In re Durfee
APPEAL
Unpublished
Lender, which had a security interest in debtors' accounts receivable, appealed a bankruptcy court order finding it to be in contempt of court and in violation of the 11 U.S.C. § 362 automatic stay. Prepetition, debtors defaulted on their debt to lender and, pursuant to its rights under the parties' agreement, lender sent demand letters to debtor's accounts receivable, directing that payment be made to it rather than to debtor. Lender also obtained a prepetition restraining order to prevent debtors' use or disposal of collateral. Postpetition, debtors requested that lender advise their account debtors that the demand letters were no longer in effect. Lender refused to do so without a court order, and filed a motion to lift the stay, while debtors filed a motion to use cash collateral. Ultimately, the bankruptcy court granted lender relief from stay to pursue prepetition accounts, and granted debtors' request to use cash collateral consisting of postpetition accounts. Debtors blamed their inability to collect postpetition accounts on lender's prepetition demand letters and obtained an order to show cause why lender's failure to cancel the letters was not contempt of court. The bankruptcy court ruled that lender's inaction constituted contempt. On appeal, the district court noted that lender had not collected any prepetition accounts receivable after debtors filed their petition, although lender could now do so based on the order lifting stay. The district court rejected debtors' claim that lender's unrescinded demand letters constituted a continuing attempt to enforce a lien in violation of the stay. Finally, the district court rejected debtors' claim that lender had a duty to advise postpetition accounts receivable customers to pay debtor rather than lender, noting that such was the duty of the trustee. The order finding lender in contempt was reversed.