Honeywell, Inc. v. Minnesota Life & Health Insurance Guaranty Ass'n , 86 F.3d 766 ( 1996 )

_____________
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. *
_____________
Submitted: November 16, 1995
Filed: June 10, 1996
_____________
Before HANSEN, JOHN R. GIBSON, and MURPHY, Circuit Judges.
_____________
HANSEN, Circuit Judge.
The plaintiffs (collectively referred to as Honeywell) appeal the
district court's1 grant of summary judgment for the defendant, 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
1
The Honorable Richard H. Kyle, United States District Judge
for the District of Minnesota.
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. We affirm.
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 1986).2 The Association
exists to protect the contractual rights of policy 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
2
This Act has been repealed and was replaced in 1993 with
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.
2
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
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
3
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 entitled to coverage under the Minnesota
Act because their plan trustee happened to be a Minnesota resident.
Whereas, many other Minnesota non-Honeywell 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-
4
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 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
5
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" 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
6
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.
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
7
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 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. 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
8
private rights of a contractual nature enforceable against the State."
United States Trust Co. v. New Jersey, 431 U.S. 1, 17 n.14 (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 well-
being 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
9
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. The 1992 amendment
simply does not implicate 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 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
10
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 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,
11
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, 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, 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
12
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 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
13
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 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
14
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 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.
15
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 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 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
16
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. 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
17
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.
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.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
18