author: JOHN T. NOONAN, Jr., Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Lawrence A. HEFFNER, Defendant, William W. Dean, Jr., Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Lawrence A. HEFFNER, et al., Defendants, and W.W. Dean & Associates, Defendant-Appellant, Lawrence A. Heffner, Defendant.
    Nos. 95-50396, 95-50397.
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted May 7, 1996.
    Decided May 28, 1996.

      Robert S. Brewer, Jr., Robert Lauehlan, Jr., Knut Johnson, McKenna & Cuneo, San Diego, California, and Michael H. Fish, Nu-gent & Newnham, San Diego, California, for defendant-appellant William Dean.
    Bruce Castetter, Robert F. DePippo, George C. Aguilar, Assistant United States Attorneys, San Diego, California, for plaintiff-appellee.
    Before FLOYD R. GIBSON, JOHN T. NOONAN, Jr., and DAVID R. THOMPSON, Circuit Judges.

      The Honorable Floyd R. Gibson, Senior Circuit Judge for the United States Court of Appeals for the Eighth Circuit, sitting by designation.

   JOHN T. NOONAN, Jr., Circuit Judge:

William W. Dean, Jr. (Dean) and W.W. Dean Associates (the Dean Partnership) appeal the denial by the district court of their motion to dismiss their criminal indictment on the grounds of double jeopardy and estoppel. We affirm the holding of the district court that a prior civil proceeding by the Resolution Trust Corporation (the RTC) did not constitute a prosecution by the United States and so did not trigger the Double Jeopardy Clause. We dismiss for lack of jurisdiction the appeal as it relates to estoppel apart from the Double Jeopardy Clause.

FACTS

Understanding of a prior civil suit is necessary for evaluation of the appellants’ claim of double jeopardy. On October 25, 1991, the RTC became the receiver of Great American Bank (the Bank). In that capacity it inherited litigation involving Dean, a San Francisco real estate developer, and the Dean Partnership. The ease arose out of a development Dean had undertaken. The Bank’s real estate subsidiary, Great American Development Co. (GADCO), owned 1,285 acres in Temecula, California,, which it proposed to sell for development as a master plan community called Redhawk. In August, 1989, the Dean Partnership offered to purchase Redhawk for $50 million, with $10 million to be paid at closing and the remaining $40 million to be paid according to the terms of a promissory note. The note was secured by a deed of trust covering all of the property, including the Redhawk golf course. GADCO accepted the offer. The sale was carried out on September 28, 1989, with the purchaser being a new partnership, RDHK Ventures, controlled by Dean. Thereafter the deal soured. On June 12, 1991, the Dean Partnership and RDHK Ventures brought suit in the Superior Court of Riverside County against the Bank and GADCO seeking compensatory and punitive damages for actions relating to the Redhawk sale. The Bank and GADCO answered and filed a cross-complaint against the plaintiffs in that case.

The cross-complaint asserted eight causes of action against the Dean Partnership and RDHK Ventures. The suit alleged that Dean was the president of the Dean Partnership and the general partner of RDHK Ventures; that Dean had organized the Redhawk Golf Club, which he owned in its entirety and which he used as a device for substituting a financially insolvent corporation as owner of the golf course, causing RDHK Ventures to transfer the golf course to the Redhawk Golf Club without adequate consideration. The suit further alleged that on September 10, 1990, Dean, the Dean Partnership, and RDHK Ventures represented to the Bank that the payment of $8 million due the Bank on September 28, 1990 would be paid on time; that on the basis of these assurances the golf course was reconveyed to RDHK Ventures; that RDHK Ventures failed to make the $8 million payment due on September 28, 1990; and that eventually the golf course was transferred to the Redhawk Golf Club without consideration. The complaint sought recision of the Bank’s reconveyance of the golf course because of the representations of the defendants that were either fraudulent or negligent; actual damages of $5 million and punitive damages “in an amount sufficient to punish and make an example” of the defendants; damages of $5 million for the defendants’ negligent representations; judicial foreclosure of the golf course and of various other security interests belonging to the Bank; the appointment of a receiver and an injunction; a temporary restraining order and a sequestration order; the imposition of a constructive trust on the Redhawk Golf Club; and money had and received from the secured property.

On August 19, 1991, the RTC, as the receiver of the Bank, removed this suit to the federal district court. That court, in March 1992, entered a series of rulings adverse to the RTC. It held that the Bank had been obligated to reconvey the golf course to RDHK Ventures and that the obligation had not been contingent in any way on receiving assurances concerning the ability of RDHK to make the next payment. Accordingly, the district court granted the defendants’ motion to strike the requests for judicial foreclosure, for the appointment of a receiver, for the recovery of income, and for imposition of a constructive trust. The motion to strike the counterclaim’s request for “punitive damages for negligent misrepresentation” was also granted without leave to amend.

The RTC entered an appeal. While the appeal was pending, the parties began to negotiate a settlement, which was executed December 23, 1992 by the RTC as receiver for the Bank, by GADCO, by RDHK Ventures, by the Dean Partnership, and by the Redhawk Golf Club. The settlement granted a release by RTC to the defendants in the suit of all claims whatsoever arising out of the Redhawk transactions, with the exception of “any claims against any former employee” of the Bank or GADCO and with the exception that RTC might commence a civil action against any of the defendants if “any of their respective directors, officers, employees or partners is convicted of a criminal offense arising directly from Redhawk.” The settlement included an agreement by the defendants to pay a maximum of $2,500,000 for the reconveyance to RDHK Ventures of a portion of the disputed property. The defendants agreed not to prevent foreclosure by the RTC on the remainder of the property. The settlement was crafted with lawyerly precision. It ran twenty-six pages. It contained an explicit warranty by the parties that “no promise, inducement, representation, or agreement not expressed therein” had been made to them in connection with the agreement.

PROCEEDINGS

On January 25, 1995, a federal grand jury returned the indictment that is the subject of this appeal. The defendants charged were Dean; the Dean Partnership; RDHK Ventures; and Lawrence A. Heffner, Senior Vice President of GADCO. The first and principal count alleged that the four defendants, in violation of 18 U.S.C. § 371, conspired to defraud the Bank by devising and executing a scheme to obtain assets of the Bank by fraud in violation of 18 U.S.C. § 1344; by bribing Heffner in his capacity as an officer of the Bank in violation of 18 U.S.C. § 215; by depriving the Bank of the honest service of Heffner and using the mails to execute the scheme in violation of 18 U.S.C. § 1341 and to take property from the Bank in violation of 18 U.S.C. § 1005. The conspiracy was alleged to have been carried out by Heffner and Dean making an agreement whereby the Dean Partnership would pay Heffner the sum of $10,000 a month for “consulting” with the partnership, all the while that he was an officer of GADCO, and by promising him employment with the Dean Partnership on his eventual resignation from GADCO. From November 27, 1989 to May 14, 1991, Count One charged, Heffner was paid a total of $175,000 for acts benefitting the other defendants contrary to the interest of the Bank and GADCO, who were kept in the dark as to the arrangement.

Among the acts charged against Heffner is that he was the primary representative of GADCO in developing Redhawk and that he concealed from GADCO and the Bank a clause which he, at Dean’s request, inserted in the agreement for the sale of Redhawk. This clause provided that RDHK Ventures could obtain reconveyance of the golf course, allegedly valued at $10 million, without paying a release price. According to the indictment, this clause materially impaired the Bank’s security and was revealed to the Bank only in July 1990 when Heffner disclosed the clause and persuaded the Bank that it was bound to make the reconveyance.

Count Two charged Heffner with unlawful receipt of a bribe of $175,000 in violation of 18 U.S.C. § 215(a). Count Three charged Dean, the Dean Partnership and RDHK with making the bribe in violation of 18 U.S.C. § 215(a). Count Four charged all four defendants with bank fraud in executing the scheme to defraud the Bank by false representations in violation of 18 U.S.C. §§ 1344 and 2. Counts Five through Ten charge all four defendants with mail fraud in the mailing of checks and invoices carrying out the bribery of Heffner in violation of 18 U.S.C. §§ 1341 and 2. Count Eleven charged all four defendants with knowingly defrauding the Bank, a federally insured institution and participating in the spoils in violation of 18 U.S.C. §§ 1005 and 2. Count Twelve charged Heffner alone with filing a false tax return in violation of 26 U.S.C. § 7206(1) by concealing the bribe income he had received from the Dean Partnership in 1991. In addition, the indictment sought the criminal forfeiture of all the property received by the defendants as a result of the charged crimes including the Redhawk Golf Course and the $175,000 paid in bribes.

Dean and the Dean Partnership moved to dismiss the indictment on the grounds of double jeopardy and estoppel. The district court held: “Defendants’ argument ignores the well established principle that the RTC, like the FDIC is empowered to act in two entirely separate and distinct capacities. See FDIC v. Nichols, 885 F.2d 633, 636 (9th Cir.1989) (citing cases); FDIC v. Glickman, 450 F.2d 416, 418 (9th Cir.1971). When the RTC is acting in its capacity as a receiver, its actions are not conduct of the Government for purposes of the Double Jeopardy Clause.” The district court further relied on the rejection of a similar argument in United States v. Beszborn, 21 F.3d 62, 64 (5th Cir.), cert. denied, — U.S. -, 115 S.Ct. 330, 130 L.Ed.2d 288 (1994). The district court also ruled that collateral estoppel did not preclude the present prosecution because the United States had not been a party to the prior civil suit.

Dean and the Dean Partnership appeal the rulings of the district court.

ANALYSIS

Double Jeopardy

We have jurisdiction to hear an interlocutory appeal alleging double jeopardy. United States v. Chick, 61 F.3d 682, 684-85 (9th Cir.1995). For two good reasons Dean and the Dean Partnership cannot prevail on their double jeopardy contention.

First. The parties are not the same. Heath v. Alabama, 474 U.S. 82, 88, 106 S.Ct. 433, 437, 88 L.Ed.2d 387 (1985). The RTC in its corporate character as receiver is not the federal sovereign vindicating the criminal law of the United States. As the district court accurately noted, we have already held as much in the context of an evidentiary ruling in FDIC v. Glickman, 450 F.2d 416, 418-19 (9th Cir.1971); and for us, as for the district court, Beszbom is persuasive on the precise question presented here. Beszborn, 21 F.3d at 67-68.

The appellants argue that the RTC is defined by statute as “an instrumentality of the United States.” 12 U.S.C. § 1441a(b)(l)(A), and that it was because it was so defined that it was enabled to remove the civil suit from the superior court to the district court. 12 U.S.C. § 1441a(b)(4), 12 U.S.C. § 1819(b)(2)(B). But this argument does not get them past the precedents distinguishing the government-created receiver from the sovereign.

More persuasively, the appellants attempt to show that the government as prosecutor was identified with the RTC as receiver. They point to the Department of Justice’s Financial Institution Fraud Federal Prosecution Manual (1994), which states as to the government’s investigation of fraud involving federally-insured institutions: “In practice, RTC investigators are involved initially and throughout the civil litigation, supporting the attorneys and assisting the Federal Bureau of Investigation and U.S. Attorneys in prosecuting individuals.” The appellants further note an act of Congress directing the RTC to “compile and publish a report to the Congress on the coordinated pursuit of claims by all Federal financial institution regulatory agencies, including the Department of Justice. ...” 12 U.S.C. § 1441a(b)(ll)(G); the RTC has subpoena power for purpose of carrying out the authority conferred by the statute upon it. See RTC v. Thornton, 41 F.3d 1539 (D.C.Cir.1994).

Neither the statutes nor the Department of Justice manual are sufficient to transform the RTC as receiver of a federally insured institution into the federal government prosecuting a violation of the federal criminal law. That the suggestion to the contrary is plausibly advanced points to a danger in mingling civil functions with assistance to a criminal prosecution. We do not think, however, that a fusion of the two has been effected either by Congress or by the Department of Justice. The United States was not a party to this civil case.

Second. The cases are not the same. Heath, 474 U.S. at 88, 106 S.Ct. at 437. The RTC as receiver sought recision on the grounds of fraud in representations made to the Bank by Dean, the Dean Partnership and RDHK Ventures. The criminal indictment charges a conspiracy whose heart is the bribery of Heffner to betray his fiduciary responsibilities. The golf course figures in both eases. The crimes charged are entirely distinct from the fraud alleged and settled in the civil suit.

Estoppel. The appellants assert an estoppel based on the settlement as to the forfeiture of the golf course. We lack jurisdiction over this portion of their appeal. The district court’s denial of their motion does not deny “an important right that would be ‘lost, probably irreparably,”’ and so review must await final judgment. Chick, 61 F.3d at 685 n. 1.

Accordingly, the judgment of the district court as to the motion based on double jeopardy is AFFIRMED; the appeal as it relates to estoppel relative to forfeiture is DISMISSED.


source: Caselaw Access Project

author: LAY, Circuit Judge:

license: Public Domain

text:
    Anthony THEOPHILOS; Patricia A. Theophilos, Petitioners-Appellants, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.
    No. 94-70634.
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted Jan. 9, 1996.
    Decided May 31, 1996.

      Lawrence B. Silver, Greene, Radovsky, Maloney & Share, San Francisco, California, for petitioners-appellants.
    Bruce R. Ellisen, Tax Division, United States Department of Justice, Washington, DC, for respondent-appellee.
    Before: LAY, CHOY and PREGERSON, Circuit Judges.

       Honorable Donald P. Lay, Circuit Judge for the Eighth Circuit, sitting by designation.

   LAY, Circuit Judge:

This appeal is from a deficiency judgment rendered by the Tax Court. The Tax Court found that when the taxpayer acquired stock in a closely held corporation on December 10, 1986, he incurred taxable income for the excess of the fair market value of the property over the amount paid for the property under § 83(a) of the Internal Revenue Code. See Theophilos v. Commissioner, 67 T.C.M. (CCH) 2106, 1994 WL 31445 (1994). The taxpayer does not dispute he received property from his employer under § 83(a), but asserts he possessed a contract to acquire the stock in 1985 when he agreed to resign from his law firm to join Greater Suburban Mortgage (GSM), a California corporation engaged in the mortgage banking business. At that time, the taxpayer contends, he agreed to pay full value for the stock and, as a result, did not incur any taxable income under § 83(a). The Commissioner argues the taxpayer did not pay full value for the stock and that all he acquired before December 10, 1986, was an option to purchase stock which is expressly not covered as a transfer of property under § 83(e)(3). The Tax Court found the taxpayer had entered into an executory contract containing conditions yet to be performed. On this basis, the Tax Court found that the taxpayer did not acquire the stock until December 10, 1986, when the taxpayer received 1,020 shares of GSM’s Class B common stock, which was valued at $2,366,479; that taxpayer had paid only $10,000 for the stock; and that, therefore, he had a deficiency in income tax to be assessed in the amount of $1,185,415 for the taxable year of 1986 and $2,446 for the taxable year of 1987. The taxpayer appeals. We find the taxpayer received property in the form of a binding contract to acquire GSM stock in April 1986. Thus, we reverse the judgment of the Tax Court and remand for further proceedings consistent with this opinion.

FACTS

In February 1985, the taxpayer and George Beegle, the sole shareholder of GSM, first discussed the possibility that the taxpayer would leave his law firm and join GSM as its chief executive officer. On May 3, 1985, the taxpayer summarized his understanding of his agreement to join GSM in a letter, which Beegle acknowledged as an accurate reflection of their agreement as of May 1985. The letter stated the parties intended to become partners, but provided that Beegle “will always be the ‘controlling’ party;” that the partners would split GSM’s earnings after April 1, 1985, on a “40/60” basis, forty percent for the taxpayer and sixty percent for Beegle; and that the split would be achieved by the taxpayer’s purchase from Beegle of options on forty percent of GSM’s stock. The letter recognized the parties had not reached a “meeting of the minds,” and negotiations over the terms of the taxpayer’s employment with GSM continued.

On October 1, 1985, the taxpayer formally withdrew from his law firm, joined GSM, and soon became its president and chief executive officer. Later that month the parties rejected a draft agreement under which the taxpayer would have purchased 300 shares of GSM stock from Beegle for $240,000 and 125 shares of GSM stock from GSM for $100,-000. During the last quarter of 1985, Richard Conger, a tax partner at Coopers & Lybrand, recommended that “a portion of GSM’s future appreciation could be shifted to [the taxpayer] by creating ‘frozen’ preferred stock to be retained by Beegle, and [selling] new common stock to [the taxpayer].” 67 T.C.M. at 2109. The Tax Court found that “[ultimately, a modified version of Conger’s plan was agreed upon — the modification being that two classes of common stock, rather than preferred and common stock, were used.” Id. Conger’s plan required GSM to restructure its capital stock.

In February 1986, to implement Conger’s plan, GSM determined its value as of September 30,1995, was $2,130,200, and retained its accounting firm, Hood & Strong, to formally review this valuation.' In April 1986, after the circulation of several drafts, the taxpayer and Beegle executed a shareholder agreement, two employment agreements, and other documents in connection with the restructuring of GSM’s stock.

The April 1986 shareholder agreement, which was back-dated to January 15, 1986, provided:

C. ... The Company has adopted a Plan of Recapitalization____
D.' Immediately following the effective date of the Plan of Recapitalization, (the taxpayer) will purchase from Beegle all of the issued and outstanding 1,020 shares of the Class B Common Stock held by Beegle, at the fair market value of such shares, which the parties have agreed is $10.00 per share, or $10,200.

Joint Ex. 23-W at 1. The agreement also reflected the parties’ intent to provide a total $2,120,580 liquidation preference for Class A common stock, to be retained by Beegle. This liquidation preference approximated GSM’s value as of September 1985 less the amount to be paid by the taxpayer. The agreement restricted the transfer of the taxpayer’s rights to buy shares, and gave GSM a right of first refusal to repurchase from the taxpayer his shares or “any right or interest therein.” Id. at 2. If GSM terminated the taxpayer, the agreement provided he would sell his shares to GSM or Beegle at a price based on GSM’s value, “determined in accordance with generally accepted accounting principles,” less the liquidation preference retained by Beegle. Id. at 4.

On October 1, 1986, GSM filed amended articles of incorporation with the state, formally creating two classes of common stock, Class A and Class B. This reorganization was treated as a tax-free reorganization under I.R.C. § 368(a)(1)(E) based on Conger’s understanding that the taxpayer did not own any GSM stock at that time. In November 1986, Hood & Strong issued a written report confirming the fair market value of $2,130,-200 for GSM as of September 30, 1985. Finally, on December 10, 1986, Beegle transferred all 1,020 shares of Class B stock to the taxpayer in exchange for a $10,000 promissory note. The taxpayer paid the note in January 1987. Neither GSM nor the taxpayer reported this transaction in their tax returns for 1985,1986, or 1987.

The taxpayer resigned as GSM’s president in late 1987 after a series of disagreements with Beegle and asked GSM to purchase his stock pursuant to the shareholder agreement. GSM refused, contending the entire shareholder agreement was invalid. In April 1989, the parties agreed GSM would pay the taxpayer $1.75 million and the taxpayer’s acquisition of GSM stock would be rescinded. After this settlement, however, GSM obtained a financial report from the Newport Group valuing the Class B stock at $3,526,320 as of December 31, 1986, which reflected the dramatic increase in GSM’s value during 1986. GSM then issued a new W-2e statement of corrected income to the taxpayer, indicating that his 1986 wages should be increased by $3,516,320 (the Class B stock’s value in the Newport Group’s report less the $10,000 paid). GSM also claimed a $3,516,-320 deduction in an amended tax return for 1986.

The Commissioner determined that the taxpayer received $3,516,320 in income pursuant to I.R.C. § 83 from the receipt of GSM stock on December 10,1986 and assessed the taxpayer with a tax deficiency along with more than $500,000 in penalties. The Tax Court found the Commissioner had overvalued GSM’s servicing portfolio, however, and held that the taxpayer received $2,356,-479 in income from the stock on December 10, 1986. The Tax Court also found the taxpayer was not liable for any penalties.

THE TAXPAYER’S “PROPERTY” UNDER § 83

On appeal, the taxpayer contends the property he received from GSM was a binding contract to acquire stock in GSM, which he obtained as early as May 1985. The Commissioner, on the other hand, contends that, at best, the taxpayer held an option contract to buy GSM’s stock which he did not exercise until December 10, 1986. The Commissioner also argues that even if GSM transferred a binding contractual right to the taxpayer under § 83, the right was subject to a “substantial risk of forfeiture” at least until GSM amended its articles of incorporation to provide for two classes of stock on October 1,1986.

The Tax Court found that the taxpayer did not pay for his shares until December 10, 1986, and that before such payment the taxpayer had nothing more than an executory contract conditioned on events yet to be performed. The Tax Court relied on a. series of cases pre-dating the enactment of § 83 which hold that a person does not acquire a beneficial ownership interest in a company until he has fully performed all conditions precedent to the acquisition or furnished all required consideration for the transfer. Under this analysis, the Tax Court valued the taxpayer’s stock in GSM as of December 10,1986.

Congress’s primary intention in enacting § 83 was to address the disparity created by the favorable treatment of restricted stock plans vis-a-vis other mechanisms for providing deferred compensation. See Alves v. Commissioner, 734 F.2d 478, 480-81 (9th Cir.1984). Nonetheless, “Congress made section 83(a) applicable to all restricted ‘property,’ not just stock.” Id. at 482. For the purposes of § 83, “the term ‘property’ includes ... personal property other than either money or an unfunded and unsecured promise to pay money or property in the future.” Treas.Reg. § 1.83-3(e). A contractual right to acquire stock is not unsecured or unfunded if it is a binding obligation secured by valuable consideration. Thus, we hold that a contractual obligation to acquire stock, as well as an acquisition of stock itself, is “property” within the meaning of I.R.C. § 83, and if the contractual right to acquire stock is taxable under § 83, the subsequent purchase of the stock is not.

Given our holding that property within the meaning of § 83(a) includes a binding contract to acquire an employer’s stock, the fact that the contract is “executory” is inapposite. Our holding is consistent with Estate of Ogsbury v. Commissioner, 28 T.C. 93, 1957 WL 1027 (1957), aff'd, 258 F.2d 294 (2d Cir.1958), a ease decided before the enactment of § 83. In Ogsbury, an employee exercised an option to purchase his employer’s stock on December 31, 1945, but did not pay for or receive the stock until 1948, by which time the stock had substantially appreciated in value. The Tax Court found the employee should be taxed for this compensation in 1945 when he “obligated himself to pay for and accept the stock unconditionally within a limited period of time.” 28 T.C. at 101. On appeal, the Second Circuit affirmed, holding that contracts to buy stock are taxable as employee compensation because the “binding commitment[ ]” marks the time at which the employee “first realize[s] measurable economic benefit.” 258 F.2d at 296.

The Tax Court’s decision in Montelepre Systemed, Inc. v. Commissioner, 61 T.C.M. (CCH) 1782, 1991 WL 11508 (1991), aff'd, 956 F.2d 496 (5th Cir.1992), also supports our interpretation that a binding contract to acquire stock is “property” within the meaning of § 83. In Montelepre Systemed, the Tax Court held that a contractual right of first refusal, owned by a hospital operator and sold for $1.5 million to the hospital’s buyer, fell within the scope of § 83. 61 T.C.M. at 1786. The Tax Court based its decision on the fact that the contractual right of first refusal could be given capital gains treatment and was not specifically excepted from the scope of § 83 under § 83(e). Id.

Examining these two factors, it is clear that the taxpayer’s contract qualifies as property within the meaning of § 83. First, a contractual right to acquire stock may be treated as a capital asset under I.R.C. § 1221. See Dorman v. United States, 296 F.2d 27, 29 (9th Cir.1961) (“[I]t is clear that an executory contract [to purchase a partnership interest] is a capital asset.”); cf. Anderson v. United States, 468 F.Supp. 1085, 1096-98 (D.Minn.1979) (treating contractual right of first refusal as a capital asset), aff'd, 624 F.2d 1109 (8th Cir.1980) (table case). Second, a binding contract to acquire stock is not specifically excepted from the scope of § 83 because it is neither an option contract under § 83(e) nor a right “similar to an option” under Treas.Reg. § 1.83-3(a)(4). Thus, we hold that the taxpayer’s binding contract to acquire stock consists of property under § 83.

OPTION CONTRACT

The Commissioner argues that even if a contract to acquire stock may be property under § 83, in this ease the taxpayer was not obligated to buy GSM’s stock and held, at best, an option to buy stock which he did not exercise until December 10, 1986. We reject this view as did the Tax Court. It is true the parties originally contemplated using options in May 1985 to enable the taxpayer to obtain a forty percent ownership interest in GSM, but in October 1985 the parties explicitly rejected the use of options in favor of Conger’s recapitalization plan. Moreover, the April 1986 shareholder agreement provided for the number and price of the Class B stock the taxpayer would purchase after GSM’s recapitalization, not for the stock he could purchase. We find that when the taxpayer entered the contract to purchase stock from GSM, he became personally obligated to pay $10,000 to GSM, as long as GSM completed its reorganization, regardless of whether he thought the stock remained an attractive purchase. The fact that the taxpayer was obligated for $10,000 is strong evidence he had already received property under § 83 when he made a binding contractual commitment to acquire GSM’s stock. See Treas.Reg. § 1.83-3(a)(2) (“The determination of the substance of the transaction shall be based upon all the facts and circumstances [including] ... the extent to which the risk that the property will decline in value has been transferred[.]”).

We also read the Commissioner’s brief as suggesting that the taxpayer’s rights were similar to an option in part because GSM could not have enforced its right to $10,000 against the taxpayer until GSM obtained approval for its amended articles of incorporation on October 1, 1986. Specifically, the Commissioner argues California law prohibited the sale of securities by GSM prior to the amendment to GSM’s articles of incorporation, citing California Tel. & Light Co. v. Jordan, 19 Cal.App. 536, 126 P. 598 (1912). However, California enforces pre-incorporation subscription agreements as long as the corporation is successfully incorporated, see Moser, 200 P.2d at 12, and this reasoning applies with even more force for established corporations that need only amend their articles to reclassify their stock. Cf. California Tel. & Light, 126 P. at 602 (“The act of classifying or dividing the capital stock into two or more kinds, without any alteration or change in the number of shares of such stock, ... involves nothing more than a contract between the stockholders as to how they shall divide the profits....”). Therefore, we find that when the taxpayer entered into his binding contract to acquire GSM’s stock, he did not hold an option under I.R.C. § 83(e), nor contractual rights “similar to an option” under Treas.Reg. § 1.83-3(a)(4), and thus received property within the meaning of § 83. See Ogsbury, 258 F.2d at 295-96 (1958).

SUBSTANTIAL RISK OF FORFEITURE

Even if the taxpayer had a binding contractual right, the Commissioner argues, it was subject to a substantial risk of forfeiture at least until October 1, 1986, when GSM filed its amended articles of incorporation. “The rights of a person in property are subject to a substantial risk of forfeiture if such person’s rights to full enjoyment of such property are conditioned upon the future performance of substantial services by any individual.” I.R.C. § 83(c)(1). Under the regulations,

[a] substantial risk of forfeiture exists where rights in property that are transferred are conditioned, directly or indirectly, upon the future performance (or refraining from performance) of substantial services by any person, or the occurrence of a condition related to a purpose of the transfer, and the possibility of forfeiture is substantial if such condition is not satis-, fled.

Treas.Reg. § 1.83 — 3(c)(1). The Commissioner argues the recapitalization was a condition related to the purpose of the transfer and thus there was a substantial risk of forfeiture.

We find there was no substantial risk of forfeiture based on the need to amend GSM’s articles of incorporation. There is no argument the contract was “conditioned upon the future performance of substantial services.” I.R.C. § 83(c)(1). There is also no argument the reason GSM sought to employ the taxpayer in the first place was primarily, or even largely, to carry out the recapitalization of GSM; at best, the recapitalization was incidental to GSM’s employment of the taxpayer. It thus appears plain that the need to amend the articles was not “related to a purpose of the transfer.” Treas.Reg. § 1.83-3(c)(1). Moreover, it is almost inconceivable that GSM would have been unable, in good faith, to gain approval for its amendment to its articles of incorporation, and thus in any event we find there was no substantial risk of forfeiture after the taxpayer’s contract to acquire GSM’s stock became binding.

TIMING OF THE CONTRACT

Under the Tax Court’s view, at the latest, the parties had a binding contractual agreement in June 1986 when they had a “meeting of the minds” with regard to the details of the recapitalization. 67 T.C.M. at 2116. The taxpayer, on the other hand, argues he had a contractual right to acquire a forty percent equity interest as early as May 1985 when he agreed to leave his law practice to join GSM. We think the transaction was too uncertain in its basic terms, however, until the April 1986 shareholder agreement to establish a vested contractual right in the taxpayer. The April 1986 agreement was the first time at which both the price and quantity terms were firmly established. Moreover, until the written shareholder agreement, the taxpayer’s contractual right was in jeopardy under California’s statute of frauds. Thus, we find the April 1986 shareholder agreement marks the first time the taxpayer’s contract right to acquire GSM’s stock became binding and was not subject to a substantial risk of forfeiture. Cf. Culp v. Commissioner, 58 T.C.M. (CCH) 207, 211, 1989 WL 109424 (1989) (finding no transfer in property under § 83(a) until parties “actually consummated the contemplated [multi-million dollar] transaction in writing”).

TAXPAYER’S FAILURE TO REPORT THE TRANSACTION

The Commissioner suggests, however, that the parties did not have a firm contractual agreement prior to December 10, 1986, because the taxpayer failed to report compensation income in 1985 or 1986 with respect to his contractual right to acquire GSM’s stock. In the Commissioner’s view, the taxpayer’s failure to report the transaction is evidence of a lack of contractual commitment. It is true that even if his contractual right was subject to a substantial risk of forfeiture, the taxpayer could have “elect[ed] to include” the transfer in his gross income under § 83(b) and protected himself from a subsequent challenge by the Commissioner. Moreover, the regulations provide that a transferee may make such an election even if “the transferee has paid full value for the property transferred, realizing no bargain element in the transaction.” Treas.Reg. § 1.83-2(a). See also Alves, 734 F.2d at 483 (employee who paid full market value for restricted stock in 1970 could have avoided treatment of the stock’s appreciation as ordinary income by making an election to report transfer under § 83(b) in his 1970 tax returns). Nonetheless, we do not think the taxpayer’s failure to make an election under § 83(b) in any way bars his claim that he had a binding contract before December 10,1986, to acquire GSM’s stock. Rather, it is more likely that the lack of any reporting by either the taxpayer or GSM reflects their belief the transaction was a fair market exchange. In our view, a more telling fact of when the agreement became binding is that GSM failed to claim a $3.5 million deduction for employee compensation until more than three years later, which clearly suggests that in 1986 GSM thought the transaction was a fair market exchange which would generate no tax benefits for the company. Quite simply, taxpayers are more likely to overlook what they think are fair market exchanges, which have no tax consequences, than they are to overlook potential multi-million dollar deductions.

VALUATION OF THE CONTRACT

On remand, the Tax Court must make findings as to the value of the taxpayer’s contractual right to acquire GSM stock as of April 1986. The taxpayer has appealed the Tax Court’s valuation of the stock the taxpayer received on December 10,1986, on the basis that the Tax Court erred by failing to discount the value of his Class B stock to reflect its lack of voting rights and control over GSM. This issue of minority discount will be relevant to the valuation of the taxpayer’s contract and thus we address it here.

“The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” United States v. Cartwright, 411 U.S. 546, 551, 93 S.Ct. 1713, 1717, 36 L.Ed.2d 528 (1973) (quotation omitted). When there is no active market fer stock of a corporation, as here, one factor in determining value is “the degree of control of the business represented by the block of stock to be valued.” Treas.Reg. § 25.2512-2(f). “Control means that, because of the interest owned, the shareholder can unilaterally direct corporate action, select management, decide the amount of distribution, rearrange the corporation’s capital structure, and decide whether to liquidate, merge, or sell assets.” Estate of Newhouse v. Commissioner, 94 T.C. 193, 251-52, 1990 WL 17251 (1990) (emphasis added); see also Estate of Luton v. Commissioner, 68 T.C.M. (CCH) 1044, 1053, 1994 WL 589560 (1994).

In a closely-held corporation, stock is ordinarily discounted to reflect the lack of control exercised by minority shareholders, especially when minority shareholders lack voting rights. See Estate of Bright v. United States, 658 F.2d 999, 1002-03 (Former 5th Cir.1981) (en banc). The Tax Court deviated from this ordinary practice, however, because it found the Class B stock gave the taxpayer “unusually broad” consent powers over the corporation’s actions. 67 T.C.M. at 2118. Although the Class B stock to be purchased would have no voting rights, a majority of Class B stock — all of which was to be held by the taxpayer — could withhold consent from any merger, sale of all or substantially all of GSM’s assets, loan or loan guarantee for employees, repurchase of outstanding stock by GSM, or authorization of additional stock or dividends. The Commissioner’s expert witness testified “the attributes of that class B made it effectively controlling stock, and I’m not sure I would discount it.” Tr. 623.

We think the attributes of control reflected by the Class B stock are legally insufficient to overcome the presumption that minority shareholders in closely-held corporations will receive a discount in the valuation of their stock. GSM’s Class B stock which the taxpayer agreed to purchase would be unable to “unilaterally direct” key corporate activities. Newhouse, 94 T.C. at 251-52. The parties’ agreement contemplated that Beegle would be the controlling party; indeed, Beegle retained the power to terminate the taxpayer’s employment as GSM’s president and chief executive officer. It is true that the taxpayer, as the purchaser of the majority of the Class B shares, would have the power to veto certain distributions and reorganizations of the corporation, or even the overall sale of the corporation, but he would not have been able to compel such actions. These powers perhaps warrant a reduction in the taxpayer’s minority discount, but they are not sufficient to overcome the fact that the taxpayer had a contract to purchase only a minority interest in the corporation and would have no voting rights. In Luton, 68 T.C.M. at 1053, for example, the Tax Court gave a twenty percent “lack of control” discount (in addition to a fifteen percent “lack .of marketability” discount) even though the minority shares could force the company’s liquidation under state law, a power which the Class B shares lacked in this case.

For the foregoing reasons, the judgment of the Tax Court is REVERSED and REMANDED for proceedings consistent with this opinion,

      . The parties are Anthony and Patricia Theophilos, but the operative facts of this case involve only Anthony Theophilos (the taxpayer). Patricia Theophilos is a party because she filed a joint tax return with Anthony Theophilos for the years in question.

      . Section 83(a) of the Internal Revenue Code provides:
      (a) General rule. — If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—
      (1) the fair market value of such properly (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
      (2) the amount (if any) paid for such property,
      shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable....
      I.R.C. 83(a).

      . Section 83(e)(3) provides that § 83 is inapplicable to "the transfer of an option without a readily ascertainable fair market value.” I.R.C. § 83(e)(3).

      . The parties rejected this proposal because it required too large a cash outlay for the taxpayer and produced adverse tax consequences for Beegle.

      . In June 1986, the taxpayer and Beegle executed various other documents, including unanimous written consent of GSM’s directors to adopt a plan of recapitalization and a certificate of amendment of GSM’s articles of incorporation.

      . The liquidation preference was $9,620 less than GSM’s value as of September 30, 1985. The taxpayer promised to pay $10,200, and ultimately paid $10,000, for his stock. There is no explanation in the record for these slight discrepancies in value.

      . A recapitalization is tax free, i.e., does not require the recognition of otherwise taxable gain, when it "represents merely a new form of the previous participation in an enterprise, involving no change of substance in the rights and relations of the interested parties one to another or to the corporate assets.” Bazley v. Commissioner, 331 U.S. 737, 740, 67 S.Ct. 1489, 1491, 91 L.Ed. 1782 (1947).

      . According to the taxpayer, he paid tax on the amounts he received under the settlement agreement for a covenant not to compete and consulting agreement, see Reply Brief for Appellants at 9 n. 5, and GSM deducted the $1.75 million payment it made under the settlement agreement, see Tr. 21.

      . From the fair market value of $2,130,200 on September 30, 1985, as found by GSM’s board of directors and confirmed by Hood & Strong, GSM’s value increased dramatically during 1986. The Newport Group's report, on which the Commissioner relied, valued GSM at roughly $11 million as of December 31, 1986. 67 T.C.M. at 2113. The taxpayer's expert provided the following values for GSM during 1986: $2,944,136 on January 15, $3,357,771 on April 15, $5,311,099 on October 1, and $5,865,267 on December 10. Petitioner’s Ex. 38. Even under the taxpayer's view, GSM’s value appreciated rapidly during 1986.

      . According to the taxpayer, in GSM’s claim for a tax deduction, GSM has agreed to be bound by the factual determinations of this case. See Brief for Appellants at 2 n. 4.

      . The Commissioner contends the taxpayer failed to make this argument below and thus has waived it. According to the Commissioner, the taxpayer argued to the Tax Court that he obtained only a beneficial interest in GSM in 1985, but now makes a "flatly inconsistent" argument that he obtained a contractual right to buy GSM's stock in 1985. See Brief for Appellee at 19.
      We reject the Commissioner’s waiver argument. The taxpayer's argument to the Tax Court that he obtained a beneficial interest in GSM in 1985 incorporated an argument that he had a contractual right in 1985 to purchase GSM’s stock upon the completion of GSM’s recapitalization. Specifically, the taxpayer argued he “had an ownership interest in GSM ... based upon the contract, ... the reliance, [and] the economic substance of the transaction.” Tr. 19 (emphasis added). Thus, this issue was at least implicitly presented to the Tax Court. In such circumstances, we think it would be unfair to deny the taxpayer his right to appeal on the basis of his contractual right to purchase GSM’s stock. See Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir.1985) (allowing review of new argument "when the issue presented is purely one of law and ... the pertinent record has been fully developed”).

        . See, e.g., Hayden v. Commissioner, 52 T.C. 1112, 1128-29, 1969 WL 1570 (1969); Carpenter v. Commissioner, 20 T.C. 603, 609, 1953 WL 278 (1953), aff'd, 219 F.2d 635 (5th Cir.1955); Scientific Instrument Co. v. Commissioner, 17 T.C. 1253, 1258-59, 1952 WL 351 (1952), aff'd per curiam, 202 F.2d 155 (6th Cir.1953); Armstrong v. Commissioner, 6 T.C. 1166, 1946 WL 299 (1946), aff'd per curiam, 162 F.2d 199 (3d Cir.1947).

      . The cases regarding executory contracts on which the Tax Court relied relate directly to ownership of stock or corporate control, not the broader question of a transfer of property under § 83. See, e.g., Hayden, 52 T.C. at 1128 (addressing when stock is considered issued for purposes of qualifying as a § 1244 plan); Scientific Instrument, 17 T.C. at 1257-58 & n. 1 (addressing whether predecessor corporation or its shareholders had "control” of successor corporation due to ownership of successor corporation’s stock "immediately after” corporate reorganization for purposes of "tax free reorganization”); Armstrong, 6 T.C. at 1172 (determining whether taxpayers acquired stock for purposes of capital gains holding period when they agreed to purchase shares of stock or when they paid for shares of stock). In Carpenter, 20 T.C. at 609, the Tax Court ruled the taxpayer-petitioner received income when a cooperative purchased stock on his behalf rather than when he was actually issued the stock certificates. The court reasoned that "the petitioner’s right to the stock ripened when the stock purchase was made.” Id. (emphasis added).' The factual record in Carpenter was unclear as to whether the contract to purchase stock occurred at a separate time than the actual purchase, and neither party argued the taxable event occurred at the time of the contract as opposed to the time of the stock transfer. See id. at 608-09.

      . The Commissioner distinguishes Ogsbury on the basis that the taxpayer in Ogsbury actually exercised his option whereas the taxpayer in this case did not exercise his "option” until December 10, 1986. As we discuss below, however, the taxpayer in this case had a binding contract to purchase GSM’s stock, which produced a measurable economic benefit at the time of execution of the contract, rather than an option. Thus, we reject the Commissioner's attempt to distinguish Ogsbury.

      . If trae, the value of the property the taxpayer received was properly valued by the Tax Court as of that date. Section 83(e)(3) provides that § 83 is inapplicable to "the transfer of an option without a readily ascertainable fair market value.” I.R.C. § 83(e)(3). Moreover, "[a]n indication that no transfer [of property] has occurred [under § 83] is the extent to which the conditions relating to a transfer are similar to an option.” Treas.Reg. § 1.83-3(a)(4). For example, if an employee provides a nonrecourse note in exchange for the employer’s stock, and makes no payments on the note, the transaction is deemed an "option” rather than a "transfer” of property under! 83. Id. § 1.83-3(a)(7) example 2.

      . See Moser v. Western Harness Racing Ass’n, 89 Cal.App.2d 1, 200 P.2d 7, 12 (1948) ("An offer to purchase stock and to accept and pay for it upon specified conditions becomes binding upon the parties when it is accepted by the corporation, and the subscriber can thereafter withdraw only upon the failure of the corporation to meet the conditions.”); see generally Ballatine on Corporations § 193, at 457-58 (1946) ("Ordinarily a conditional subscription should be regarded, if possible, as constituting a present contract with conditions precedent to the duty to pay or to deliver a certificate, from which the subscriber cannot withdraw unless the corporation fails in performance of the condition.”).

      . Under California law the articles of incorporation must provide for the number and classes of stock which a California corporation is authorized to sell. Cal.Corp.Code § 202.

      . The Commissioner also contends that if we accept the taxpayer's theory, we are required to remand the issue of forfeitability for further factual development by the Tax Court. See Brief for Appellee at 20 n. 5. We disagree. The factual record is more than sufficient to determine, under the proper legal standards, whether the taxpayer’s right to acquire GSM’s stock was subject to a substantial risk of forfeiture.
      We also note the relationship between the "substantial risk of forfeiture" analysis and the "option contract” analysis. The risk of forfeiture analysis requires a court to determine the chances the employee will lose his rights in property transferred by his employer. The "similar to an option” analysis requires a court to determine the chances that an employer will lose its rights in the employee's payment. Some factors — such as whether a contract to purchase stock is enforceable when the articles of incorporation do not provide for such stock — are relevant to both inquiries.

      . The regulations also illustrate what constitutes a substantial risk of forfeiture. If an underwriter receives stock "conditioned upon the successful completion of the underwriting,” or if an employee receives stock which she must return "if the total earnings of the employer do not increase," there is a substantial risk of forfeiture. Id. § 1.83-3(c)(2). If "the property [must] be returned to the employer if the employee is discharged for cause or for committing a crime," however, there is no substantial risk of forfeiture. Id.

      . Under California law, in order to amend a corporation’s articles of incorporation, a corporate officer must certify the wording of the amendment, the approval of the corporation’s board of directors, and, if applicable, the approval of the corporation's shareholders. See Cal. Corp.Code § 905. Under its contract with the taxpayer, GSM had a duty to fulfill the condition of amending the articles "diligently.” See Moser, 200 P.2d at 12. Beegle, the only shareholder, agreed to amend the articles in the April 1986 shareholder agreement. Amending the articles of incorporation is a simple ministerial act. If the state lacks a proper legal basis for refusing to allow the filing of an amendment to the articles, a party may compel such a fifing through mandamus. See, e.g., Pratt-Low Preserving Co. v. Jordan, 217 Cal. 292, 18 P.2d 676, 678 (1933); California Tel. & Light, 126 P. at 603; see generally 9 B.E. Witkin, SUMMARY OF CALIFORNIA LAW Corporations § 76, at 579 (9th ed. 1989) ("Certificates may be rejected by the Secretary for noncompfiance with the law.... But this duty is ... subject to control by mandamus.”). Such a slim possibility of GSM’s failure, in good faith, to amend the articles of incorporation cannot constitute a substantial risk of forfeiture of the taxpayer's property right after his contract with GSM became binding.

      . In California, a contract for sale of securities is not enforceable unless (1) there is a writing signed by the party against whom the contract is being enforced, (2) delivery of a certified security or payment for the security has been made without objection, or (3) the person against whom the contract is being enforced received, without objection, a written confirmation of the sale from the adverse party. See Cal.Comm.Code § 8319(1).

      . The Tax Court’s finding that there was a "meeting of the minds” in June 1986 is consistent with our holding that the taxpayer had a binding contract to acquire GSM’s stock as of April 1986, because the Tax Court's finding addressed the details of recapitalization, not the timing of the contract. To the extent the Tax Court’s finding varies from ours, we find it to be clearly erroneous. We also note the written shareholder agreement between Beegle and the taxpayer provides the type of clear evidentiary basis needed to facilitate the enforcement of the tax laws and preclude the possibility of tax fraud by parties falsely claiming the existence of an oral agreement after the fact in order to shift the tax burden from one party in favor of another.

      . An election under § 83(b) eliminates the need for a taxpayer to include a transfer under § 83(a) in a later tax year.

      . We note that an election under § 83(b) is not cost-free: if a taxpayer elects to include property as gross income, even though the property is forfeitable and is subsequently forfeited, the taxpayer may not claim a deduction for the loss. I.R.C. § 83(b). In this case, of course, the risk to the taxpayer was small ($10,000) and it would have been sensible to elect to report his contractual right in 1985 or 1986 under § 83(b).

      . It is true that the taxpayer, as GSM’s president and chief executive officer, could have declined to claim a deduction for GSM because of his financial self-interest in avoiding the disclosure of taxable income for himself. There is no factual basis in the record to support such a theory, however, and it is clear that GSM and the taxpayer conducted arm’s length negotiations over how to structure the taxpayer’s purchase of GSM’s stock.

      . GSM argued in its amicus brief to the Tax Court that the taxpayer could have secured more favorable tax treatment by paying GSM the $10,-000 he promised to pay before December 10, 1986. See Amicus Brief of GSM at 29. Undoubtedly, there could be cases in which payment would help demonstrate in an objective manner a party’s intention to be bound, but in the circumstances of this case we find that payment was not required to establish that the taxpayer had a binding contract to acquire stock.

      . Consistent with the Tax Court’s finding that the shareholder agreement was executed at "some time” in April 1986, the record reveals that the shareholder agreement was executed a short time before an April 30, 1986 letter transmitting Beegle's wife’s consent to the shareholder agreement. See Joint Ex. 16-P; Tr. 223-24; see also Tr. 231, 369, 903-04; Joint Ex. 25-Y (letter dated April 10, 1986, supplementing taxpayer's employment agreement); Tr. 368 (taxpayer discussing signing of employment agreement in the first two weeks of April). The taxpayer testified "the wives ... sign[ed] the consents to the share-holder agreement ... [a]nd I know there’s correspondence exchanging those [documents] dated mid-April. That's how I’m putting the chronology together....” Tr. 369-70.
      On remand, we request that the taxpayer and the Commissioner attempt to stipulate to the effective date of the shareholder agreement in April of 1986. If they cannot, the Tax Court should determine the date of the execution of the shareholder agreement on the basis of the record as a whole. In this regard, we note the Tax Court dismissed the fact that the April 1986 shareholder agreement was back-dated to January 15, 1986, as not controlling the timing of the transaction. We agree. See, e.g., Hensel Phelps Const. Co. v. Commissioner, 74 T.C. 939, 950-51, 1980 WL 4480 (1980), aff'd, 703 F.2d 485 (10th Cir.1983).

      . The Commissioner's expert witness testified he based this assessment on conversations with
      three or four different people in the investment banking wor[ld]. I had a couple friends at Solomon Brothers. That was one place. I had a buddy at Paine Webber. That was another. When I described the attributes of this particular class B, it was pretty much a uniform response I got back. Not only is that not a discount, it might be a premium,
      Tr. 625. On cross-examination, however, the expert witness acknowledged he did not tell the investment bankers whom he called that the company was a closely-held corporation. Tr. ¿43-44


author: KLEINFELD, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellant, v. Jeremy BAIRD; Gary Flores; Jason Jordan; Aaron Phillips; Timothy Reasons, Defendants-Appellees.
    No. 94-10494.
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted June 12, 1995.
    Decided June 5, 1996.

      Quin Denvir, Sacramento, California, for defendants-appellees.
    Charles J. Stevens, United States Attorney, Sacramento, California, for plaintiff-appellant.
    Before GOODWIN, FARRIS and KLEINFELD, Circuit Judges.
   KLEINFELD, Circuit Judge:

The question in this case is whether the presence of electronic video games turns a convenience store into a “public accommodation” under the Civil Rights Act of 1964. 42 U.S.C. § 2000a(b)(3). We conclude that it does.

FACTS

Several alleged white supremacists were indicted for beating two men, one black and one Hispanic, in the parking lot of a 7-11 store. The indictment was federal, for conspiracy to violate civil rights under 18 U.S.C. § 241, and interference with federally protected activities under 18 U.S.C. § 245(b)(2)(F). Thus, rather than being a state assault case, this was prosecuted as a civil rights case. The parties agree that an element of both counts is whether the 7-11 store is a “public accommodation” under 42 U.S.C. § 2000a, and that the government must prove that it is beyond a reasonable doubt. The parties stipulated that the court should decide as a matter of law, prior to jury trial, whether the store was a public accommodation. The court decided that it was not, so granted defendant’s motion to dismiss. The government appeals. The issue, as framed by the parties, is whether the 7-11 was a “place of ... entertainment” under 42 U.S.C. § 2000a(b)(3), and therefore a “public accommodation.”

The 7-11 store in this case, like 7-11 stores across the country, is a convenience store that sells a broad assortment of items including food and drinks, newspapers and magazines, cleaning supplies, automotive supplies, personal toiletries, and first aid supplies. It is a franchise, and a high official of the corporation testified that 7-11 stores “are not intended to be places of exhibition or entertainment, but rather are retail establishments designed to sell ... goods ... in a convenient and speedy transaction.” Nevertheless, the operator of this store agreed with an amusement machine company to place two electronic video games in the store and split the proceeds. The machines were there for a fairly short time, from some time in 1993 until the store operator had them removed in the spring of 1994. The game machines did not generate much revenue. During the month the assault in the parking lot occurred, the machines yielded less than one-quarter of one percent of the store’s gross revenues. When they were removed, about a year later, they were producing less than $150 per month.

ANALYSIS

As the parties have framed it, the question before us is entirely one of law rather than fact. We review the statutory interpretation of the district court de novo. United States v. Bailey, 41 F.3d 413, 416 (9th Cir.1994).

Defendants were indicted for conspiring to intimidate people in the free exercise of rights secured by law, under 18 U.S.C. § 241, and for using force to interfere with people because of their race, color, religion or national origin and their enjoyment of the services of a public accommodation, under 18 U.S.C. § 245. The Civil Rights Act of 1964 entitles all persons “to the full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, as defined in this section.” 42 U.S.C. § 2000a (1996). Listed establishments are places of public accommodation, provided their operations affect commerce, including:

(2) any restaurant, cafeteria, lunchroom, lunch counter, soda fountain, or other facility principally engaged in selling food for consumption on the premises, including, but not limited to, any such facility located on the premises of any retail establishment; or any gasoline station;
(3) any motion picture house, theater, concert hall, sports arena, stadium or other place of exhibition or entertainment; and
(4) any establishment (A)(i) which is physically located within the premises of any establishment otherwise covered by this subsection, or (ii) within the premises of which is physically located any such covered establishment, and (B) which holds itself out as serving patrons of such covered establishment.

42 U.S.C. § 2000a(b)(2)-(4) (1996).

The government argued in district court that the sale of food ready to eat and sale of lottery tickets made the store a public accommodation under these subsections, but does not urge either position on appeal. All that is before us is whether the two video games make the store a place of entertainment under the above sections.

Defendants argue that under United States v. Kozminski, 487 U.S. 931, 108 S.Ct. 2751, 101 L.Ed.2d 788 (1988), the government cannot charge them under 18 U.S.C. §§ 241 and 245, because Kozminski holds that 18 U.S.C. § 241 “prohibit[s] only intentional interference with rights made specific either by the express terms of the Federal Constitution or laws or by decisions interpreting them.” Kozminski, 487 U.S. at 941, 108 S.Ct. at 2759. The argument is without force, because 18 U.S.C. § 245 expressly defines the rights at issue in that statute, and 42 U.S.C. § 2000a expressly defines the federal right which was at issue in the 18 U.S.C. § 241 conspiracy. See United States v. Johnson, 390 U.S. 563, 563-66, 88 S.Ct. 1231, 1232-34, 20 L.Ed.2d 132 (1968)(holding that interference with the right to service in a restaurant is chargeable under 18 U.S.C. § 241).

The district court held that the two video games do not make the store a place of entertainment, for three plausible reasons. First, the phrase “any motion picture house, theater, concert hall, sports arena, stadium, or any other place of exhibition or entertainment” does not appear to mean a store which does not put on exhibits for spectators. The 7-11 store with video games is not like a motion picture house etc. Second, the video games were not the principle business, or even a substantial part of the business, of the 7-11 store. Third, holding that the two game machines turn the 7-11 into a public accommodation would imply that removing them would deprive patrons of protection under the Civil Rights Act of 1964. Precedent is surprisingly sparse on whether such a store is a “place of ... entertainment.”

Though it did not use the terms, the district court construed the statute in accord with the principles of statutory construction, noseitwr a sociis and ejusdem generis. The first means that a word is understood by the associated words, the second, that a general term following more specific terms means that the things embraced in the general term are of the same kind as those denoted by the specific terms. 2A Norman J. Singer, Sutherland-Statutory Construction §§ 47.16, 47.17 (5th ed.1992). Thus, in a statute defining “motor vehicle” to include “an automobile, automobile truck, automobile wagon, motorcycle, or any other self propelled vehicle not designed for running on rails,” the term does not embrace airplanes, even though they fit the dictionary meaning of “vehicle” and do not run on rails. McBoyle v. United States, 283 U.S. 25, 51 S.Ct. 340, 75 L.Ed. 816 (1931)(Holmes, J.). “[A] vehicle in the popular sense, that is a vehicle running on land, is the theme.” Id. at 26, 51 S.Ct. at 341. But the canons of construction “describe[ ] what we usually mean by a particular manner of expression, but do[ ] not prescribe how we must interpret a phrase once written.” Longview Fibre Co. v. Rasmussen, 980 F.2d 1307, 1313 (9th Cir.1992).

The Supreme Court has rejected an ejusdem generis construction of the “place of exhibition or entertainment” phrase in the statute before us. In Daniel v. Paul, 395 U.S. 298, 89 S.Ct. 1697, 23 L.Ed.2d 318 (1969), the issue was whether an amusement area with a lake for swimming and boating open only to whites was a public accommodation. Although the snack bar brought the amusement area within the Civil Rights Act, the Supreme Court went beyond the holding to reject the argument that “ ‘place of entertainment’ refers only to establishments where patrons are entertained as spectators or listeners rather than those where entertainment takes the form of direct participation in some sport or activity.” Id. at 306, 89 S.Ct. at 1701. The Court said that under the dictionary definition of entertainment, “the act of diverting, amusing, or causing someone’s time to pass agreeably: [synonymous with] amusement,” the lake was a “place of entertainment.” The Court said that this interpretation is consistent with the statutory purpose, “to remove the daily affront and humiliation involved in discriminatory denials of access to facilities ostensively open to the general public.” Id. at 307-08, 89 S.Ct. at 1702.

Although the Daniel construction of “place of ... entertainment” may be dictum, we treat Supreme Court dicta with due deference, and see no reason not to apply the Court’s construction in the case at bar. A place where people play video games differs from a “motion picture house, theater, concert hall, sports arena, stadium” in that the player generally acts alone rather than sitting with a crowd, and actively creates his own entertainment by putting money in the machine and manipulating the machine, rather than sitting in a crowd and watching other people. Nevertheless it is a “place of ... entertainment” as the term is construed by Daniel, because people play video games in order to amuse themselves and pass the time agreeably. The evil addressed by the statute, in this instance, is segregation of places to which people resort for entertainment. People go to and remain in stores that have video games, in order to play them. Based upon Daniel, we reject the narrower ejusdem generis construction of “place of ... entertainment” in 42 U.S.C. § 2000a(b)(3) which would limit it to places more like “motion picture house,” etc.

The defendants argue that because the video games were a peripheral, as opposed to the principle, or even a substantial, part of the store’s business, the store as a whole cannot properly be considered a “place of ... entertainment.” The 7-11 was a convenience store with a couple of video games, not a game arcade which also sold some packaged convenience items. This argument is not resolved by Daniel, because the amusement area in Daniel was nothing but an amusement area.

We conclude that it makes no difference whether the games were a substantial or insubstantial part of the store’s business. Subsection 2000a(b)(2) covers “any restaurant, cafeteria, lunchroom, lunch counter, soda fountain, or other facility principally engaged in selling food for consumption on the premises, including, but not limited to, any such facility located on the premises of any retail establishment.” Use of the word “principally” in subsection (b)(2) shows that Congress directed its attention to the issue of principal and peripheral uses, and required a principal use only in subsection (b)(2). We note also that subsection 2000a(b)(4)(A)(2) adds to the list of public accommodations any establishment “within the premises of which is physically located any such covered establishment.” This provision shows a congressional intent to integrate entire premises which would not be public accommodations, but for covered establishments on their premises.

The only other circuit to have considered this issue reached the same conclusion. United States v. DeRosier, 473 F.2d 749 (5th Cir.1973). That case involved a neighborhood bar with a juke box, shuffle board game, and pool table, generating three percent of the bar’s revenue. The dissenter in that case pointed out the same anomaly as the district judge in the case at bar, “a bar in which one may engage in such pleasant diversions as drinking beer or wine, bantering lightly or commiserating lachrymosely with friends and bartender, and even lifting voice in song, is only a bar. But put a nickel in the nickelodeon or the pinball machine, and the bar becomes something else.” Id. at 755. The majority nevertheless held that a quantitative measure of the significance of the entertainment devices to the general facility could not be read into the statute, under a literal interpretation of the words, and because of the statutory “purpose as our lodestar,” which was “eliminating the affront and humiliation involved in discriminatory denials to facilities ostensibly open to the general public.” Id. at 751.

Nor does it matter that the franchiser did not intend the franchisees to operate the stores as places of entertainment. Whether he was supposed to or not, the operator put in two game machines, which could have no purpose other than to exchange amusement for coins on the premises of the store.

It is not arbitrary that classification of the store as a place of entertainment should depend on whether the two games are present or absent. Presence or absence of the video games probably would change the way customers used the store. People are less likely to stay in a store and talk to each other, if there is nothing to do there but buy convenience food and sundries, than if there are games to play.

Each side has cited snippets of legislative history in support of its preferred interpretation. As is often the case, the legislative history is more indeterminate in its meaning than the statute itself.

[N]ot the least of the defects of legislative history is its indeterminacy. If one were to search for an interpretive technique that, on the whole, was more likely to confuse than to clarify, one could hardly find a more promising candidate than legislative history.

Conroy v. Aniskoff, 507 U.S. 511, 519, 113 S.Ct. 1562, 1567, 123 L.Ed.2d 229 (1993) (Scalia, J., concurring). This indeterminacy is probably systemic. Opponents of a position would reasonably use less of their political capital to keep that position out of the legislative histoxy, than to keep it out of the statute.

The public accommodations provision of the Civil Rights Act of 1964 cured a great evil. Prior to the statute, many establishments generally open to the public discriminated against blacks, or Jews, or Indians, or any number of other groups, based on their race, color, religion, and national origin. This established public badges of inferiority for the excluded groups, marking them as of lower social status. It also caused numerous practical problems, as for black people trying to drive from Washington, D.C. to New York, yet unable to stop for a hamburger and to go to the bathroom on the then long drive. In response to almost a decade of massive demonstrations, freedom rides, and sit-ins, which swayed public opinion throughout the nation, Congress used its power under the Commerce Clause to eliminate segregation of public accommodations. There is no reason to read this statutory prohibition narrowly.

In this case, the store was not charged with any discrimination. But the alleged white supremacist gang was charged with using violence to prevent blacks and Hispanics from enjoying the use of the store, because of their race or national origin. The store was not merely a vender of goods, but also a supplier of entertainment by means of video games. If the charges are proved, then the conduct was of the kind Congress prohibited in this statute.

REVERSED and REMANDED.


author: RYMER, Circuit Judge:

text:
    June SAFFLE, Plaintiff-Appellee, v. SIERRA PACIFIC POWER COMPANY BARGAINING UNIT LONG TERM DISABILITY INCOME PLAN, Defendant-Appellant.
    No. 95-15688.
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted May 13, 1996.
    Decided June 5, 1996.
    As Amended June 28, 1996.

      Suellen Fulstone, Woodburn, Wedge, Blakey & Jeppson, Reno, Nevada, for defendant-appellant.
    Mark A. Kilburn, Langton & Kilburn, Reno, Nevada, for plaintiff-appellee.
    Before: ALARCON, BEEZER and RYMER, Circuit Judges.
   RYMER, Circuit Judge:

This appeal requires us to decide what should happen when district courts (or we) conclude that an ERISA plan administrator with discretionary authority to interpret and apply a plan has misconstrued the document and applied an incorrect standard to its benefits determination.

June Saffle applied for occupational disability benefits under the Sierra Pacific Power Company Bargaining Unit Long Term Disability Plan, an employee benefit plan governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq., on the basis of being totally disabled from performing each and every duty of her regular occupation. The administrator, with discretion to interpret and apply the Plan, construed its definition of “total disability” — “completely unable to perform each and every duty of [the participant’s] regular occupation” — as “unable to perform a substantial portion of her regular job with accommodations that could have been made.” It determined that Saffle was not entitled to benefits, but the district court found that this decision was arbitrary and that Saffle was totally disabled. We agree that the administrator abused its discretion by adding a requirement of coverage that conflicts with the plain language of the Plan, but we hold that when, as here, the administrator construes a plan provision erroneously, the court should not itself decide whether benefits should be awarded but rather should remand to the administrator for it to make that decision under the plan, properly construed.

We therefore reverse and remand with instructions to remand to Sierra Pacific’s Pension and Benefit Committee for it to determine whether Saffle is entitled to the benefits for which she applied under the Plan interpreted consistently with this opinion.

I

June Saffle was employed by Sierra Pacific Power Company (Sierra Pacific) and was a participant in the Sierra Pacific Power Company Bargaining Unit Long Term Disability Income Plan, which is administered by the Sierra Pacific Power Company Pension and Benefit Committee (Benefit Committee or Committee). Saffle worked as a Customer Services Clerk in the Credit Department, a clerical job which included using computers, the telephone system, and various office machines, as well as interacting with customers.

The Sierra Pacific Plan has a two-tiered disability benefits structure, one for occupational disability and one for general disability. Paragraph 3.2 provides:

[A] Participant shall be considered “Totally Disabled”, or to have a “Total Disability”, for purposes of the Plan if during the qualifying disability period [180 days] and the first twenty-four (24) months of monthly benefits he is completely unable to perform each and every duty of his regular occupation. Thereafter a Participant shall be considered “Totally Disabled”, or to have a “Total Disability” for purposes of the Plan if he is unable to engage, for compensation or profit, in any business or occupation for which he is reasonably fitted by education, training or experience.

In early 1983, a neuroma in Saffle’s right foot was surgically removed. Pain continued and there were other complications; eventually, on April 29, 1985, Saffle stopped working. About this time she began to complain of neck and arm pain, apparently exacerbated by an automobile accident in August 1985. On November 5, 1985, Saffle applied for long term disability benefits under the Plan.

Saffle’s application included a form from her internist and podiatrist that indicated that she is “totally disabled” from her current job, though not from “any other work.” Later she submitted opinions from a neurosurgeon and an orthopedic surgeon that likewise indicated that she is “totally disabled.” At the direction of Tom Robertson, Vice President of the Human Resources Department of Sierra Pacific, Saffle agreed to an independent medical examination by Dr. Steven Atcheson. Robertson advised Ateheson of the Plan’s definition of “total disability” during the first 180 days of disability and the first 24 months of disability; described Saffle’s “regular job” as that of a Customer Services Clerk which is “mostly sedentary”; said that she was seated at least 80% of the time; and indicated that “[w]e also had/have work available for which she is qualified that would have enabled her to work with her feet elevated. At that task, she would have been seated except for breaks and any other movement of a personal nature.” Ateheson was asked for his opinion regarding whether Saffle was “totally disabled, i.e., unable to perform every duty of her regular job?” Atcheson responded that Saffle “has not been totally disabled at any time since November 1985. This is assuming that she can remain seated with her right leg elevated and would not have to do any walking except for brief periods of time.”

Equifax Services, the Plan’s claims processing agency, determined that Saffle was not totally disabled since she is seated at least 80% of the time in her regular job as Customer Services Clerk, and “a position is available to enable her to work with her feet elevated.” Saffle was told to return to work consistent with the limitations noted in Dr. Atcheson’s report.

Saffle appealed Equifax’s determination to the Benefit Committee, which directed Equifax to supply Saffle’s physicians with the same information Robertson furnished to Atcheson. All but one, who continued to believe she was “totally disabled,” responded that Saffle might be able to perform some portion of her job with modifications.

The Benefit Committee interpreted ¶ 3.2 to mean “the inability to perform substantial portions of the employee’s regular job,” and determined that Saffle was not totally disabled because “the weight of the medical opinion is that you could perform a substantial portion of your regular job with the accommodations that could have been made.”

Saffle then filed suit for benefits. After reviewing the administrative record, the district court concluded that the Committee’s interpretation of the Plan’s definition of “total disability” to include accommodations that could be made in Saffle’s current job, and of the clause “completely unable to perform each and every duty of his regular occupation” to mean “the inability to perform substantial portions of the employee’s regular job” were contrary to the plain language of the Plan. The court further found that the Benefit Committee’s decision that Saffle was not totally disabled was not supported by substantial evidence, and that the weight of the evidence demonstrates that she was totally disabled. It therefore reversed the Benefit Committee’s decision and remanded “for a determination of benefits due plaintiff under the Plan, from October 29,1985, to the present.”

Sierra Pacific timely appealed.

II

Where, as here, an ERISA plan vests the administrator with discretionary authority to determine benefit eligibility, “a district court may review the administrator’s determination only for an abuse of discretion.” Winters v. Costco Wholesale Corp., 49 F.3d 550, 552 (9th Cir.) (citation omitted), cert. denied, — U.S. -, 116 S.Ct. 276, 133 L.Ed.2d 197 (1995). The court of appeals.in turn “reviews the district court’s application of this standard and the conclusion that the [plan] administrator abused its discretion de novo.” Id.

III

Sierra Pacific argues that the Benefit Committee acted within its discretion in not interpreting the language of the Plan literally. It emphasizes that the Committee is charged with administration of the Plan, and that it made a reasonable and common sense decision that Saffle was not totally disabled on the grounds that four out of five doctors who examined her were of the opinion that she could do a “substantial portion” of her job duties with some accommodations.

An ERISA plan administrator abuses its discretion if it construes provisions of the plan in a way that “conflicts with the plain language of the plan.” Taft v. Equitable Life Assur. Soc., 9 F.3d 1469, 1472 (9th Cir.1993) (citations omitted). “Our inquiry is not into whose interpretation of the plan documents [i.e., the administrator’s or the district court’s] is most persuasive, but whether the plan administrator’s interpretation is unreasonable.” Winters, 49 F.3d at 553 (quoting Barnett v. Kaiser Found. Health Plan, Inc., 32 F.3d 413, 416 (9th Cir.1994)).

A

Sierra Pacific first argues that it would have been impossible for Saffle to satisfy the literal language of the Plan’s definition of total disability (requiring that she be unable to perform “each and every” duty) because she had a clerical job, and her own doctors indicated that she was only moderately impaired and was capable of performing clerical, sedentary activity. It suggests that an inability to perform “each and every” duty means “all” the duties of the job, but that it was reasonable for the Committee to determine that such a definition, as literally applied, was too onerous and that Saffle should only have to show that she was unable to perform “substantial portions” of her duties. Saffle counters that “each and every” unambiguously means “each and every.”

Reading “each and every” literally could mean either that a claimant is not totally disabled if she can perform any single duty of her job, no matter how trivial — or that a claimant is totally disabled if she cannot perform any single duty, no matter how trivial. There is little question that the phrase should not be given the former construction, as “total disability” would only exist if the person were essentially non-conseious. See, e.g., Helms v. Monsanto Co., Inc., 728 F.2d 1416 (11th Cir.1984) (holding that arbitrator’s literal interpretation of “total disability” as absolute helplessness was unreasonable because it would render the entire plan meaningless and would contradict policies underlying ERISA; rather insured can recover if he is unable to perform all the substantial and material acts necessary to the prosecution of some gainful business or occupation); Torix v. Ball Corp., 862 F.2d 1428 (10th Cir.1988) (same). On the other hand, Saffle’s preferred construction would effectively convert benefits for total disability into benefits for partial disability. Given two possible literal meanings that are not wholly sensible, it cannot be unreasonable for the Committee to interpret the Plan so as neither to qualify, nor to disqualify, virtually everyone.

Having said that, it is not entirely clear what the Committee meant by its “substantial portion” standard. We do not accept as reasonable a “substantial portion” standard that connotes an inability to do a substantial number of the tasks in one’s job description. This would arbitrarily substitute quantity for quality. However, we cannot say that the Committee lacks discretion to construe “each and every duty of [the participant’s] regular occupation” to mean all of the substantial and material duties of her regular occupation. To the extent that this is what the Committee meant, its construction is consistent with the plain language of the Plan because it assumes that the participant is “completely unable to perform each and every duty” that matters.

B

Sierra Pacific next argues that there is no language in the Plan that precludes the Committee from considering what accommodations could be made in the job to allow Saffle to continue working. It points out that the language calls not just for being “unable” to perform each and every duty, but being “completely unable” to do so. As this must mean something, Sierra Pacific submits, there is no reason why the Committee could not have interpreted “completely” to mean “even with reasonable accommodations.” We disagree.

Paragraph 3.2 does not talk in terms of accommodation at all. Total disability for purposes of occupational benefits depends on whether the participant can perform the duties of her “regular occupation.” As manifest in Robertson’s instructions to the experts, the Committee construed “regular occupation” as “work available for which she is qualified that would have enabled her to work with her feet elevated” and to remain sedentary virtually always. This construction is inconsistent with the plain language of the Plan, and is inconsistent with the Plan’s two-tiered disability structure because it collapses the threshold for occupational disability into the standard for general, or permanent disability. Total (occupational) disability has to do with the inability to perform a regular occupation for two years and 180 days; total (general) disability by contrast has to do with the inability thereafter to engage in any occupation for which the participant is reasonably fitted. To premise total occupational disability, as Robertson did, on having “work available for which she is qualified” that would have accommodated Saffle’s limitations is thus inconsistent with the Plan.

Sierra Pacific argues that the job description used by the Committee was the same job description in the collective bargaining agreement, but in light of the spin that the Committee put on it, the “job description” is immaterial. It gave a wrong standard to the experts, their opinions of non-total disability were based on it, and the Committee denied benefits in light of it. Sierra Pacific also argues with some force that the company may have conflicting obligations to make reasonable accommodations under the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12101 et seq., but Saffle never asserted an ADA claim. We need not, therefore, go further here than to hold that interpreting the Plan’s definition of “total disability” to include modifications or accommodations to “work available for which she is qualified” was contrary to its plain language.

Nor can we see how the phrase “completely unable” to perform her regular occupation can reasonably bear the weight that Sierra Pacific suggests. Paragraph 3.2 does not say “completely unable to perform the duties, with the accommodations that could have been made, to work available far which she is qualified.” To construe the Plan this way, as the Committee did, effectively imposes a new requirement for coverage. However, an administrator lacks discretion to rewrite the Plan. See, e.g., Florence Nightingale Nursing Serv., Inc. v. Blue Cross/Blue Shield of Alabama, 41 F.3d 1476, 1484 (11th Cir.) (holding that a “claims administrator’s decision is arbitrary and capricious where new requirements for coverage are added to those enumerated in the plan”), cert. denied, — U.S. -, 115 S.Ct. 2002, 131 L.Ed.2d 1003 (1995); cf. Jones v. Laborers Health & Welfare Trust Fund, 906 F.2d 480, 482 (9th Cir.1990) (administrator acted within its discretion because no new limitation was incorporated into the plan).

Sierra Pacific contends that we should be guided by Eley v. Boeing Co., 945 F.2d 276 (9th Cir.1991), where we held that the interpretation given to “diagnostic test” by Blue Shield and approved by Boeing did not clearly conflict with the plain language of the plan. In Eley, the Plan’s pre-existing condition exclusion included any illness for which a person had received a “diagnostic test.” The Plan administrator construed “diagnostic test” to include a Pap test which, according to the claimant, was regarded as a “screening test” rather than a “diagnostic test.” We concluded that there was no real conflict because the record showed that some experts considered a Pap test to be a “diagnostic test.” Here, however, we cannot say that “regular occupation” constitutes “work available for which she is qualified” or the modified job on which the medical experts based their opinion that Saffle was not totally disabled.

We therefore conclude that the Benefit Committee could reasonably interpret the Plan as providing for payment of total occupational disability benefits when the participant is unable to perform all of the substantial and material duties of her regular occupation, but that the Committee arbitrarily construed the Plan to include performing a substantial portion of “work available for which she is qualified” with accommodations that could have been made.

IV

Sierra Pacific further argues that the district court erred by ordering benefit payments beyond the initial 24-month disability period because Saffle never applied for general disability payments and her eligibility for the second-tier benefits has never been considered by the Benefit Committee. We agree that there is nothing in the administrative record about general disability. Of course it is the case, as Saffle contends, that she could not have applied for general disability since she first must have been awarded occupational disability benefits; but that affords no basis upon which to uphold an order to pay benefits from the date of onset to the present. Therefore, to the extent the district court ordered payments beyond the initial 24-month disability period, it was error to do so.

V

Finally, Sierra Pacific asks us to reverse the determination of benefits ordered by the district court, and to remand with the direction that judgment be entered in favor of the Plan. For much the same reason that we shall reverse the district court’s order to pay benefits, we decline to order judgment for Sierra Pacific.

The Plan itself reposes discretion in the Benefit Committee to determine “any debatable question arising in connection with the ... application ... of the Plan or any provision of the Plan.” Here, the Committee abused its discretion by erroneously factoring “accommodation” into the criteria for total disability for purposes of occupational disability benefits. Unlike other instances where an ERISA plan administrator abuses its discretion (for example, rendering a decision without explanation, or relying on clearly erroneous findings of fact, Taft, 9 F.3d at 1472), the Sierra Pacific Benefit Committee has not yet had the opportunity of applying the Plan, properly construed, to Saffle’s application for benefits. It should be up to the administrator, not the courts, to make that call in the first instance.

We have previously indicated that remands to the factfinder are appropriate in similar circumstances. In Patterson v. Hughes Aircraft Co., 11 F.3d 948 (9th Cir.1993), after holding that the Plan was ambignous and incorrectly construed, we instructed the district court to remand to the administrator for a factual determination consistent with our opinion on plan interpretation. And in Mongeluzo v. Baxter Travenol Long Term Disability Benefit Plan, 46 F.3d 938 (9th Cir.1995), where the district court’s review was de novo because, unlike this Plan, the benefit plan did not confer discretion on the administrator, we held that the terms of the plan construed in accordance with Patterson required reevaluation of the evidence and so we remanded to the district court for a factual determination under a proper construction of the terms of the plan. We now make it explicit, that remand for reevaluation of the merits of a claim is the correct course to follow when an ERISA plan administrator, with discretion to apply a plan, has misconstrued the Plan and applied a wrong standard to a benefits determination. As then-District Judge Tashima explained in Henry v. The Home Ins. Co., 907 F.Supp. 1392 (C.D.Cal.1995):

It is not the court’s function ab initio to apply the correct standard to [the participant’s] claim. That function, under the Plan, is reserved to the Plan administrator. Accordingly, this matter must be remanded to the Plan administrator for a re-determination of [the participant’s] claim, in a manner consistent with this opinion.

Id. at 1398-99.

VI

Saffle asks for an award of attorney’s fees on appeal, which we decline to consider on the ground that it is premature.

VII

Because the Benefit Committee misconstrued the Plan language and applied the wrong standard to determine “total disability” for purposes of occupational disability benefits, we reverse and remand for the district court to remand to the Committee to act within a reasonable period of time on Saffle’s application for long-term disability benefits under a standard for “total disability” that is consistent with this opinion.

REVERSED AND REMANDED.