                     United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   _____________

                                  No. 95-2762MN
                                  _____________

Liberty State Bank, a Minnesota       *
banking corporation,                  *
                                      *
                  Appellant,          *
                                      * Appeal from the United States
     v.                               * District Court for the District
                                      * of Minnesota.
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 court’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’s muni-GICs. After Executive Life became insolvent and defaulted on payments
owing to the trustees, the bonds lost value and Liberty suffered investment losses. In
January 1992, Liberty sought reimbursement from the Association under the Act, and
the Association denied Liberty’s claim, stating the Act did not cover municipal bond
funding agreements. While Liberty’s administrative appeal was pending, the Minnesota
legislature enacted a clarifying, retroactive amendment expressly excluding muni-GICs
from the Act’s coverage. See Minn. Stat. § 61B.03, subd. 5(d) (1992). Relying on the
amendment, the Minnesota Commissioner of Commerce upheld the Association’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 amendment’s application deprives
Liberty of a protected property right to payment under the Act. The district court
rejected Liberty’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. Ass’n, 518
N.W.2d 557, 563 (Minn. 1994), which can be retroactively modified or eliminated


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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 Liberty’s appeal.
Because that did not happen until after the Act’s amendment, Liberty had no vested
right to payment under the pre-amendment Act, and the amendment’s retroactive
application to Liberty’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’s decision, Liberty takes
a different approach for the first time on appeal. Liberty asserts application of the
retroactive amendment to its claim violates the Contracts Clause, U.S. Const. art. I, §
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 reason--because 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 amendment’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


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Life & Health Ins. Guar. Ass’n, 110 F.3d 547, 556-57 (8th Cir.) (en banc) (holding
retroactive amendment specifically excluding nonresident benefit plan participants from
Act’s coverage did not violate substantive due process or the Contract Clause), cert.
denied, 118 S. Ct. 156 (1997). A district court’s awareness of potential issues does not
alleviate a party’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 court’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, Liberty’s claims fail on the merits anyway. To satisfy
substantive due process, the amendment’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
Association’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
Association’s operations. See id. We deemed retroactive amendment a rational way
to achieve the state’s legitimate goals. See id. at 556. Further, to decide Liberty’s
Contract Clause claim, we consider whether the amendment has a legitimate public
purpose, then defer to the Minnesota legislature’s judgments about the remedy’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.




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        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.




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