The Honorable Richard H. Kyle, United States District Judge 1

for the District of Minnesota.

_____________

No. 95-1754

_____________

Honeywell, Inc.; Honeywell *

Pension and Retirement *

Committee, on their own behalf *

and on behalf of the Honeywell *

Retirement Investment Plan; *

Investment Plus Plan of *

Honeywell, Inc.; Honeywell *

Retirement Savings Plan; First *

Trust National Association, *

*

Plaintiffs-Appellants, * Appeal from the United States

* District Court for the

v. * District of Minnesota.

*

Minnesota Life and Health *

Insurance Guaranty Association, *

*

Defendant-Appellee. * [PUBLISHED]

_____________

 Submitted: October 22, 1996

 Filed: April 2, 1997 

_____________

Before RICHARD S. ARNOLD, Chief Judge, McMILLIAN, JOHN R. GIBSON,

FAGG, BOWMAN, WOLLMAN, MAGILL, BEAM, LOKEN, HANSEN, MORRIS SHEPPARD

ARNOLD, and MURPHY, Circuit Judges, en banc.

_____________

HANSEN, Circuit Judge.

The plaintiffs (collectively referred to as Honeywell) appeal the

district court's grant of summary judgment for the defendant, 1
2

Minnesota Life and Health Insurance Guaranty Association (the Association),

in this declaratory judgment suit. At issue is whether an amendment to a

Minnesota statute, which amendment applies retroactively, violates either

the Contract Clause or the Due Process Clause of the Constitution of the

United States. The district court granted the Association's motion for

summary judgment and dismissed Honeywell's complaint, concluding that the

amendment passes constitutional muster. 

A panel of this court unanimously affirmed the judgment of the

district court. Honeywell v. Minnesota Life & Health Ins. Guaranty Assoc.,

86 F.3d 766 (1996). Honeywell requested en banc review. We granted this

request, vacated the panel's opinion on August 27, 1996, and heard the case

en banc. We now affirm the judgment of the district court.

I. BACKGROUND

Honeywell, Inc. is a Delaware corporation with its principal place

of business in Minnesota. Honeywell sponsors certain defined contribution

benefit and retirement plans for its employees. These plans include the

Honeywell Retirement Investment Plan, the Investment Plus Plan of Honeywell

Inc., and the Honeywell Retirement Savings Plan. The current trustee of

the Honeywell plans is First Trust National Association, which has its

principal place of business in Minnesota. 

The Association is a nonprofit Minnesota corporation created pursuant

to the Minnesota Life and Health Insurance Guaranty Association Act (the

Act), Minn. Stat. Ann. §§ 61B.01-61B.16 (West
This Act has been repealed and was replaced in 1993 with

2

Minn. Stat. Ann. §§ 61B.18 - 61B.32 (West Supp. 1996). The

legislature provided, however, that §§ 61B.01 - 61B.16, as amended

in 1992, remain applicable to the subject of this suit. Honeywell,

Inc. v. Minnesota Life & Health Ins. Guar. Assoc., 518 N.W.2d 557,

558 n.4 (Minn. 1994). The issue in this case deals with a 1992

amendment to the Act, and not the new 1993 version of the Act. 

3

1986). The Association exists to protect the contractual rights of policy 2

owners and beneficiaries of life insurance policies, health insurance

policies, and annuity contracts (subject to certain definitions and

limitations), when the insurer that issued the life insurance, health

insurance, or annuity contract becomes financially unable to perform its

obligations. See Minn Stat. Ann. § 61B.02, subd. 2. See also Minnesota

Life & Health Ins. Guar. Assoc. v. Department of Commerce, 400 N.W.2d 769,

770 (Minn. Ct. App. 1987). To provide this protection, all insurance

companies that deal in life, health, and annuity contracts and elect to do

business in Minnesota are required to join and contribute to the

Association. Minnesota Life, 400 N.W.2d at 770. The dispute in this case

arose following the 1991 insolvency of an out-of-state member insurance

company and the 1992 enactment by the Minnesota legislature of an amendment

that retroactively redefines the term "contractual obligation" under the

Act. 

In 1988, the Honeywell plans' trustee, who was a Minnesota resident

(as is the current trustee), invested in Guaranteed Investment Contracts

(GICs) issued by Executive Life Insurance Company of California (ELIC), a

member of the Association. GICs are unallocated annuity contracts, or

annuity contracts "not issued to or owned by a named individual." Id.

GICs are investments made by the trustee for the benefit of the plan

participants and are considered covered policies under the Act. See id.

at 775 (holding that GICs are covered annuities under Minn. Stat. § 61B.03,

subd.

3 (1984)). The Honeywell GICs expressly name the Honeywell trustee 
4

as the policy owner, and not the individual plan participants for whom the

investment was made. Honeywell, 518 N.W.2d at 561. 

In 1991, ELIC became insolvent and unable to fulfill its contractual

obligations on the Honeywell GICs, which amounted to $111,000,000. By

letter dated January 10, 1992, the Honeywell trustee, as the resident

policy owner, submitted to the Association a claim for guaranty coverage

under the Act. Honeywell sought coverage for ELIC's entire obligation to

the Honeywell trustee, which would inure not only to the benefit of

Honeywell's 9,000 Minnesota resident plan participants but also to

Honeywell's 27,000 nonresident plan participants. 

The Association neither granted nor denied Honeywell's claim

initially. ELIC's insolvency had also affected approximately 10,000 other

Minnesota residents who were employed in Minnesota by other companies whose

plan trustees owned GICs but which trustees were not Minnesota residents.

At that time, the Act required the Association to guarantee the covered

policies of "residents" to whom any "contractual obligation" was owed from

an out-of-state insurer. Minn. Stat. Ann. § 61B.06, subd. 2 (West 1986).

See Honeywell, 518 N.W.2d at 558. The term "resident," defined as "any

person who resides in this state at the time the impairment is determined

and to whom contractual obligations are owed," Minn. Stat. Ann. § 61B.03,

subd. 13 (West 1986), was broad enough to include a trustee who resided in

Minnesota. Honeywell, 518 N.W.2d at 560-61. The term "contractual

obligation," defined as "any obligation under covered policies," Minn.

Stat. Ann. § 61B.03, subd. 5 (West 1986), was broad enough to include a GIC

obligation owed to a resident trustee. Honeywell, 518 N.W.2d at 560-61.

Thus, as then codified, the Act, combined with ELIC's insolvency, created

the potential that all the Honeywell plan participants, thousands of whom

were not residents of Minnesota, might be 
5

entitled to coverage under the Minnesota Act because their plan trustee

happened to be a Minnesota resident. Whereas, many other Minnesota nonHoneywell employed resident plan participants, who worked for companies

whose plan trustee resided in a different state, might not be entitled to

any coverage because their trustee (the one to whom the contractual

obligation was owed) was not a Minnesota resident. 

Faced with this dilemma, on January 21, 1992, the Minnesota

Department of Commerce (which supervises and regulates the Association and

to whom appeals may be taken from the Association's determinations, see

Minn. Stat. Ann. § 61B.09(c)), issued an opinion, advising the Association

chairman on the coverage problems created by the ELIC insolvency: 

The Department believes it is the clear intent of the Act

to cover the people of Minnesota. Accordingly, it is the

Department's position that the Guaranty Association Act

provides coverage to Minnesota resident employees who are the

beneficiaries of defined-contribution pension plans funded by

Guaranteed Investment Contracts purchased from Executive Life.

Consistent with that position the Department has

determined that non-resident employees of such a plan,

regardless of the residency of the trustee or plan sponsor, are

not covered under the Act. 

(Appellee's App. at GA-59.) 

Subsequently, on April 27, 1992, the governor signed into law an

amendment to the definition of the term "contractual obligation," in a

purported attempt to retroactively "clarify" the statutory coverage in a

manner consistent with the Department of Commerce opinion. Honeywell, 518

N.W.2d at 562. The 1992 amendment, which specifically applies

retroactively, narrowed the 
6

definition of "contractual obligation" to specifically exclude any

obligation owed "to nonresident participants of a covered plan or to the

plan sponsor, employer, trustee, or other party who owns the contract; in

such cases, the association is obligated under this chapter only to

participants in a covered plan who are residents of the state of Minnesota

on the date of impairment." 1992 Minn. Laws, ch. 540. Thus, the amendment

expressly provides coverage only to plan participants who are Minnesota

residents. In light of the opinion of the Department of Commerce and the

retroactive 1992 amendment, the Association took the position that its

guaranty obligation to Honeywell covers only those Honeywell plan

participants who resided in Minnesota when ELIC became insolvent.

Honeywell then brought an action for declaratory and injunctive

relief and monetary damages in Minnesota state court based on the

Association's refusal to fully guaranty the whole of the trustee's claim.

Honeywell sought a declaration that retroactive application of the 1992

amendment violates both the Contract Clause and the Due Process Clause of

the Constitution because Honeywell's entitlement to coverage and payment

under the prior statute had fully accrued before the enactment of the 1992

amendment. The Association removed the case to federal district court

pursuant to 28 U.S.C. § 1441. 

After removal, the parties filed cross motions for summary judgment.

The district court ruled in favor of Honeywell, holding that the

retroactive abrogation of Honeywell's guaranty coverage rights

impermissibly destroyed vested rights in violation of both the Contract

Clause and the Due Process Clause of the Constitution. After the

Association moved for reconsideration, however, the district court vacated

its initial opinion and certified two questions to the Supreme Court of

Minnesota: (1) Did the 1992 amendment to the Act's definition of

"contractual obligation" 
7

effect a substantive change in the Association's obligations or merely

clarify existing obligations? (2) Is the annuity contract owner's (the

trustee's) right to guaranty payment from the Association a purely

statutory right or is it contractual in nature? The Supreme Court of

Minnesota ruled on the certified questions, holding that (1) the 1992

amendment to the definition of "contractual obligation" substantively

changed the Association's coverage obligations, and (2) the right to

payment from the Association is a purely statutory right under state law.

See Honeywell, 518 N.W.2d at 563.

After the Supreme Court of Minnesota responded to the certified

questions, the parties again filed cross motions for summary judgment.

This time, the district court granted the Association's motion for summary

judgment, concluding that retroactive application of the 1992 amendment did

not violate either the Contract Clause or the Due Process Clause, and

dismissed Honeywell's complaint with prejudice. Honeywell appeals. 

II. DISCUSSION

Honeywell contends that its preamendment right to insurance guaranty

coverage is contractual in nature and that retroactive application of the

amendment constitutes the impairment of its contractual rights in violation

of the Contract Clause. Honeywell also argues that the 1992 amendment

arbitrarily and irrationally destroyed its accrued, vested right to

guaranty coverage, in violation of the Due Process Clause. We begin our

analysis with the Contract Clause. 
8

A. CONTRACT CLAUSE

The Constitution provides, "No State shall . . . pass any Law

impairing the Obligation of Contracts . . . ." U.S. CONST. art. I, § 10,

cl. 1. Read literally, this constitutional prohibition bans any

interference with contracts, but cases interpreting the clause clearly

indicate that this prohibition "is not an absolute one and is not to be

read with literal exactness like a mathematical formula." Home Bldg. &

Loan Ass'n v. Blaisdell, 290 U.S. 398, 428 (1934). Instead, when a

litigant contends that a legislative amendment has impermissibly impaired

contractual obligations, our inquiry initially focuses on "whether the

change in state law has `operated as a substantial impairment of a

contractual relationship.'" General Motors Corp. v. Romein, 503 U.S. 181,

186 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234,

244 (1978)) (other citation omitted). Three basic components are essential

to this inquiry: (1) Does a contractual relationship exist, (2) does the

change in the law impair that contractual relationship, and if so, (3) is

the impairment substantial? Id. If we conclude that a substantial

impairment of a contractual relationship exists, we must then carefully

examine "the nature and purpose of the state legislation." Allied

Structural Steel Co., 438 U.S. at 244. 

We first consider whether a contractual relationship exists. In this

case, the district court certified to the state supreme court the question

of whether the Association's guaranty obligation to GIC owners, such as the

Honeywell trustee, is a contractual or a statutory obligation. The Supreme

Court of Minnesota determined that the right to payment from the

Association is a purely statutory right under state law. Honeywell, 518

N.W.2d at 563. Honeywell first contends that the district court

erroneously 
9

certified a question of federal constitutional law to the state court. 

While federal courts "accord respectful consideration and great

weight to the views of the State's highest court," the determination of

whether the Act created a contractual obligation "is a federal question for

purposes of Contract Clause analysis, and whether it turns on issues of

general or purely local law, we can not surrender the duty to exercise our

own judgment." Romein, 503 U.S. at 187 (internal quotations omitted).

Contrary to Honeywell's assertion, however, the district court did not

avoid its duty to determine the constitutional issue by certifying a

question to the state supreme court. Instead, the district court gave

proper consideration to the state court's views but independently

determined that the right to payment under the Act is not contractual

within the meaning of the Contract Clause. We review de novo the district

court's judgment on this constitutional question. See United States v.

Bates, 77 F.3d 1101, 1104 (8th Cir.), cert. denied, 117 S. Ct. 215 (1996).

Our independent review leads us to agree with the district court that

the rights at issue are statutory in nature and therefore, no contractual

relationship existed between Honeywell and the Association. Two factors

lead us to this conclusion: (1) the Act itself does not create a contract,

and (2) the GICs do not specifically incorporate the terms of the Act. 

First, the Act's guaranty is not itself a contract between the

Association and those who qualify for the Act's protection. "In general,

a statute is itself treated as a contract when the language and

circumstances evince a legislative intent to create private rights of a

contractual nature enforceable against the State." United States Trust Co.

v. New Jersey, 431 U.S. 1, 17 n.14
10

(1977). The right to payment under the Act is not enforceable against the

state of Minnesota but is an obligation imposed upon the Association. The

Association is a nonprofit legal entity and not a state agency. Minn.

Stat. Ann. § 61B.04, subd. 1 (West 1986). See also Minn. Stat. Ann.

§ 61B.21, subd. 1 (West Supp. 1996). Even if the Association were a state

agency, the Act contains no "clear indication that the legislature intends

to bind itself contractually," which is necessary in order to overcome the

general presumption "that a law is not intended to create private

contractual or vested rights but merely declares a policy to be pursued

until the legislature shall ordain otherwise." National R.R. Passenger

Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66 (1985)

(quotations omitted). Rather, the Act creates an insurance guaranty

association with attendant statutory obligations to safeguard the financial

well-being of Minnesota residents to whom contractual obligations are owed

by its member insurance companies. The Act does not create a contract;

instead, it creates a statutory safety net to protect the economic wellbeing of Minnesota resident policy owners in the event a member insurer

becomes insolvent. 

Second, while the Association has the power to enter into contracts,

Minn. Stat. Ann. § 61B.06, subd. 9(a) (West 1986), the Association is not

a party to the GICs involved here. The GICs at issue are contracts between

the Honeywell trustee and the impaired ELIC, not the Association. The

Honeywell trustee did not specifically bargain for protection under the

Act, and the Act is not expressly or impliedly incorporated into the terms

of the GICs. "For the most part, state laws are implied into private

contracts regardless of the assent of the parties only when those laws

affect the validity, construction, and enforcement of contracts." Romein,

503 U.S. at 189. The Association's statutory obligation to guaranty the

insurance coverage of residents protected by the Act 
11

does not in any way affect the validity, construction, or enforcement of

ELIC's obligation on the GICs. Moreover, there is no evidence that the

GICs were created in pursuance of the statutory obligation. Cf. Coombes

v. Getz, 285 U.S. 434, 442, 448 (1932) (upholding the contractual liability

created pursuant to a state constitutional rule of law that was repealed).

The 1992 amendment merely altered definitions under the Act, which in turn

affect the Association's statutory obligation to the Honeywell trustee, but

the amendment did not alter or affect any bargained-for agreement between

the Association and the Honeywell trustee. The Contract Clause does not

"protect against all changes in legislation, regardless of the effect of

those changes on bargained-for agreements." Romein, 503 U.S. at 190.

We conclude that the Association's obligations are statutory in

nature rather than contractual. Absent the existence of a contractual

relationship, our Contract Clause inquiry is finished. Accordingly, we

affirm the district court's conclusion that the 1992 amendment did not

unconstitutionally impair a contractual relationship in violation of the

Contract Clause. 

B. DUE PROCESS

Honeywell's due process claim presents a closer question. Honeywell

argues that retroactive application of the 1992 amendment defeats its

vested right to payment under the Act, in violation of the Due Process

Clause. Honeywell relies on Coombes, 285 U.S. at 439-48, where the Supreme

Court held unconstitutional the repeal of a California state constitutional

provision that provided a cause of action against corporate directors. The

Court stated in absolute terms that "neither vested property rights nor the

obligation of contracts of third persons may be destroyed or
12

impaired." Id. at 442. More specifically, the Court in Coombes held, "a

contractual obligation arose; and the right to enforce it, having become

vested, comes within the protection of both the contract impairment clause

in Art. 1, § 10, and the due process of law clause in the Fourteenth

Amendment, of the Federal Constitution." Id. at 448. Honeywell also

relies on Ettor v. City of Tacoma, 228 U.S. 148, 158 (1913), where the

Supreme Court held that a statutory right to compensation for property

damage caused by the city in the course of grading streets, which right to

compensation was complete before a repeal of the cause of action, was a

vested property right that could not be retroactively destroyed. Claiming

that these cases control the outcome of the case at hand, the Honeywell

trustee asserts a vested right to payment under the Act as it existed when

ELIC became insolvent, prior to the 1992 amendment. 

The Association, on the other hand, urges us to follow more recent

Supreme Court precedents in which the Court reviews economic legislation

with a very deferential eye and does not accord vested rights status to

economic rights. The Association observes that under this modern approach,

due process is satisfied as long as a reasonable legislative purpose

supports the retroactive application of the legislation. The Association

contends that the retroactive 1992 amendment is supported by a reasonable

legislative purpose, and alternatively, that no vested rights accrued in

favor of the Honeywell trustee upon ELIC's insolvency. 

In one sense, both arguments are right. The Supreme Court has never

expressly overruled the reasoning of Ettor and Coombes, which accords great

protection to accrued statutory causes of action. In the area of economic

legislation, however, we cannot ignore the abundance of cases where

substantive due process has evolved into a deferential rational basis

analysis. We believe that an
13

understanding of the historical context of Ettor and Coombes is essential

to divine accurately the present weight of their authority on the issue

before us. See Hammond v. United States, 786 F.2d 8, 11 (1st Cir. 1986)

(questioning the continued vitality of Coombes and Ettor because recent

cases have retroactively abridged economic and real property rights without

always carefully distinguishing these prior cases). See also W. David

Slawson, Constitutional and Legislative Considerations in Retroactive

Lawmaking, 48 Cal. L. Rev. 216, 232 (1960) ("The decision [of Coombes v.

Getz] seems far too rigid in its conception of permissible legislative

change and would almost certainly not be followed today."). 

Ettor and Coombes were decided during what is referred to in the

history of American jurisprudence as the Lochner era, named for the pivotal

case of judicial activism, Lochner v. New York, 198 U.S. 45 (1905)

(invalidating maximum work hours legislation as an unconstitutional

exercise of police power). Cases of that era frequently invalidated

statutes that limited economic autonomy in a manner thought by the Court

to be unnecessary or unwise, but in more recent decisions, the Court

plainly sees its role differently: "[W]e do not sit as a super legislature

to weigh the wisdom of legislation nor to decide whether the policy which

it expresses offends the public welfare." Day-Brite Lighting, Inc. v.

Missouri, 342 U.S. 421, 423 (1952). The reasoning prevalent during the

"Lochner [era] has been implicitly rejected many times." Whalen v. Roe,

429 U.S. 589, 597 & n.18 (1977). See also United States v. Carlton, 512

U.S. 26, 114 S. Ct. 2018, 2023-24 (1994) (recognizing that three tax cases

from the Lochner era "were decided during an era characterized by exacting

review of economic legislation under an approach that `has long since been

discarded'" (citation omitted)); Planned Parenthood of S.E. Pa. v. Casey,

505 U.S. 833, 
14

861 (1992) (recognizing that the demise of Lochner era reasoning began in

West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937)). 

Within two years of the Coombes decision, substantive due process

analysis in the area of retroactive economic legislation began to be framed

in terms of reasonableness, drifting away from the Lochner era's strict

protection of economic freedom and vested rights. See Blaisdell, 290 U.S.

at 438 (upholding as an emergency measure a mortgage moratorium law that

impaired obligations on mortgage contracts). The Court acknowledged that

even the expressly protected obligation of contracts (and similarly, we

believe, the concept of vested rights) may be impaired by economic

legislation if "the legislation is addressed to a legitimate end and the

measures taken are reasonable and appropriate to that end." Id. This

rational basis substantive due process test appears to have supplanted the

legislatively restrictive vested rights mode of analysis, and allows

legislatures more freedom in dealing with economic situations. See, e.g.,

James L. Kainen, The Historical Framework for Reviving Constitutional

Protection for Property and Contract Rights, 79 Cornell L. Rev. 87, 119

(Nov. 1993) ("Modern jurists reject the categorical logic of vesting and

consider the statute's justifications under the rubric of substantive due

process."); Charles B. Hochman, The Supreme Court and the Constitutionality

of Retroactive Legislation, 73 Harv. L. Rev. 692, 696-97 (1959-60) (noting

that the vested rights analysis has been replaced by balancing three

factors: (1) the nature and strength of the public interest served by the

statute, (2) the extent to which the statute modifies or abrogates a

preenactment right, and (3) the nature of the right altered by the

statute). 

In 1976, the Court announced, "It is by now well established that

legislative Acts adjusting the burdens and benefits of economic life come

to the Court with a presumption of
15

constitutionality, and that the burden is on the one complaining of a due

process violation to establish that the legislature has acted in an

arbitrary and irrational way." Usery v. Turner Elkhorn Mining Co., 428

U.S. 1, 15 (1976). These authorities leave no doubt that, even though

Coombes and Ettor have never been overruled by the Supreme Court, the

modern framework for substantive due process analysis concerning economic

legislation requires only an inquiry into whether the legislation is

reasonably related to a legitimate governmental purpose. Given the

criticism surrounding the Court's Lochner era decisions in general, coupled

with the development of judicial deference to economic legislation since

then, we join those who question the continued validity of the vested

rights analysis of Coombes and Ettor when reviewing the constitutionality

of economic legislation, recognizing as we must that only the Supreme Court

itself can overrule its precedents. We rely instead on the more recent

Supreme Court pronouncements of substantive due process analysis for

economic legislation, which articulate a rational basis test. 

Our task, then, is to determine whether the retroactive application

of the 1992 amendment is justified by a rational legislative purpose, or

whether it is illegitimate and arbitrary. Retroactive legislation, like

prospective legislation, must meet the reasonableness test of due process.

Usery, 428 U.S. at 17. "But that burden is met simply by showing that the

retroactive application of the legislation is itself justified by a

rational legislative purpose." Pension Benefit Guar. Corp. v. R. A. Gray

& Co., 467 U.S. 717, 730 (1984). Retroactive economic legislation has been

upheld as reasonable even in circumstances where it destroys a settled

expectancy or imposes a new liability. See, e.g., Carlton, 114 S. Ct. at

2022-23 (upholding a curative measure that took away an expected and relied

upon deduction for estate tax); Gray, 467 U.S. at 734 (upholding

retroactive application of 
16

ERISA's withdrawal liability as supported by rational legislative purpose);

Usery, 428 U.S. at 19-20 (upholding retroactive aspects of Black Lung

Benefits Act of 1972, which required employers to compensate former

employees disabled by a work-related disease). The Court has repeatedly

noted that although certain economic liabilities or burdens were not

anticipated, nevertheless, "`"our cases are clear that legislation

readjusting rights and burdens is not unlawful solely because it upsets

otherwise settled expectations."'" Concrete Pipe & Prod. v. Constr.

Laborers Pension Trust, 113 S. Ct. 2264, 2287 (1993) (quoting Gray, 467

U.S. at 729, quoting Usery, 428 U.S. at 16). 

Using these standards, we conclude that the 1992 amendment redefining

"contractual obligation" was neither arbitrary nor illegitimate. The state

has a legitimate interest in regulating the insurance industry, easing the

economic burdens of its own residents, and ensuring the economic life of

an association created by its statute to protect its residents. The

general purpose of the Act at issue in this case "is to protect the future

financial stability of individuals," Minnesota Life & Health Ins., 400

N.W.2d at 773, and the preamendment Act expressly provided protection to

"residents" to whom "contractual obligations" are owed. Minn. Stat.

§ 61B.06, subd. 2 (1986). The 1992 amendment serves to narrow the

definition of contractual obligation, explicitly providing coverage only

to resident plan participants. This is a legitimate purpose. 

The 1992 amendment is also curative in nature, even though it worked

a substantive change in the law. See Honeywell, 518 N.W.2d at 560-63

(holding that the amendment worked a substantive change in the law because

before the amendment, it plainly entitled resident policy owners, including

trustees, to coverage). Curative legislation corrects an unintended and

unanticipated mistake in the 
17

underlying legislation, which went undetected until some time after the

original enactment. Certainly, legislatures have the authority to cure

inadvertent defects in their legislation. See Carlton, 114 S. Ct. at 2022

(upholding Congress's attempt to cure a defect in the tax code). In

Carlton, the Court concluded that Congress's purpose in retroactively

taking away an estate tax deduction, even though the decedent's executor

had relied upon it, was neither illegitimate nor arbitrary because

"Congress acted to correct what it reasonably viewed as a mistake in the

original 1986 provision that would have created a significant and

unanticipated revenue loss." 114 S. Ct. at 2023. We also note the

observation of one commentator that "the individual who claims that a

vested right has arisen from the defect is seeking a windfall since, had

the legislature's . . . action had the effect it was intended to and could

have had, no such right would have arisen." Hochman, supra at 705. 

Here, the Minnesota legislature acted reasonably when it gave

retroactive effect to the 1992 amendment in order to cure a drafting defect

that might have inadvertently left thousands of Minnesota residents without

coverage under the Act due to the ELIC debacle. We agree with the

observation of the Supreme Court of Minnesota: "Given that unallocated

annuity contracts were not prevalent at the time of the statute's enactment

in 1977, the legislature likely did not contemplate how the Act

specifically applied to these contracts." Honeywell, 518 N.W.2d at 561.

Absent retroactive effect, an unintended gap in coverage would have left

many Minnesota resident workers (whose trustee resided elsewhere) without

coverage, while an unintended windfall in favor of nonresident workers who

had a Minnesota trustee would have strained the financial capabilities of

the Association and required Minnesota residents to pay higher premiums to

finance the Association's obligation to out-of-state residents. In sum,

"the 
18

interest in the retroactive curing of such a defect in the administration

of government outweighs the individual [trustee's] interest in benefiting

from the defect." Hochman, supra at 705-06. Thus, we conclude that

retroactive application of the 1992 amendment was a rational means by which

to accomplish the state's legitimate goals.

Honeywell contends that retroactive application is arbitrary and

irrational because there is no connection linking the Honeywell trustee to

the ELIC failure that triggered coverage and because the amendment has a

disparate impact on non-residents. Neither contention has merit. We have

already determined that the retroactive application of the amendment was

rational and prevented an unanticipated gap in coverage for resident plan

participants and an unexpected windfall for nonresident plan participants.

Because the context here is curative in nature, there is no need to

demonstrate any connection of the Honeywell trustee to the ELIC failure in

order for the legislation to be rational. We agree with the Association's

contention that the amendment actually eliminates the arbitrary aspect of

the prior legislation under which Minnesota residents may or may not have

had coverage for their plan funds, depending solely upon the arbitrary

residence of their plan trustee, over which they have no control.

Additionally, the disparate impact results only from the state's legitimate

interest in maintaining the welfare of its own citizens, not from

arbitrariness or discrimination. Retroactive application does not deprive

nonresidents of any rights (except the expectation of coverage based on the

arbitrary residence of their trustee), and it does not place any added

burdens or liabilities on nonresidents. 

To the extent Honeywell argues that this case is fully controlled by

Coombes and Ettor, we also disagree. As already noted, we question the

continued vitality of these cases. 
19

Furthermore, even assuming they remain authoritative, we conclude that they

do not control the outcome in this situation. In our view, Ettor and

Coombes do not stand for the proposition that an inviolable vested right

exists whenever a statutory economic right accrues. In Coombes, the Court

expressly protected what had become a vested contract right, independent

of the statute. 285 U.S. at 448. We have previously concluded that no

contract rights are implicated by the 1992 amendment. This case involves

legislation of economic matters which exist only by statute and have not

been integrated into a private contract, and Honeywell did not even make

choices in reliance on the preamendment Act. In Ettor, the Court protected

a cause of action that provided a remedy for property damage to private

property that occurred while the city graded streets for public use. 228

U.S. at 156. In the present case, neither the state nor the Association

caused a harm and then took away a remedy for the injury caused, as the

city and state did in Ettor. 

In sum, Coombes and Ettor are not directly applicable to the case at

hand because each involves an element distinguishable from the type of

economic legislation at issue here. Thus, even if Coombes and Ettor apply,

they do not dictate a conclusion that accrued economic rights under the

preamendment Act rise to the level of a vested right. Rather, in spite of

the expectancies that may have been based upon the preamendment Act, the

retroactive 1992 amendment was a rational means by which to accomplish the

legitimate economic goal of ensuring the welfare of Minnesota resident

workers.
20

III. CONCLUSION

Finding no violation of either the Contract Clause or the Due Process

Clause through retroactive application of the 1992 amendment, we affirm the

judgment of the district court. 

LOKEN, Circuit Judge, with whom BOWMAN, Circuit Judge, joins, concurring.

 

I concur in Part II.B. of the court's opinion, concluding that the

Minnesota statute at issue does not violate Honeywell's right to

substantive due process, except to the extent that the rollover paragraph

on pages 18 and 19 is inconsistent with my view of the Contract Clause

issue. As to that issue, I respectfully disagree with the court's

conclusion that no contract has been impaired, but I agree that there has

been no unconstitutional impairment. Accordingly, I concur in the court's

decision to affirm.

As the court explains, the modern Contract Clause analysis is (1) has

the State impaired a contract, (2) is the impairment substantial, and (3)

is the statute nevertheless a permissible exercise of the State's police

power. See General Motors v. Romein, 503 U.S. 181, 186 (1992); Energy

Reserves, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983). The

latter two factors are interrelated. "The severity of the impairment

measures the height of the hurdle the state legislation must clear."

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978).

1. Was There a Contract. My starting point on this question is

Coombes v. Getz, 285 U.S. 434, 440-42 (1932), in which California repealed

a constitutional provision holding corporate directors personally liable

to creditors for embezzled or misappropriated corporate funds. In holding

that the repeal
21

unconstitutionally impaired a creditor's contract with a corporation, the

Court described the repealed liability as "in its nature contractual."

Justice Cardozo in dissent observed that to call the liability contractual

was "a legal fiction . . . borrowed from the law of quasi contracts." But

he nonetheless agreed that the Contract Clause may protect a creditor's

"contract with a corporation secured in certain contingencies by a

statutory liability." 

To me, Coombes confirms that a statute may create a contract between

private parties that the Contract Clause protects. See also Steamship Co.

v. Joliffe, 69 U.S. 450, 456-57 (1864) (statute created contract between

shipping company and harbor pilots); Hawthorne v. Calef, 69 U.S. 10, 22

(1864) (statute providing that stock is security for railroad's creditors

created contract between creditors and shareholders). All recent Supreme

Court cases analyzing whether a statute had created a contract for Contract

Clause purposes dealt with obligations of the State, rather than, as in

Coombes, obligations the State has compelled private parties to assume.

But that should not alter the analysis. For example, even if a statute

mandates the terms of a fire insurance policy, the policy is still a

contract. Accord In re Workers' Compensation Refund, 46 F.3d 813, 818 (8th

Cir. 1995).

In this case, the statute created the Guaranty Association, a private

non-profit entity consisting of all insurers wishing to do business in the

State, and required that entity to guarantee the "covered policies" of its

members in the event of an insolvency. That third party guaranty looks

much like the statutory liability in Coombes. "In determining whether a

particular statute gives rise to a contractual obligation, it is of first

importance to examine the language of the statute." National R.R.

Passenger Corp. v. Atchison, Topeka & S.F. Ry., 470 U.S. 451, 466 (1985).
22

Here, the statute uses the word "guaranty" in its title and provides that

the Association "shall . . . guarantee, assume, or reinsure" the

obligations of its members. Minn. Stat. § 61B.06, subd. 1 (1986). A

guaranty is a contract under Minnesota law. See Baker v. Citizens State

Bank of St. Louis Park, 349 N.W.2d 552, 557-58 (Minn. 1984). In these

circumstances, Honeywell has had a "contract" impaired, either its

underlying investment contracts with ELIC or, more directly, the guaranty

by the Guaranty Association. The contrary conclusion of the Minnesota

Supreme Court, though entitled to deference in its construction of state

law, is not binding on us for Contract Clause purposes. See Romein, 503

U.S. at 187. 

2. Was the Contract Substantially Impaired. Total destruction of a

contract is a substantial impairment. Home Building & Loan Ass'n v.

Blaisdell, 290 U.S. 398, 431 (1934). At first glance, this case seems to

involve total destruction of the guaranty rights of non-resident Honeywell

employees. But that ignores the nature of the guaranteed contracts. As

a GIC trade association monograph explained, "GICs are assets of the

pension plan. Individual employees do not own any part of a GIC, nor do

employees have any individual rights under the contract." Thus, properly

viewed, the impairment is partial -- a reduction in the Association's

guaranty obligation to the Honeywell Plan. (Whether that loss to the Plan

must ultimately be borne only by non-resident beneficiaries is an issue not

before us.)

Though partial, the impairment is quantitatively substantial -- based

on the percentage of non-resident Honeywell employees, the statutory

amendment deprived the Plan of some 75% of its guaranty claim against the

Association. In addition, the impairment was not merely incidental to

another legislative purpose; the statute was
23

enacted to impair. Compare Energy Reserves, 459 U.S. at 418; Exxon v.

Eagerton, 462 U.S. 176, 194 n.14 (1983). 

Beyond the sheer magnitude of an impairment, the Supreme Court looks

at whether the impaired term was central to the contract, whether settled

expectations have been disrupted, and whether the impaired right was

reasonably relied on. See El Paso v. Simmons, 379 U.S. 497, 514 (1965);

Spannaus, 438 U.S. at 243 n.14. In general, when an industry is heavily

regulated, parties are considered to have less reasonable expectation that

legislation will not alter their contractual arrangements. See Energy

Reserves, 459 U.S. at 411. These other factors cut against the

substantiality of this impairment. As in Veix v. Sixth Ward Bldg. & Loan

Ass'n of Newark, 310 U.S. 32, 38 (1940), the industry is both heavily

regulated and "regulated in the particular to which [Honeywell] now

objects," since the State created the impaired guaranty. Honeywell cannot

show substantial reliance on the Association's guaranty when it purchased

the GICs in 1988 because the Association has broad power to unilaterally

impose conditions on its guaranty obligations, subject to the

Commissioner's approval, including the power to declare a moratorium on

payments. See Minn. Stat. § 61B.06, subds. 1-3 (1986); Honeywell v.

Minnesota Life & Health Ins. Guar. Ass'n, 518 N.W.2d 557, 563 (Minn. 1994).

On the other hand, recent Eighth Circuit cases have looked

unfavorably on retroactive legislation impairing contracts, even in heavily

regulated industries. See Workers' Compensation Refund, 46 F.3d at 820

(statute confiscating excess reinsurance premiums invalid though

reinsurance plan documents incorporated changes in state law); Holiday Inns

Franchising, Inc. v. Branstad, 29 F.3d 383, 384 (8th Cir.), (statute

retroactively restricting franchisor termination rights invalid), cert.

denied, 115 S. Ct. 613 (1994); Minnesota Ass'n of Health Care Facilities,

Inc. v. Minnesota Dept. 
24

of Public Welfare, 742 F.2d 442, 451 (8th Cir. 1984) (statute retroactively

reducing nursing home rates for medicaid patients invalid "because it

disrupts settled and completed financial arrangements under contracts made

in reliance on existing law"), cert. denied, 469 U.S. 1215 (1985). 

On balance, I conclude this impairment is substantial. Honeywell

lost 75% of its guaranty benefit. Cf. Spannaus, 438 U.S. at 247 (statute

imposing $185,000 pension charge on employer closing state office was

substantial impairment). Thus, on the sliding scale the Supreme Court uses

for the last two Contract Clause factors, this impairment requires close

scrutiny of the State's justification.

3. Is the Substantial Impairment Justified. The economic interests

of a state may justify its impairing contracts, see, e.g., Blaisdell, 290

U.S. at 437, but the Contract Clause imposes limits on that power.

"Legislation adjusting the rights and responsibilities of contracting

parties must be upon reasonable conditions and of a character appropriate

to the public purpose justifying its adoption." United States Trust Co.

of New York v. New Jersey, 431 U.S. 1, 22 (1977). Given the deference paid

to state legislatures, especially when the State is not a party to the

impaired contract, most claims founder on this aspect of the modern

Contract Clause analysis. The Supreme Court looks hard at whether there

is a legitimate public purpose and then defers to the legislative judgment

as to the reasonableness of a particular remedy. See Energy Reserves, 459

U.S at 412-13.

Of particular importance in this case, the Court has stated that it

is reasonable to amend a statute to eliminate unforeseen consequences or

windfall benefits, even if that impairs existing contracts. See U.S.

Trust, 431 U.S. at 31 & n.30; Energy Reserves, 
25

459 U.S. at 412. For example, the Court in U.S. Trust explained that the

amendment in El Paso was valid because it simply limited parties "to those

gains reasonably to be expected from the [original] contract." Conversely,

the amendment struck down in U.S. Trust was not in response to windfall

benefits or unforeseen consequences because it repealed a provision

expressly prohibiting the use of Port Authority revenues for transportation

subsidies. 

In this case, the Minnesota Legislature based its initial 1977

statute on the NAIC Model Life & Health Guaranty Association Act. The

Model Act at that time provided that the association must guarantee all

obligations of an insolvent domestic insurer. For an insolvent foreign or

out-of-state insurer, however, the association only guaranteed "the covered

policies of residents," and it would have "no liability" if that insurer's

home State provided "substantially similar" protection "for residents of

other states." See Minn. Stat. § 61B.06, subds. 2 and 4 (1986). In other

words, if every State had enacted this Model Act and uniformly applied it,

the association in an insolvent U.S. insurer's home State would pay all

guaranty claims. But if an offshore insurer grabbed everyone's money and

went under, each State's association would guarantee the covered policies

of that State's residents.

In this environment, Honeywell's guaranty claim for its investment

in ELIC GICs posed a substantial unforeseen consequence in Minnesota for

three reasons. First, the legislators who enacted the initial Minnesota

statute in 1977 did not foresee that, unlike regulators in most every other

State, Minnesota's Commissioner would take the position in the 1980s,

before ELIC became insolvent, that GICs are "covered policies," and the

Supreme Court of Minnesota would agree in Minnesota Life & Health Guar.

Ass'n v. Department of Commerce, 400 N.W.2d 769, 773-74 (1987). As a

result 
26

of this lack of uniform implementation, when Honeywell sent its ELIC claims

to all fifty States, it received blanket denials from most everyone except

Minnesota. 

Second, the Legislature did not foresee that "covered policies" would

include group annuities in which a single contract holder, rather than

thousands of beneficiaries, is the "resident." One can argue that this

issue was reasonably foreseeable. But I see no indication that even the

drafters of the various Model Acts anticipated the problem before 1985.

That the issue was unforeseen is confirmed by the fact that any careful

drafter familiar with ERISA insurance-funded group life and health plans

would not try to solve this complex an issue with the single word

"resident." 

Third, Honeywell took the position that the $300,000 statutory

ceiling on the Association's liability "for all benefits . . . with respect

to any one life," Minn. Stat. § 61B.06, subd. 8 (1986), does not apply to

its GIC claims. That exposed the Association to a $111,000,000 claim, far

more than any State has allowed in expressly covering GICs. See Minn.

Stat. § 61B.19, subd. 4(6) (1996) ($7,500,000 limit on claims regarding

"unallocated annuities of a retirement plan"); 1985 NAIC Model Act

§ 3(c)(2)(B) ($5,000,000 limit).

Faced with this surprising confluence of factors that produced a

genuinely unforeseen consequence and arguable windfall benefit, the

Legislature enacted an amendment that reduced the Association's statutory

guaranty to a level that Honeywell (or any other plan sponsor) should

reasonably have expected from the statute as originally enacted: because

GICs are not "covered policies" in California, ELIC's home State, the

Minnesota Association must guarantee ELIC's GIC obligations to Minnesota

residents; therefore, 
As the court observes in its substantive due process

3

discussion, because the Association's liabilities are unfunded --

claims are paid by post-insolvency assessments of the remaining,

solvent members -- it does not take a team of actuaries to deduce

that if Minnesota compels the Association to bestow uniquely

generous guaranty benefits on the non-Minnesota customers of this

year's insolvent insurer, ELIC, the Association's members must

eventually recoup those benefits by imposing higher insurance

premiums on future Minnesota policyholders. 

27

the Honeywell Plan is entitled to a guaranty benefit equal to that portion

of its GIC contracts that represent investments on behalf of its Minnesota

resident beneficiaries. 

In enacting this amendment, the State acted in furtherance of the

legitimate economic interests of its citizens. The effect of its action 3

was to reduce a state-mandated private benefit in a manner not inconsistent

with the reasonable expectations of the parties to that "contract." In

these circumstances, I concur in the court's conclusion that Minnesota did

not unconstitutionally impair the Contract Clause rights of the Honeywell

Plan trustee or the Plan's ultimate employee beneficiaries.

RICHARD S. ARNOLD, Chief Judge, with whom McMILLIAN, MAGILL, BEAM, and

MORRIS SHEPPARD ARNOLD, Circuit Judges, join, dissenting.

I agree with Judge Loken that a contract was impaired by the

Minnesota Legislature’s amendment of section 61B. I also believe that

impairment was substantial within the meaning of the Contracts Clause, and

not sufficiently justified. I therefore respectfully dissent.

The lead opinion holds that there was no contract to be impaired when

the Minnesota Legislature amended § 61B to exclude out-of-state-resident

life-insurance policyholders and other beneficiaries from its coverage.

As Judge Loken’s opinion 
28

explains, it is settled law that obligations between private parties which

are mandated by statute may nonetheless be contractual and enforceable as

such. The statute which created the Minnesota Life and Health Insurance

Guaranty Association states that the Association was created to protect the

rights of policyowners and other beneficiaries by guaranteeing the

obligations owed them by insurance companies. Minn. Stat. § 61B.02 subd.

2 (1990) (“The purpose of sections 61B.01 to 61B.16, is to protect

policyowners, death benefit certificate holders, insureds, beneficiaries,

annuitants, payees, and assignees of life insurance policies, health

insurance policies, annuity contracts and supplemental contracts . . ..”).

The duty to guarantee the obligations of member insurance companies appears

to be the Association’s primary reason for existence. The power to collect

assessments from member companies exists to enable the Association to

fulfill that duty. A guaranty is itself a kind of contract, an undertaking

to fulfill the obligation of another if that other is in default.

It seems improbable that the Legislature would create a separate,

nonprofit legal entity and endow it with the power to collect assessments

from member insurance companies without demanding reciprocal performance

from the Association. The words of the statute belie such a possibility:

“If a domestic insurer is an impaired insurer [unable to meet its

obligations to policyholders and other beneficiaries], the association

shall . . . guarantee, assume, or reinsure, or cause to be guaranteed,

assumed, or reinsured, the covered policies of the impaired insurer . . ..”
29

Minn. Stat. 61B.06 subd. 1(b); see also § 61B.06 subd. 2 (pertaining to

foreign insurers). The lead opinion today holds the Association did not

owe a contractual duty to guarantee all covered policies because a

legislature must exhibit a clear indication that it intends to bind itself

contractually before it will be considered to be so bound. The Legislature

in the instant case did not bind itself, however; it bound the Association.

The Legislature created the Association to collect membership fees from

insurance companies and to assume the obligations of those companies should

they become “impaired.” I therefore agree with Judge Loken that the

obligations owed by the Association, even though their origin is in the

statute, are nonetheless contractual and not merely “statutory.” 

It follows that the Minnesota Legislature’s amendment of the statute

was an impairment of a contract. Two sets of contractual relationships

were impaired by the Legislature’s action: that between Honeywell’s

trustee and the Association, and that between the trustee and ELIC. The

former is affected because the Association, under the amended statute, is

released from most of its duty to guarantee the obligation owed the

trustee. The latter is affected because the trustee contracted with ELIC

under the prior version of the statute, and consequently under the

assumption that the GICs were fully guaranteed by the Association.

Judge Loken’s concurring opinion concludes that there was only a

partial destruction of the contract in this case, because the amendment

merely diminished the Association’s obligation to guarantee the GICs,

rather than destroying that obligation completely. As Judge Loken

recognizes, a substantial impairment need not be a total destruction to

violate the Contracts Clause. I agree that the impairment in this case was

substantial. Indeed, the Minnesota Legislature chose which investments to

protect and 
30

which to abandon at the level of the individual, according to the

individual’s state of residence. It specifically intended to abrogate the

Association’s duty to guarantee a given obligation based on the individual

investor to whom that duty was owed. It therefore seems appropriate to

view the Legislature’s action as a complete destruction of those individual

contractual relationships.

The Supreme Court has held that the Constitution does not prevent a

legislature from working a substantive change in the law, and impairing

contracts thereby, as long as it had sufficient justification for doing so.

“[L]egislation adjusting the rights and responsibilities of contracting

parties” will not violate the Contracts Clause if it is created “upon

reasonable conditions and of a character appropriate to the public purpose

justifying its adoption.” Allied Structural Steel v. Spannaus, 438 U.S.

234, 244 (1978) (internal quotation omitted).

One possible justification for the amendment could be to avoid

unforeseen consequences or windfall benefits. Under that view, the

Legislature could not have foreseen that Minnesota’s Association would be

the only one which guaranteed GICs as “covered policies.” To the contrary,

it was not only foreseeable, but readily ascertainable, that other states

did not treat GICs the way Minnesota did. Minnesota’s Commissioner and its

State Supreme Court both came to that conclusion in the 1980s.

Minnesota also, it is argued, could not have intended to guarantee

coverage of policies based simply on the residence of a trustee. The

coverage mandated by such a rule, the argument continues, is far more

expansive than the Legislature could have anticipated. Perhaps the

Legislature did not anticipate that the Association would incur such a

large obligation. But it should have; the language of the statute is not

so ambiguous that such a 
31

reading should be surprising. Under the subdivision which applies to outof-state impaired insurers, the statute requires the Association to

“guarantee, assume, or reinsure or cause to be guaranteed, assumed, or

reinsured, the covered policies of residents, and shall make or cause to

be made prompt payment of the impaired insurer’s contractual obligations

which are due and owing to residents.” Minn. Stat. § 61B.06 subd. 2. It

was clear when Honeywell applied for coverage of its ELIC GICs that GICs

were already “covered policies” in Minnesota. The ambiguity is allegedly

whether “residents” could foreseeably have included a trustee which held

several “covered policies” on behalf of both resident and non-resident

beneficiaries. The statute defines “resident” in § 61B.03: “‘Resident’

means any person who resides in this state at the time the impairment is

determined and to whom contractual obligations are owed.” “Person,”

according to the statute, “means any individual, corporation, partnership,

association or voluntary organization.” Minn. Stat. § 61B.03 subd. 12-13.

The drafters should have realized that individual corporations,

partnerships, associations, and voluntary organizations could hold numerous

covered policies on behalf of employees or other beneficiaries. I

therefore cannot agree that the Legislature’s amendment of the statute is

justified because of unforeseeable consequences.

That the amendment imposed a retroactive change raises the “hurdle”

the state must clear in order to justify a substantial impairment of

contracts. Legislation which makes prospective changes affecting private

contracts is an appropriate and commonplace legislative function; private

contracting parties, especially in regulated industries, should expect that

laws and regulations may change and affect their future dealings. We

examine the state’s justification for retroactive changes more carefully

because the opposite is generally true: private 
32

contracting parties should and do expect that the conditions under which

they contracted will remain in effect unless and until there is a change.

They do not normally expect lawmakers to change the basic assumptions

underlying those agreements so as to affect legal obligations incurred, or

rights vested, in the past. See Minnesota Ass’n of Health Care Facilities,

Inc. v. Minnesota Dep’t of Pub. Works, 742 F.2d 442, 450-51 (8th Cir. 1984)

(upholding prospective change but striking down retroactive change because

it “disrupt[ed] settled and completed financial arrangements under

contracts made in reliance on existing law”), cert. denied, 469 U.S. 1215

(1985); Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th

Cir.) (observing that retroactive changes which alter prior contractual

relationships have “almost uniformly been declared unconstitutional,” and

that “this is a datum on which [parties] are presumably allowed to rely

while bargaining”), cert. denied, 115 S. Ct. 613 (1994).

The Minnesota Legislature in this case deliberately effected a

retroactive change in the law to allow the Association to avoid a $110

million payout. The Minnesota Supreme Court has held that the

Legislature’s amendment was a change, and not a clarification of the

statute. Honeywell, Inc. v. Minnesota Life & Health Ins. Guar. Ass’n, 518

N.W.2d 557, 562 (Minn. 1994). The Legislature’s action was a deliberate,

retroactive change in the law which altered the settled contractual duties

of the Association, and greatly impaired Honeywell’s right to payment. The

size of the payout, while substantial, does not seem to me to provide

sufficient justification for the change. Indeed, the large size of the

payout serves only to underscore the substantiality of the obligation that

the Legislature has nullified. 

Many reasons underlay the determination of the Framers to create a

new Constitution. Perhaps none was more prominent than 
33

their conviction that States should not be allowed to destroy or water down

contracts for the payment of money. The Contracts Clause “was perhaps the

strongest single constitutional check on state legislation during our early

years as a Nation . . ..” Allied Structural Steel Co. v. Spannaus, supra,

438 U.S. at 241 (footnote omitted). I regret that this Court today shrinks

from enforcing this part of the Constitution, which is designed to

safeguard a basic human right, the right to make private contracts. It is

not a coincidence that most of the people injured by this statute cannot

vote for the Minnesota Legislature.

I respectfully dissent.

A true copy.

Attest:

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