When a Rebate Isn’t a Rebate under PACA

Meuers Law Firm v. Reasor’s, LLC is a recent case from the United States Court of Appeals for the Tenth Circuit that addresses an interesting issue under the Perishable Agricultural Commodities Act (PACA), i.e., whether PACA creditors who are beneficiaries of the PACA trust can recover from a PACA debtor amounts that the debtor claimed were rebates due under its contractual arrangement with the creditor. Put another way, in an action under PACA between a supplier of produce and a buyer, can the buyer claim a credit for amounts that it claimed were due it from the supplier as rebates for purchases made?

The majority (2-1) opinion held that both under PACA and under common law trust principles a debtor cannot claim a set-off for alleged rebates due. In a lengthy and scholarly opinion the judges held that the claimed set-offs were not transfers “for value,” and therefore the debtor was not a bona fide purchaser. The supplier was entitled to recover the full amount of its claim, and the debtor could not reduce that amount by subtracting from it the amounts of the rebates to which it believed it was entitled.

In a vigorous and lengthy dissent, Judge Carson, relying on a case from the Second Circuit, opined that because the rebates were not prohibited or unlawful under PACA there is no reason why they should not be credited against the full amount claimed by the supplier. While the dissent’s reasoning is initially appealing, if not entirely convincing, it was undermined, as the majority contended, by a subsequent decision from the Second Circuit Court of Appeals that cast doubt on whether the earlier decision was still good law. Even the dissent seemed to admit this, when it stated that, “the Second Circuit got it right the first time around,” thereby implying that the later case, cited by the majority, was indeed contrary to the Second Circuit’s earlier opinion upon which the dissent was in large part based.