United States Court of Appeals FOR THE EIGHTH CIRCUIT

No. 95-2762MN

Liberty State Bank, a Minnesota banking corporation, Appellant, v. Minnesota Life and Health Insurance Guaranty Association; Minnesota Commissioner of Commerce, Appellees.

Submitted: May 14, 1998 Filed: July 13, 1998

Before RICHARD S. ARNOLD, JOHN R. GIBSON, and FAGG, Circuit Judges.

FAGG, Circuit Judge.

In this action to recover losses on municipal bonds backed by a defunct insurer, bondholder Liberty State Bank appeals the district courtÂ’s grant of summary judgment to the Minnesota Life and Health Insurance Guaranty Association and the Minnesota Commissioner of Commerce. We affirm.

In 1977, the Minnesota Life and Health Insurance Guaranty Association Act created the Minnesota Life and Health Insurance Guaranty Association, a nonprofit entity consisting of all life and health insurance companies operating in Minnesota, to guarantee the covered policies of member companies in the event of insolvency. See Minn. Stat. §§ 61B.01-.16 (1992). Eight years later, the Minnesota legislature authorized the issuance of a new type of insurance product known as a "funding agreement." See Minn. Stat. § 61A.276 (1996). Executive Life Insurance Company, a California company operating in Minnesota, began selling municipal guaranteed investment contracts ("muni-GICs"), investment and funding agreements that back the obligations of municipal bond issuers as a form of collateral, to the trustees of municipal bond issuers in Minnesota. Liberty invested in municipal bonds backed by Executive Life§ 61B.03, subd. 5(d) (1992). Relying on the amendment, the Minnesota Commissioner of Commerce upheld the AssociationÂ’s denial in a final agency decision. Liberty appealed to the Minnesota Court of Appeals, and the Association removed the case to federal court.

In the federal district court, the parties filed cross motions for summary judgment based on the agency record. Liberty asserted only that applying the amendment to its claim violates substantive due process because the amendmentÂ’s application deprives Liberty of a protected property right to payment under the Act. The district court rejected LibertyÂ’s claim. In response to a certified question posed by the district court, the Minnesota Supreme Court held the right to payment under the Act is a purely statutory right, see Honeywell, Inc. v. Minnesota Life & Health Ins. Guar. AssÂ’n, 518 N.W.2d 557, 563 (Minn. 1994), which can be retroactively modified or eliminated

Appeal from the United States District Court for the District of Minnesota.

unless vested, see Hammond v. United States, 786 F.2d 8, 11-12 (1st Cir. 1986). Based on its own analysis of the Act, the district court decided any statutory right to payment did not vest until the Minnesota Commissioner of Commerce decided LibertyÂ’s appeal. Because that did not happen until after the ActÂ’s amendment, Liberty had no vested right to payment under the pre-amendment Act, and the amendmentÂ’s retroactive application to LibertyÂ’s claim did not deprive Liberty of a vested property right in violation of substantive due process.

Rather than challenging the basis for the district court§ 10, cl.1, because the amendment relieved the Association of its contractual obligation to guaranty payments based on muni-GICs. Liberty also contends the 1992 amendment violates due process for a new reasonbecause the amendment arbitrarily eliminates coverage for muni-GICs without furthering any legitimate state interest. Although Liberty had raised a due process claim based on vested rights, the district court expressly noted that Liberty had not challenged the amendmentÂ’s purpose or rationality.

Because Liberty did not assert its claims in the district court, we need not consider them. "A district court should be specifically informed of the precise constitutional issues that a litigant wants it to decide." Norwest Bank Neb., N.A. v. W.R. Grace & Co.Conn., 960 F.2d 754, 757 (8th Cir. 1992). Thus, we do not consider constitutional arguments raised for the first time on appeal absent exceptional circumstances, see id., such as when the proper result is clear or when our failure to consider the new issue would result in injustice, see Von Kerssenbrock-Praschma v. Saunders, 121 F.3d 373, 376 (8th Cir. 1997). Liberty acknowledges its failure to raise the issues below, but asserts we should exercise our discretion to consider them because of the unique facts of this case. Liberty says the parties and the district court were aware of the issues because they had already been raised in a case involving a different retroactive amendment to the same Act. See Honeywell, Inc. v. Minnesota

Life & Health Ins. Guar. AssÂ’n, 110 F.3d 547, 556-57 (8th Cir.) (en banc) (holding retroactive amendment specifically excluding nonresident benefit plan participants from ActÂ’s coverage did not violate substantive due process or the Contract Clause), cert. denied, 118 S. Ct. 156 (1997). A district courtÂ’s awareness of potential issues does not alleviate a partyÂ’s duty to raise them, however. Liberty adds that before we resolved the Honeywell appeal en banc, it was not clear that the rational basis test applied to its substantive due process claim, see id. at 554-55, and the weight of authority held the right to reimbursement under the Act was statutory rather than contractual in nature, see id. at 557, 560 (concurring and dissenting opinions form majority concluding right to reimbursement under Act is contractual, contrary to state courtÂ’s earlier holding). Parties are required to raise claims to preserve them, however, even when the controlling law is unclear or the claims are against the weight of existing authority.

Under Honeywell, LibertyÂ’s claims fail on the merits anyway. To satisfy substantive due process, the amendmentÂ’s retroactive application need only be justified by a rational legislative purpose. See id. at 555. As we said in Honeywell, Minnesota has a legitimate interest in regulating the insurance industry and in ensuring the AssociationÂ’s economic life. See id. We held the Minnesota legislature can retroactively amend its guaranty association statute to cure drafting defects, to avoid unintended benefits or consequences, and to assure adequate funding of the AssociationÂ’s operations. See id. We deemed retroactive amendment a rational way to achieve the stateÂ’s legitimate goals. See id. at 556. Further, to decide LibertyÂ’s Contract Clause claim, we consider whether the amendment has a legitimate public purpose, then defer to the Minnesota legislatureÂ’s judgments about the remedyÂ’s reasonableness. See id. at 559. "[I]t is reasonable to amend a statute to eliminate unforeseen consequences or windfall benefits, even if [the amendment] impairs existing contracts." Id. Like the amendment in Honeywell, the amendment here was an appropriate curative measure designed to clarify appropriate coverage for a product that was unanticipated when the Act was initially passed in 1977. See id. at 555-56. Because funding agreements were not sold in Minnesota when the Act was first enacted, the legislature probably did not consider how the Act specifically applied to them, and claims to recover investments in muni-GICs posed a substantial unforeseen consequence. See id. at 555-56, 559. Eliminating the unforeseen benefit that limited Association funds would be used to bail out losses incurred by bond traders like Liberty justifies the retroactive amendment in this case. We thus conclude retroactive application of the amendment stating the Act does not cover muni-GICs does not violate substantive due process or the Contract Clause.

We affirm the district court.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.