United States v. Ron Pair Enterprises, Inc.

In 1984 Ron Pair Enterprises, Inc. (Ron Pair) (defendant) filed for Chapter 11 bankruptcy. The United States government (plaintiff) filed a prepetition claim of over $52,000 representing unpaid taxes, penalties, and postpetition interest, and a tax lien was placed on Ron Pair’s property. In 1985 Ron Pair paid off the government’s prepetition claim, except for the postpetition interest because the property that secured the claim was worth more than the principal debt Ron Pair owed, meaning the claim was oversecured. The government objected, arguing that it was entitled to the postpetition interest under § 506(b) of the Bankruptcy Code. The United States Bankruptcy Court for the Eastern District of Michigan overruled the objection. The district court reversed the bankruptcy court, holding that according to the plain language of § 506(b), the government was entitled to the postpetition interest. Ron Pair appealed, and the court of appeals reversed the district court. The court of appeals looked at the law before the Bankruptcy Code was enacted, which allowed postpetition interest on an oversecured claim only if a lien was consensual, and found that under this standard the government was not entitled to the postpetition interest, because the lien that had been placed on Ron Pair’s property was involuntary. The United States Supreme Court granted certiorari.