Nebraska Tribe Asks Supreme Court to Undo Tobacco Sales Ruling

By Heidi McNeil Staudenmaier and Kelsey Haake

A Nebraska tribe’s tobacco businesses are asking the U.S. Supreme Court to overturn the Eighth Circuit Court of Appeals’ ruling in HCI Distribution Inc., et al. v. Michael T. Hilgers, et al.¹ This decision concluded that the state of Nebraska can regulate a tribally-owned manufacturer’s sales of cigarettes to Indigenous-owned distributors. In seeking a reversal, these tribally-owned businesses contend Native American tribes’ ability to conduct their affairs within their own borders is at stake.

HCI Distribution and Rock River Manufacturing (the Petitioners) are owned and operated on tribal lands by the Winnebago Tribe of Nebraska (the Winnebago Tribe). The Petitioners assert that the case strikes at the heart of tribal sovereignty and self-sufficiency. Threatening tribal sovereignty can significantly impact the ability of the Winnebago Tribe and other tribes across the United States to organize and operate their businesses without being subject to state regulations.

The tribal entities first sued Nebraska’s state attorney general and tax commissioner in 2018, accusing the state of colluding with Big Tobacco to impose a 1998 settlement agreement that 46 states reached with leading cigarette manufacturers. In this circumstance, the Tobacco Master Settlement Agreement (Agreement) requires tobacco manufacturers to set aside a percentage of their revenues to state escrow funds for healthcare-related costs. The Petitioners argue that mandating tribes like the Winnebago Tribe to abide by this Agreement undermines their inherent sovereignty.

The Winnebago Tribe claims it had negotiated a separate deal with tobacco companies in 2016 in lieu of the previous Agreement. In turn, this allowed the Tribe to conduct its tobacco sales without interference from the state. The Winnebago Tribe further asserts the Nebraska statutes enforcing the 1998 Agreement violate the U.S. Constitution and the Indian Commerce Clause, which it contends should not affect its reservation located in northeast Nebraska (Winnebago Reservation).²

In April 2023, a federal district court ruled partially in favor of the Winnebago Tribe, barring Nebraska from collecting escrow and bond funds for cigarettes sold on the Winnebago Reservation. However, the court allowed the state to continue enforcing its policies outside the Winnebago Reservation.

In August 2024, the Eighth Circuit largely vacated the district court’s decision, allowing Nebraska to regulate tobacco sales made to nonmembers even if the transactions occur entirely within the Winnebago Tribe’s jurisdictional borders. According to the Petitioners, this decision contradicts Supreme Court precedent, particularly the 1987 ruling in California v. Cabazon Band of Mission Indians,³ which holds that if a state allows certain activities, it cannot prohibit tribes from conducting those same activities on their land.

The Petitioners argue that, while the Eighth Circuit correctly acknowledged Nebraska must show “exceptional circumstances” to regulate sales to tribal members, they believe it misinterpreted the Cabazon decision by applying a broader test that does not require the state to show such circumstances in the context of nonmember transactions. Specifically, the Petitioners contend the Circuit Court “held that for sales to nonmembers on the Winnebago Reservation, the State’s interests in enforcing its escrow and bond requirements outweigh federal and tribal interests, including interests in economic development and self-sufficiency.”⁴

The Petitioners further assert the Eighth Circuit erred in conducting a Bracker⁵ balancing test, which typically weighs state, federal, and tribal interests without requiring the “exceptional circumstances” standard for regulating on-reservation activities. This error “downplayed the significance of the Tribe’s cigarette business” due to the court’s belief the business “does not contribute as much to the Tribe’s development efforts as other units of HCI’s business.”⁶ Overall, both Bracker and Cabazon favor tribal sovereignty and limit state authority over on-reservation activities, especially when those activities pertain to dealings solely among tribal members.

The Petitioners contend the Eighth Circuit’s ruling could have profound economic consequences for tribes everywhere and severely diminish tribal sovereignty and self-determination, and that upholding the Eighth Circuit’s decision “endorses a return to paternalism in violation of federal policy promoting tribal self-determination.”⁷ The Petitioners highlight that this decision risks stifling economic development, especially in the crucial early stages, due to state regulations undermining tribal businesses. This creates a potential issue where imposing additional state regulations may make tribes vulnerable to further state control, a concern that should resonate with all tribes, tribal entities, and those interested in tribal economic development.

The Petitioners also highlight the practical challenges presented by the Eighth Circuit’s injunction. It would require HCI Distribution and Rock River Manufacturing to track whether their products are sold to tribal members or nonmembers — a burden that the companies argue would be unmanageable and would likely violate the legislative intent of Nebraska law. The Winnebago Tribe’s tobacco companies assert that the decision creates a dangerous precedent by encouraging states to encroach on tribal economic autonomy under the guise of public health or economic regulation.

Overall, the Petitioners raise significant legal issues regarding the balance of state and tribal interests in regulating commerce on Indian reservations and whether such state intervention violates tribal sovereignty as protected by federal law.