involved § 17(1)(b) of the 1916
6
Uniform Limited Partnership Act ("ULPA"). The Partnership

Equities case involved two limited partners who had agreed to make

annual capital contributions to a partnership engaged in the

construction business. Alleging that the general partners had

breached a term of the limited partnership agreement, the limited

partners refused to make their scheduled capital contributions.

The court held that, despite any alleged breach of the limited

partnership agreement by the general partners, ULPA § 17(1)(b) and

the publicly-filed certificate of limited partnership obligated the

limited partners to make their capital contributions as scheduled.

5
Other general partners, including Robert Gubitosi, Kenneth
Kaltman and Steven Hageman, entered guilty pleas for the same
conduct.
6
New York Partnership Law § 106 is identical to § 17 of the
1916 Uniform Limited Partnership Act.
See id. 443 N.E.2d at 134.

The court explained the difference between a limited

partnership agreement, which is a bilateral contract between

partners, and a certificate of limited partnership, which is a

publicly recorded document relied upon by creditors and others.

Under traditional contract law principles, a general partner's

breach of a limited partnership agreement might excuse a limited

partner's further performance under the agreement. However, ULPA

§ 17(1)(b) protects creditors who rely on the certificate of

limited partnership, a public expression of the limited partners'

obligation to contribute additional resources to the partnership.

Id. at 136. In light of such creditor reliance, a material breach

of the limited partnership agreement—including mismanagement or

unauthorized acts of the general partners, or disappointed

expectations—would not excuse a limited partner's commitment to

contribute additional capital on the conditions stated in the

certificate. Id. at 138; see also Arno, 173 A.D.2d at 260, 569

N.Y.S.2d at 657 ("Where ... the liability of a limited partnership

to a third party is in issue and the certificate of limited

partnership materially contradicts an agreement by and among the

partners, the partnership and its members are estopped to dispute

the information contained in the certificate.").

The limited partners in the Partnership Equities case were not

excused from their statutory obligation to contribute additional

capital. Nevertheless, the court commented that, under some

circumstances, a limited partner might avoid payment of promised

contributions. The court stated:
 Although the payment obligation imposed by statute may not be
absolute, the circumstances in which payment of further
capital contributions are excused are few and they are narrow.
Payment may be excused when there has occurred a failure to
meet a condition expressed in the certificate of limited
partnership or when there has been a profound failure of
consideration such as a repudiation of, or fraud incident to,
the essentials of the venture to which the subscription was
made.

Id. 443 N.E.2d at 136. The appellants argue that the general

partners' tax fraud convictions, which caused the appellants to

lose their previously-recognized tax losses, constitute "a

repudiation of, or fraud incident to" the essential purpose of the

Limited Partnerships. Accordingly, they seek to be excused from

their statutory obligation to repay the Limited Partnerships'

creditors.

We need not decide whether to follow the dicta expressed in

Partnership Equities. In light of § 106(1)(b)'s strong statutory

purpose to favor creditors over limited partners, we readily

conclude that the appellants have not demonstrated the degree of

fraud that might implicate the dicta in Partnership Equities.

Therefore, we hold that the bankruptcy court committed no error in

holding the appellants liable to make additional contributions

pursuant to New York Partnership Law § 106(1)(b).

B. The Lease Claims

The bankruptcy court held the appellants liable only for

those obligations of the Limited Partnerships that were outstanding

as of the date that the appellants withdrew; the court found that

the appellants' withdrawal from the Limited Partnerships became
 7
effective on January 3, 1983 (the "Withdrawal Date"). The

appellants argue that the bankruptcy court erred by holding them

liable for two lease claims; they argue that those debts "arose"

after the Withdrawal Date.

The first disputed lease claim was asserted by The Equitable

Life Assurance Society of the United States ("The Equitable"). On

December 31, 1979, Groups leased from The Equitable office space at

500 Park Avenue in New York. The lease became effective on

February 15, 1980, and would expire on March 1, 1990. In July

1983, Groups became in arrears on its lease payments to The

Equitable. The second disputed lease claim was asserted by 767

Third Avenue Associates ("767 Third Avenue"). On August 9, 1982,

Groups, TSG, TMG, and TSG 80 all agreed jointly and severally to

guarantee a five year lease entered by Groups' affiliate, Ameribond

Securities Associates ("Ameribond"). Ameribond entered the lease

in 1981, and defaulted under the lease in August 1983.

The bankruptcy court held the appellants liable for the debts

owed to The Equitable and to 767 Third Avenue, reasoning that the

landlords and the Limited Partnerships entered the leases long

7
In its findings of fact, the bankruptcy court determined
that "[t]he rights of creditors against the defendants were not
affected until April and July 1983 when Limited Partnership
Certificates were amended to show the withdrawal of the
defendants." In re Securities Group 1980, 124 B.R. at 879 n. 3.
This proposition is certainly correct. However, the bankruptcy
court analyzed the lease claims as if the limited partners'
withdrawal became effective immediately on the date that the
tender offer was consummated, January 3, 1983. See, e.g., id. at
892. It is not apparent to us that either of the lease claims
for which the appellants were held liable would be treated
differently if the limited partnership certificates were amended
on January 3, 1983. Therefore, we will analyze the lease claims
under the assumption that the limited partnership certificates
were actually amended on January 3, 1983.
before the appellants' withdrawal. The appellants assert that,

under New York law, a debt under a lease does not "arise" until the

default in rent occurs. Because the Limited Partnerships did not

miss any rent payments until after the Withdrawal Date, the

appellants argue that they cannot be held liable for the lease

claims.

The bankruptcy court correctly rejected the appellants'

argument. At the time the leases were entered, the certificates of

limited partnership stated that, if necessary to satisfy the

recourse obligations of the Limited Partnerships, the appellants

agreed to contribute an amount up to three times their initial

capital contributions. Because § 106(1)(b) obligated the

appellants to contribute additional capital in accordance with the

terms of the certificates, the landlords were entitled to rely on

the certificates in determining whether to extend credit by leasing

their properties. It would make little sense to allow the

appellants to deprive the landlords of their right to rely on the

certificates by withdrawing from the partnerships while the leases

were still in effect. New York Partnership Law § 106(3) prevents

such an absurd result.

Section 106(3) explicitly protects creditors "who extended

credit or whose claim arose after the filing and before a

cancellation or amendment of the certificate." N.Y.Partnership Law

§ 106(3) (McKinney 1988) (emphasis added). Under this statutory

provision, even if a debt to a partnership creditor "arises" after

the limited partner's withdrawal, the withdrawn limited partner is

nevertheless liable for the debt if the creditor "extended credit"
before the amendment of the limited partnership certificate. In

this case, the landlords "extended credit" long before the

certificates were amended to reflect the appellants' withdrawal

from the Limited Partnerships. Thus, even if the debts under the

leases "arose" after the appellants withdrew, the appellants are

liable for the lease claims under the "extension of credit" prong

of § 106(3).

Our holding with respect to the lease claims is compelled by

the language of §§ 106(1)(b) and 106(3), and we believe that the

courts in New York would reach the same result. In Whitley v.

Klauber, 51 N.Y.2d 555, 435 N.Y.S.2d 568, 416 N.E.2d 569 (1980),

New York's highest court explained the "strong" and "crystal clear"

creditor protection policy underlying New York Partnership Law §

106, although in a different context. In light of the strong

statutory policy to protect creditors, the court broadly construed

§ 106(4).8 Whitley involved a partnership in which all of the

general and limited partners sold their partnership interests to a

third party in exchange for some stock. The plaintiff, who became

a creditor of the partnership prior to the sale, sought to hold the

limited partners liable under § 106(4) on the theory that they had

received a "return of capital." The court agreed that the limited

8
Section 106(4) provides:

When a contributor has rightfully received the return
in whole or in part of the capital of his contribution,
he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest,
necessary to discharge its liabilities to all creditors
who extended credit or whose claims arose before such
return.

N.Y. Partnership Law § 106(4) (McKinney 1988).
partners had received a "return of capital" under § 106(4), even

though they sold their partnership interests to a third party. See

id. 435 N.Y.S.2d at 571, 416 N.E.2d at 572 ("[P]rimary in the

determination whether a particular transaction constitutes a return

of capital is not the limited partner's purpose or intent or how

the transaction is structured but its effect upon partnership

creditors.").

The Whitley court supported its holding by referring to

Kittredge v. Langley, 252 N.Y. 405, 169 N.E. 626 (1930) (Cardozo,

C.J.), another case in which the interests of a partnership's

creditor prevailed over those of its limited partner. Kittredge

held that a partnership creditor may hold a limited partner liable

to the extent of his withdrawn capital contribution even "where, at

the time of the withdrawal of his capital contribution, the assets

left with the general partners are sufficient at a fair valuation

to discharge the outstanding liabilities, but have become

inadequate thereafter." Id. 169 N.E. at 631. The court reasoned

that the limited partner, not the creditor, should bear the risk

that the partnership's assets could become worthless:

A case may be supposed where a special partner receives in
cash his capital contribution, the general partners retaining
property sufficient at a fair valuation to pay the debts in
full, but the next day or the next hour the property is
destroyed by earthquake, flood, or fire. The conclusion is
hardly thinkable that the special partner may keep the cash,
and leave the creditors with nothing. His contribution, like
the capital of a corporation, and to a similar extent, is to
be treated as a trust fund for the discharge of
liabilities....

Id. The strong policy to protect creditors cited in Whitley and

Kittredge is also evident in §§ 106(1)(b) and 106(3). Therefore,

we hold that the appellants are liable for the two disputed lease
claims.

We disagree with the appellants' argument that 59th and Park

Assocs. v. Inselbuch, 68 A.D.2d 838, 414 N.Y.S.2d 537 (1st

Dept.1979) compels a different result. In Inselbuch, a partnership

in 1969 executed a fifteen year lease for two floors of a building.

One of the partners at the time the lease was entered, Klineman,

withdrew from the partnership in 1972. In March 1974, the

remaining partners executed a "surrender agreement" with the

landlord, under which the landlord purported to reserve all rights

under the lease. Some years later, the landlord sued several

former partners (including Klineman) to recover unpaid rent that

became due after March 1974. Because the 1974 surrender agreement

superseded the 1969 lease, the court held that the landlord's

rights "could be derived only from the terms of the surrender

agreement...." Id., 68 A.D.2d at 839, 414 N.Y.S.2d at 539.

Because Klineman was not a party to the surrender agreement, the

court held that Klineman could not be bound by its terms. Id. See

also id. (Fein, J., concurring) ("With respect to Klineman, I

concur only upon the ground that the execution and delivery of the

surrender agreement, at a time when there was no default and when

he was no longer a partner, terminated any contingent liability he

may have had since it affected whatever rights he had under the

lease, without his consent."); id., 68 A.D.2d at 840-41, 414

N.Y.S.2d at 540 (Lupiano, J., concurring) (explaining that because

"the termination of the lease effectively discharged Klineman from

any of his obligations thereunder," and because Klineman was not a

party to the surrender agreement, there was "no basis to predicate
liability against Klineman").

Thus, Inselbuch 's holding is that the surrender agreement

terminated any rights the landlord might have had against Klineman

under the lease. The majority opinion, however, also states that

Klineman could not be held liable under the lease because "there

was no debt at the time of [Klineman's] withdrawal." Id., 68

A.D.2d at 838-39, 414 N.Y.S.2d at 538. The court explained that,

under New York law, the obligation in a lease to pay rent does not

create a "debt" until the time stipulated for payment arrives. See
id.9 Thus, Klineman could not be held liable for the missed rent

payments, despite having been a partner when the lease was signed,

because he withdrew from the partnership before the time stipulated

for payment. Id.

We decline the appellants' invitation to apply this dicta from

Inselbuch to the instant situation, primarily because Inselbuch

does not address the effect of New York Partnership Law § 106. As

we have stated, supra, § 106(3) makes a former limited partner

9
The court cited Barbro Realty Co. v. Newburger, 53 A.D.2d
34, 385 N.Y.S.2d 68 (1st Dept.1976) for this proposition. Barbro
held that a partner who joins a partnership during the term of a
pre-existing lease is personally liable for the partnership's
rent payments while he or she is a partner. Id., 53 A.D.2d at
36, 385 N.Y.S.2d at 70 ("The lease agreement may have been
executed prior to the entry of the defendants into the
partnership, but the defendants, who were partners at the time of
the default, may be held personally liable therefor." (citing
Glassman v. Hyder, 23 N.Y.2d 354, 296 N.Y.S.2d 783, 785, 244
N.E.2d 259, 261 (1968) (holding that future rent is not
attachable under statute providing that a debt is not attachable
unless it is certain to become due) and In re Ryan's Estate, 294
N.Y. 85, 60 N.E.2d 817, 821 (1945) (life beneficiary of a trust,
who was a party to a lease and who died before lease term
expired, did not fail to pay his debts during his lifetime; the
lease's covenant to pay rent did not become a "debt" until the
rent was due, and no rent was unpaid at the time of his death))).
personally liable to a partnership creditor who "extended credit"

to the partnership prior to the amendment of the limited

partnership certificate—even if the creditor's claim "arises" after

the certificate is amended. Moreover, Inselbuch is a lower court

opinion that was issued before Whitley v. Klauber, 51 N.Y.2d 555,

435 N.Y.S.2d 568, 416 N.E.2d 569 (1980) articulated the "crystal

clear" creditor protection policy underlying New York Partnership

Law § 106.

Accordingly, we hold that the bankruptcy court did not err in

holding the appellants liable for the lease claims asserted by The

Equitable and 767 Third Avenue.

C. The Federal Deposit Insurance Corporation's Claim

In addition to disputing the lease claims, the appellants

argue that the bankruptcy court improperly held them liable for a

$7,014,103 claim of the Federal Deposit Insurance Corporation as

receiver of the Southern California Savings and Loan Association.

The bankruptcy court's order allowing the FDIC's claim was tried

separately. On appeal, the district court reversed and disallowed

the FDIC's claim in its entirety. This Court affirmed the district

court. In re The Securities Groups, Dayton Securities Assocs., et

al. v. Federal Deposit Insurance Corp., No. 92-2572, 35 F.3d 576

(11th Cir. August 31, 1994).

The judgment against the appellants must be reduced by

$7,014,103 to reflect the disallowed claim. We VACATE that portion

of the lower courts' opinions allowing the FDIC's claim and REMAND

with instructions to modify the judgment accordingly.

D. Interest
 In calculating the damages for which the appellants were to

be held liable, the bankruptcy court determined that the Limited

Partnership obligations incurred prior to January 3, 1983

(including the now-disallowed FDIC claim) amounted to $16,114,038.

The bankruptcy court then added $4,513,697 in interest to this

figure. See In re The Securities Group 1980, 124 B.R. at 888-89,

895. The appellants contend that the bankruptcy court committed

reversible error when it added this interest.

The bankruptcy court derived its authority to add interest

from New York Civil Practice Law and Rules § 5001 (McKinney 1992),

which generally allows courts to award pre-judgment interest on

damages. After determining the pre-judgment interest rate in New

York to be 9 percent per annum, the court picked a "reasonable

intermediate date" of December 18, 1987, from which to compute the

interest. Under this formula, the amount of interest between

December 18, 1987, and January 28, 1991, totalled $4,513,697.

The appellants point out that the Limited Partnerships filed

voluntary petitions for Chapter 11 reorganization on May 25, 1984.

Thus, they argue, the bankruptcy court's calculation of interest

from 1987 through 1991 constitutes an improper award of

"post-petition" interest on the creditors' claims. The trustee

concedes that the bankruptcy court's award of interest was

calculated "post-petition."10 Nonetheless, the trustee urges us to

10
The trustee also argues that the award of interest was
proper under the "return of capital" theory of liability, which
we declined to address in this opinion. See supra note 4. The
trustee's argument misses the mark. Under New York Partnership
Law § 106(4), a limited partner who withdraws his capital
contribution to the partnership may be required to put it back
with interest, but only if the return of the withdrawn capital
affirm the bankruptcy court's award of interest under an "abuse of

discretion" standard of review. See In re San Joaquin Estates,

Inc., 64 B.R. 534, 536 (9th Cir. BAP 1986) ("A bankruptcy court's

decision to award [post-petition] interest is a matter of

discretion and is subject to reversal only for an abuse of

discretion. The award of post-petition interest is dependent upon

the equities of the case." (citations omitted)).

We decline the trustee's invitation to affirm the bankruptcy

court's award of post-petition interest under the circumstances of

this case. The bankruptcy court was apparently unaware that its

award of "pre-judgment" interest at the New York rate actually

constituted "post-petition" interest. The bankruptcy court even

stated that its opinion was written "without prejudice to the

rights of creditors to apply to this court for post-petition

interest." Under these circumstances, we cannot determine whether

the bankruptcy court abused its discretion by awarding

"post-petition" interest.

Accordingly, we VACATE that portion of the lower courts'

opinions awarding the trustee $4,513,697.00 in interest and REMAND

for further proceedings not inconsistent with this opinion.11

(plus interest) is necessary to discharge the partnership's
liabilities to its creditors. Under § 106(4), therefore,
interest is added to the withdrawn capital contributions, not to
the creditors' claims. The bankruptcy court's conclusion of law
with respect to the interest issue under § 106(4) has nothing to
do with its separate conclusion of law with respect to general
pre-judgment interest. See In re Securities Group 1980, 124 B.R.
at 894 (discussing interest under § 106(4) and pre-judgment
interest as separate conclusions of law).
11
On remand, we instruct the bankruptcy court to take into
account that no interest may be calculated based upon the
now-disallowed FDIC claim.
E. Proceeds of Settlements

Although the bankruptcy court did not make findings of fact

concerning the amount of settlements it may have received from

parties alleged by the trustee to be jointly and severally liable

with the appellants, the appellants state that the court received

at least $4,845,650.08 in such settlements. According to the

appellants, the bankruptcy court applied only $2,140,751.38 from

these alleged settlements to reduce the appellants' liability;

apparently, the court applied the remaining $2,704,898.70 to cover

certain administrative expenses of the Limited Partnerships'

bankruptcies. See In re The Securities Group 1980, 124 B.R. at 889

& n. 26. The appellants contend that the bankruptcy court's

treatment violates New York General Obligations Law § 15-103

(McKinney 1989) (stating that any consideration received by a

creditor in settlement of a debt discharges, to the extent of the

amount received, the liability of all other persons jointly liable

to the creditor for the loss). The appellants' argument is vague.

After considerable effort to decipher the appellants' meaning, we

believe they are attempting to make the following argument: that

the extent of the total liability (for additional contributions) of

all former limited partners is the amount of the obligations to

creditors as of the Withdrawal Date, and that any amounts collected

by the trustee from other former limited partners would reduce the

total amount for which the appellants are liable. The appellants

apparently deduce from the foregoing that they should be

responsible for no administrative expenses. Not only do the

appellants fail to articulate the foregoing proposition clearly,
they cite no authority for the proposition, and we do not find it

intuitively obvious. Neither the bankruptcy court nor the district

court addressed such an argument.12 To the extent that the

foregoing is the argument which the appellants intend to assert, we

conclude that their lack of clarity and lack of support in their

initial brief is sufficient to warrant our refusal to entertain the

argument. We deem the argument abandoned. See Beckwith v. City of

Daytona Beach Shores, Fla., 58 F.3d 1554, 1561 n. 11 (11th

Cir.1995) ("Generally, issues not clearly raised in the briefs are

considered abandoned.").13

F. Subordination of the Appellants' Counterclaims

In the bankruptcy court, the appellants filed counterclaims

against the Limited Partnerships based upon violations of federal

securities laws and the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. § 1961, et seq. ("RICO").

Essentially, the appellants alleged that their purchase of limited

partnership interests was tainted by criminally fraudulent activity

by the general partners. The appellants sought to apply the

recovery on their counterclaims as a "set off" against their

liability to contribute additional capital to the Limited

Partnerships. See 11 U.S.C. § 553 (under certain circumstances,

allowing a creditor "to offset a mutual debt owing by such creditor

12
The appellants' brief to the district court on this matter
is almost identical to their brief to this court. It is not
surprising to us that the district court failed to address this
argument.
13
The appellants also state in their brief that the trustee
has received additional settlements subsequent to the bankruptcy
court's entry of final judgment. We leave the disposition of the
proceeds of these settlements to the bankruptcy court on remand.
to the debtor"). The bankruptcy court rejected the appellants'

counterclaims on the merits. See In re The Securities Group 1980,

124 B.R. at 901. In the alternative, the court held that the

appellants were not entitled to set off their purported damages

against their liability to the creditors of the Limited

Partnerships. In denying the appellants' alleged right to a set

off, the court drew analogies to mandatory subordination under 11

U.S.C. § 510(b) (providing that certain claims arising from the

purchase of a "security" of the debtor "shall be subordinated to

all claims or interests that are senior to or equal the claim or

interest represented by such security") and equitable subordination

under 11 U.S.C. § 510(c)(1) (authorizing the bankruptcy court

"under principles of equitable subordination [to] subordinate for

purposes of distribution all or part of an allowed claim to all or

part of another allowed claim"). See id. at 903-07.

The appellants concede that the right to a set off under § 553

is merely permissive and subject to the discretion of the

bankruptcy court. In re Diplomat Electric, Inc., 499 F.2d 342, 346

(5th Cir.1974) (holding that the right to a set off in bankruptcy

is discretionary and reviewing the denial of a set off for "clear

abuse").14 In this case, had the bankruptcy court allowed the

appellants' set off claims, the assets available to satisfy the

Limited Partnerships' creditors would have been reduced dollar for

dollar by the amount of the damages set off. In light of this

14
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir.1981) (en banc), this court adopted as binding precedent all
of the decisions of the former Fifth Circuit handed down prior to
the close of business on September 30, 1981.
situation, the bankruptcy court determined that the equities

favored the Limited Partnerships' creditors, who relied on the

limited partners' public promise to contribute additional capital.

Under all the circumstances, including the strong policy underlying

the partnership law of New York to protect creditors as compared to

the capital contribution of partners, 15 we cannot say that the

bankruptcy court abused its discretion in denying the appellants'

set off claims under these circumstances.16

V. CONCLUSION

We AFFIRM the order of the district court insofar as it

affirms the bankruptcy court's judgment that the appellants are

liable pursuant to New York Partnership Law § 106(1)(b). We AFFIRM

the order of the district court insofar as it affirms the

bankruptcy court's judgment that the appellants' liability includes

the lease claims asserted by The Equitable and by 767 Third Avenue.

We VACATE the order of the district court insofar as it affirms the

bankruptcy court's judgment that the appellants' liability includes

the FDIC's claim and REMAND with instructions to modify the

judgment accordingly. We VACATE the order of the district court

insofar as it affirms the bankruptcy court's judgment that the

appellants' liability includes $4,513,697 in interest and REMAND

with instructions to modify the judgment in a manner not

15
See discussion of Whitley v. Klauber, 51 N.Y.2d 555, 435
N.Y.S.2d 568, 416 N.E.2d 569 (1980) and Kittredge v. Langley, 252
N.Y. 405, 169 N.E. 626 (1930) in Part IV.B., supra.
16
In light of this disposition, we need not address any of
the appellants' other arguments, including, inter alia, the
merits of the appellants' securities fraud and RICO
counterclaims.
inconsistent with this opinion. Finally, we AFFIRM the order of

the district court insofar as it affirms the bankruptcy court's

judgment denying the appellants' claim for a set off.

AFFIRMED in part, VACATED and REMANDED in part.17

17
Appellees' motion to dismiss this appeal as to Kirschner
Brothers and Ernest E. Norris is DENIED.