17 States Challenge California Packaging Law With National Supply Chain Stakes
On June 22, 2026, 17 states, led by Nebraska, along with the National Association of Wholesaler-Distributors (NAW), sued California regulators and the Circular Action Alliance (CAA) in federal court, seeking to invalidate the state’s landmark packaging law, SB 54 (SB 54 or the Act). The lawsuit, Nebraska v. Heller, is the first coordinated, multistate attack on the broader “extended producer responsibility” (EPR) model gaining traction for packaging regulation across the United States.
California’s packaging law was designed to change how products are wrapped, shipped, sold, and recycled inside the state. The lawsuit argues it will do something bigger: force companies across the country to redesign packaging for the California market or make California’s rules the national default.
That is because California is not an ordinary market. With a gross domestic product of roughly $4.25 trillion in 2025, California now ranks as the world’s fourth-largest economy, large enough to reshape national supply chains by itself. When California changes packaging rules, companies must decide whether to build a California-specific system or redesign packaging, pricing, and distribution nationally.
For consumer products manufacturers, distributors, retailers, and suppliers, the case is not an abstract fight over federalism. It could affect packaging design, SKU strategy, supplier contracts, recycling fees, price increases, and whether companies can realistically maintain one national packaging system.
EPR Primer
To understand the stakes, it helps to start with what EPR actually is and why it has spread so quickly.
EPR flips the traditional model of waste management. Instead of municipalities bearing the cost of collecting and recycling packaging, the financial and operational burden shifts upstream to the companies that put packaged products into the market, the so-called “producers.” In practice, that means producers fund systems to collect, recycle, and reduce packaging, and increasingly, redesign packaging itself.
As we’ve explored in prior coverage, EPR has moved from a niche concept to a central feature of state environmental policy across eight states. Oregon and Colorado were early adopters, and their programs have already begun to test the boundaries of the model.
SB 54 is not the first EPR law to draw litigation. Oregon and Colorado are already defending versions of their own models. But California’s program is different in scale. A packaging rule in Oregon or Colorado can be managed as a state-specific compliance challenge–in part because those laws do not contain the same binding source reduction and recyclability requirements that SB 54 does, and in part because of typically modest sales volumes into these states. By contrast, because of California’s market power, a packaging rule there that mandates packaging reduction, “right-sizing”, and recyclability obligations can become a national operating default.
The California lawsuit is, in many ways, a test of the “California effect”—the ability of a large state to set standards that become national norms because companies cannot efficiently design one product for California and another for everyone else. SB 54 brings that effect squarely into packaging.
California SB 54
California’s SB 54 is the most expansive EPR regime enacted in the United States to date. It applies to a categories of “covered materials” that includes most single-use packaging and plastic food service ware, effectively touching a wide array consumer products.
The Act requires companies to register with a third-party producer responsibility organization (the Circular Action Alliance, or CAA), report packaging data to the CAA, and pay fees to the CAA based on the reported packaging data in order to fund a statewide program designed to reduce plastic use, increase recyclability, and hit aggressive recycling targets over the next decade. The Act also requires producers to fund a $500,000,000 annual environmental mitigation surcharge, plus individual assessments.
For companies operating nationally, the critical feature is not just the obligations themselves, but also their reach. The complaint describes the Act as conditioning access to California’s market on “revolutionary changes” to product design, packaging, and distribution. The plaintiffs claim that these changes are difficult, if not impossible, to contain within a single state.
The lawsuit brings a wide-ranging set of constitutional claims, but the core themes are straightforward. The complaint advances eleven counts, each seeking a declaration that the Act is invalid and an injunction against its enforcement. Each count shares a unifying premise: California, the plaintiffs argue, has exceeded the limits of its own sovereignty and shifted the costs and political accountability of its program onto producers and consumers located far beyond its borders.
The federal claims begin with three Commerce Clause theories: discrimination against interstate commerce, substantial burdens on interstate commerce, and unfairly apportioned taxes. The plaintiffs allege that SB 54 favors in-state interests, burdens interstate transactions, reaches covered material with little or no connection to California, and risks multiple taxation if other states adopt similar fee structures. They also bring claims for ultra vires extraterritorial regulation under due process and horizontal separation-of-powers principles, alleging that California is regulating conduct and packaging decisions outside its borders, and an Import-Export Clause claim challenging exactions on goods entering the state.
The complaint also brings First Amendment claims. The plaintiffs challenge the Act’s prohibition on itemizing EPR fees on receipts or invoices as an impermissible content-based restriction on speech. They also allege compelled speech and association, arguing that the Act requires producers to join and fund CAA, a private organization they say advances positions some producers do not support. Finally, the complaint asserts an improper private-delegation claim under the Fifth and Fourteenth Amendments, alleging that California handed broad regulatory and enforcement authority to a self-interested private entity (i.e., the CAA).
The plaintiffs press parallel claims under the California Constitution as well, including free speech, compelled speech and association, and state nondelegation claims. Taken together, the complaint asks the court to dismantle the Act’s structure rather than merely trim individual requirements.
The complaint frames SB 54’s harms as falling on several groups. Wholesalers and distributors, including NAW’s members, occupy a central place in the complaint, which alleges that the Act classifies many of them as “producers” even though they have little or no control over packaging design. These companies face compliance costs and logistical obligations that the plaintiffs say are misaligned with their operational role. Some, the complaint alleges, may be forced out of the California market altogether.
Manufacturers allege harm in the form of costs to redesign products and reconfigure supply chains, while recyclers located in the plaintiff states allege lost business as the Act steers recycling work toward California-based facilities and away from out-of-state competitors.
The plaintiff states allege injury as sovereigns whose policy choices have been overridden, as proprietors that operate retail and distribution outlets subject to the Act, and as significant purchasers and healthcare payors whose Medicaid and other program outlays may climb as prices rise. Consumers, the complaint contends, will pay higher prices on everyday necessities nationwide, with the heaviest impact falling on low-income and otherwise vulnerable residents of the plaintiff states.
Economic and Supply Chain Implications
The broader significance of Nebraska v. Heller is hard to overstate. EPR is rapidly becoming the framework through which at least some states regulate packaging and waste, and California’s version is the most ambitious and consequential test of how far that model can go.
The outcome of this litigation will help answer questions that go well beyond plastics: Can a single state effectively set national standards for product design and packaging? How will the cost of environmental regulation flow through integrated national markets? And who ultimately decides: legislatures, regulators, or courts? For companies operating across state lines, those questions are no longer theoretical. EPR laws are already shaping how business gets done.
Businesses are expected to absorb these costs, but the complaint leans heavily on the economic reality that companies will pass at least some of those costs through to customers—not just in California. Because many companies operate with national pricing structures, the plaintiffs argue that cost increases will spread across the country, showing up in the price of everyday goods from packaged food to medical supplies.
The cost question is especially difficult because packaging fees do not sit neatly in one place. They can affect supplier pricing, retailer margins, distributor contracts, private-label arrangements, and national price lists. Companies may need to decide whether to absorb the fees, pass them through as a California-specific charge, spread them across national pricing, or renegotiate supply agreements. For executives, this is the operational dilemma EPR creates: pricing decisions are no longer purely commercial. They are regulatory.
The litigation also raises immediate contract questions. Companies should be looking at whether supply agreements allocate EPR fees, require packaging data cooperation, permit price adjustments tied to regulatory costs, address changes in law, and provide indemnity for inaccurate packaging information. In many supply chains, the company legally responsible for compliance may not be the company with the best access to packaging specifications.
The supply chain implications may be even more disruptive. SB 54 effectively forces companies to rethink packaging at every stage of the product lifecycle, including materials, sourcing, tracking packaging flows, and ensuring recyclability under California-specific standards.
The plaintiffs argue the result will be fragmentation: companies either build California-specific supply chains or reconfigure national operations to meet California’s rules. Neither option is attractive. One adds complexity; the other exports California’s policy choices nationwide. The pressure is particularly acute for distributors and wholesalers because many are swept into the definition of “producer” even though they typically do not control packaging design. That disconnect between legal responsibility and operational control is likely to be one of the most immediate pain points for the market.
What Now?
For now, SB 54 remains in effect. The lawsuit does not halt SB 54 and does not presently seek a preliminary injunction asking the court to stay enforcement. That means companies cannot treat the lawsuit as a reason to pause compliance. The next phase of the case will likely turn on whether the plaintiffs seek early injunctive relief, how California defends the law’s market effects, and whether the court views SB 54 as a permissible condition on selling into California or an impermissible effort to regulate commerce elsewhere. The federal suit in Oregon suggests that even partial court intervention may not immediately translate into reduced enforcement, or refunds, for companies beyond the named plaintiffs in the case.
That leaves companies planning for compliance in the face of legal uncertainty. Businesses operating across multiple EPR states should review their participation agreements and assess how fee methodologies affect pricing and budgeting. They should also preserve records that may support refund or challenge positions if a court ultimately invalidates the Act.
Foley continues to counsel companies on how to navigate EPR laws while managing their businesses. Reach out to Betsy Stone or Nick Johnson with questions you may have about EPR laws and how they apply to your business.
