HCI Distrib., Inc. v. Peterson

110 F.4th 1062

HCI DISTRIBUTION, INC.; Rock River Manufacturing, Inc., Plaintiffs-Appellees v. Douglas Joseph PETERSON, Nebraska Attorney General; Tony Fulton, Nebraska Tax Commissioner, Defendants Michael Hilgers, Nebraska Attorney General; Glen A. White, Interim Nebraska Tax Commissioner, Defendants-Appellants.

No. 23-2311

United States Court of Appeals, Eighth Circuit

Submitted: March 12, 2024

Filed: August 2, 2024

Appeal from United States District Court for the District of Nebraska — Omaha

Counsel who presented argument on behalf of the appellant and appeared on the brief was Eric James Hamilton, AAG, of Lincoln, NE. The following attorneys also appeared on the appellant brief; John J. Schoettle, AAG, of Lincoln, NE., Daniel J. Muelleman, AAG, of Lincoln, NE., Joshua E. Dethlefsen, AAG, of Lincoln, NE.

Counsel who presented argument on behalf of the appellee and appeared on the brief was Andre Robert Barry, of Lincoln, NE. The following attorney also appeared on the appellee brief; Calandra Skye McCool, formerly of Omaha, NE.

Before BENTON, ERICKSON, and KOBES, Circuit Judges.

KOBES, Circuit Judge.

The State of Nebraska requires tobacco product manufacturers to join a Master Settlement Agreement or put money in escrow based on the number of cigarettes they sell. Two tribal companies sued, arguing that the Indian Commerce Clause, U.S. Const. art. I, § 8, cl. 3, bars the State from enforcing this requirement, among others, against cigarettes they sell in Indian country. The district court enjoined enforcement for cigarettes sold on the Tribe's reservation. Nebraska appeals, and we reverse in part and remand with instructions to tailor the injunction.

I.

In the 1990s, nearly every state (including Nebraska) sued the largest cigarette manufacturers to recoup healthcare costs caused by tobacco-related illnesses. Star Sci., Inc. v. Beales, 278 F.3d 339, 343 (4th Cir. 2002). These lawsuits ended in a Master Settlement Agreement (MSA). Grand River Enters. Six Nations, Ltd. v. Beebe, 574 F.3d 929, 933 (8th Cir. 2009). The MSA bans certain advertising practices, restricts lobbying, and requires cigarette manufacturers "to make payments to the settling states for all future cigarette sales in perpetuity." Id. In exchange, the settling states released their pending claims and any similar future ones. Id.

Since then, dozens of cigarette manufacturers have joined the MSA, agreeing to the restrictions in exchange for the releases. Id. Participating manufacturers shoulder higher costs, of course, because they pay the settling states based on their "relative national market share." Id. To protect the manufacturers' market share and profitability, the states agreed to enact statutes that neutralize the MSA's cost disadvantages. Star Sci., 278 F.3d at 345-46.

Nebraska did just that. Its Escrow Statute requires tobacco product manufacturers to either join the MSA or place money in escrow for each cigarette sold—an option designed to track the MSA's costs. Neb. Rev. Stat. §§ 69-2703(1)-(2)(a), (2)(b)(ii), 69-2702(14). Under the escrow option, the manufacturer receives the interest that accrues on its funds, and the funds are generally returned after 25 years. See § 69-2703(2)(b), (b)(iii). But the money may also be paid out to satisfy a judgment or settlement on any claim (of the kind released in the MSA) Nebraska brings against the manufacturer. § 69-2703(2)(b)(i). In addition to making the escrow payments, manufacturers must post a bond of $100,000 or the highest escrow amount due from the manufacturer over the past 20 calendar quarters—whichever is greater. § 69-2707.01(1)-(2). The State may draw from the bond to recover delinquent payments. § 69-2707.01(5). Although Indian tribes may "seek release of escrow [funds] deposited ... on cigarettes sold on an Indian tribe's Indian country to its tribal members" by entering into an agreement with the State, these agreements do not eliminate their bond obligations. § 69-2703(2)(b)(iv).

Nebraska also requires tobacco product manufacturers to be listed in its Directory of Certified Tobacco Product Manufacturers and Brands. § 69-2706(1)(a). To be listed, manufacturers must certify that they have complied with the Escrow Statute, § 69-2706(1)(a), and manufacturers that choose not to join the MSA must also certify that they have posted the appropriate bond,¹ § 69-2706(d)(vi).

With this statutory framework in mind, we turn to the Winnebago Tribe of Nebraska, a federally recognized Indian Tribe that governs itself under the Indian Reorganization Act of 1934, 25 U.S.C. § 5123. In the mid-1990s, the Tribe founded Ho-Chunk, Inc., to diversify its revenue stream and develop economic opportunities for its members. Two of Ho-Chunk's wholly owned subsidiaries are the plaintiffs, Rock River Manufacturing, Inc., and HCI Distribution, Inc.

Rock River is a cigarette manufacturer that purchases an off-reservation tobacco blend and then rolls and packages it on-reservation. Historically, it has also imported cigarettes from other manufacturers. It employs a handful of tribal members, plus a few nonmembers, and has been operating at a loss for nearly a decade. HCI Distribution purchases cigarettes from Rock River and sells them to tribal retailers (casinos and convenience stores) as well as others throughout the country. It too employs only a few tribal members and operates at a loss. In 2016, the companies entered into a Universal Tobacco Settlement Agreement with the Tribe, much of which parallels the MSA.

To fend off the threat of state enforcement, Rock River and HCI Distribution sued Nebraska,² seeking an injunction barring it from enforcing its escrow and bond requirements as to cigarettes they sell in Indian country (on its reservation and the Omaha Tribe of Nebraska's reservation). They argued that these requirements infringe on the Tribe's sovereignty, which is protected by the Indian Commerce Clause. After extensive discovery, the parties filed cross motions for summary judgment. The district court granted them in part and denied them in part: it balanced the state, tribal, and federal interests at stake under White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), and concluded that Nebraska could enforce its escrow and bond requirements against Rock River and HCI Distribution for cigarettes they sell on the Omaha Reservation but not for the ones they sell on their own reservation. Only Nebraska appeals.

II.

"We review de novo a district court's ruling on cross motions for summary judgment." Green v. Byrd, 972 F.3d 997, 1000 (8th Cir. 2020). Nebraska asks us to direct the entry of summary judgment in its favor, which we may do if there is "no genuine dispute as to any material fact" and it is "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

A.

This case puts us at the crossroads of state regulatory authority and tribal self-government. Early in our Nation's history, the Supreme Court viewed Indian country as distinct from state territory and thus free from the force of its laws. Organized Vill. of Kake v. Egan, 369 U.S. 60, 72, 82 S.Ct. 562, 7 L.Ed.2d 573 (1962) (discussing the "general notion" in the early to mid-1800s). But that view has long since "yielded to closer analysis." Id. "Since the latter half of the 1800s, the Court has consistently and explicitly held that Indian reservations are part of the surrounding State," Oklahoma v. Castro-Huerta, 597 U.S. 629, 636, 142 S.Ct. 2486, 213 L.Ed.2d 847 (2022) (cleaned up) (citation omitted), and that state law may apply "even on reservations," Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148, 93 S.Ct. 1267, 36 L.Ed.2d 114 (1973). That is not to say that state law applies to the same degree on a reservation as it does off it. Nevada v. Hicks, 533 U.S. 353, 362, 121 S.Ct. 2304, 150 L.Ed.2d 398 (2001). After all, "Indian tribes retain attributes of sovereignty over both their members and their territory." Bracker, 448 U.S. at 142, 100 S.Ct. 2578 (cleaned up) (citation omitted).

The "anomalous" and "complex character" of Indian tribes' "semi-independent position" as well as Congress's "broad power to regulate tribal affairs under the Indian Commerce Clause" have resulted in two related barriers to state regulatory authority. Id. (citation omitted). Federal law may expressly preempt state law, or it may impliedly preempt it if exercising state law would "unlawfully infringe" on tribal self-government. Flandreau Santee Sioux Tribe v. Houdyshell, 50 F.4th 662, 667 (8th Cir. 2022) (cleaned up) (citation omitted); accord Castro-Huerta, 597 U.S. at 649, 142 S.Ct. 2486.

The extent of a state's regulatory power turns on the location of ("where") and participants in ("who") the targeted conduct. Otoe-Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs., 769 F.3d 105, 113 (2d Cir. 2014). "Indians going beyond reservation boundaries" are generally subject to state law. Jones, 411 U.S. at 148-49, 93 S.Ct. 1267. But once a state reaches into a reservation, its power weakens. Otoe-Missouria Tribe, 769 F.3d at 113; see also Bracker, 448 U.S. at 144-45, 100 S.Ct. 2578. That's when the "who" comes in.

"When on-reservation conduct involving only Indians is at issue, state law is generally inapplicable, for the State's regulatory interest is likely to be minimal and the federal interest in encouraging tribal self-government is at its strongest." Hicks, 533 U.S. at 362, 121 S.Ct. 2304 (quoting Bracker, 448 U.S. at 144, 100 S.Ct. 2578). Only in "exceptional circumstances" may a State regulate the "on-reservation activities of tribal members." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 331-32, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983). The State's power increases, though, when its law targets the conduct of nonmembers,³ see Bracker, 448 U.S. at 144-45, 100 S.Ct. 2578, or members' "dealings" with nonmembers, see California v. Cabazon Band of Mission Indians, 480 U.S. 202, 216, 107 S.Ct....