No. 23-2311 ___________________________

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 ____________

Appeal from United States District Court for the District of Nebraska - Omaha ____________

Submitted: March 12, 2024 Filed: August 2, 2024 ____________ 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- (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 n