Schreiber v. Kellogg ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
3-17-1995
Schreiber v Kellogg
Precedential or Non-Precedential:
Docket 94-1551
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"Schreiber v Kellogg" (1995). 1995 Decisions. Paper 78.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 94-1551
___________
PALMER K. SCHREIBER,
Appellant
v.
CHRISTOPHER G. KELLOGG
_______________________________________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 90-cv-05806)
___________________
Argued October 31, 1994
Before: SCIRICA, LEWIS and RONEY*, Circuit Judges
(Filed March 17, l995)
GREGORY G. ALEXANDER, ESQUIRE (ARGUED)
Alexander & Pelli
One Penn Center, Suite 1110
Philadelphia, Pennsylvania 19103
STANLEY R. WOLFE, ESQUIRE
STUART J. GUBER, ESQUIRE
Berger & Montague
1622 Locust Street
Philadelphia, Pennsylvania 19103
Attorneys for Appellant
*The Honorable Paul H. Roney, United States Circuit Judge for the
Eleventh Judicial Circuit, sitting by designation.
GAVIN P. LENTZ, ESQUIRE (ARGUED)
Bochetto & Lentz
1500 Market Street
East Tower, Centre Square, 14th Floor
Philadelphia, Pennsylvania 19102
Attorney for Appellee,
Christopher G. Kellogg
JOHN E. CARUSO, ESQUIRE (ARGUED)
Montgomery, McCracken, Walker & Rhoads
Three Parkway, 20th Floor
Philadelphia, Pennsylvania 19102
Attorney for Appellee,
Trustees of the Stock Trust
Under Item Third of the Will
of Rodman Wanamaker, Deceased
__________________
OPINION OF THE COURT
__________________
SCIRICA, Circuit Judge.
This diversity case requires us to interpret the scope
of a purported spendthrift provision in a trust created in the
early part of the century. In so doing, we face an issue of
first impression under the laws of Pennsylvania and most other
states: the applicability of section 157(c) of the Restatement
(Second) of Trusts, which allows creditors to reach a spendthrift
trust interest in limited circumstances. The district court
found the trust contained a spendthrift provision protecting the
interest of the beneficiary and that Pennsylvania courts would
not apply the Restatement exception under the circumstances of
this case. Schreiber v. Kellogg, 849 F. Supp. 382, 389, 394
(E.D. Pa. 1994). We will affirm in part and reverse in part.
I.
In 1928, Rodman Wanamaker died, leaving a will and
codicils1 that established trusts for his children and their
descendants. At issue in this case is a $120 million trust
created in Paragraph Third of his will.
For half a century, the trust consisted of the stock in
the John Wanamaker department store. In March 1978, Carter,
Hawley, Hale, Inc. offered the trust $40 million for the
Wanamaker stock. Christopher G. Kellogg, one of Wanamaker's
great-grandchildren and a contingent income beneficiary of the
trust,2 engaged attorney Palmer K. Schreiber to increase the
1
. The Wanamaker will and its codicils have provided much
material for judicial opinion, including at least three decisions
by the Pennsylvania Supreme Court and a number by the Montgomery
County Orphans' Court. See, e.g., In re Estate of Wanamaker, 159
A.2d 201 (Pa. 1960); In re Wanamaker's Estate, 6 A.2d 852 (Pa.
1939); In re Wanamaker's Estate, 167 A. 592 (Pa. 1933); In re
Wanamaker Estate, 105 Montgomery County L. Rep. 372 (Montgomery
County Orphans' Ct. 1979); In re Wanamaker Estate, No. 38,456
(Montgomery County Orphans' Ct. Feb. 27, 1975).
2
. Although the will did not expressly provide that Wanamaker's
great-grandchildren would succeed to their parents' interests in
the trust, Judge Alfred L. Taxis, Jr., of the Montgomery County
Orphans' Court ruled two decades ago that the failure to include
such specific language was an oversight of the drafter. In re
Wanamaker Estate, No. 38,456 (Montgomery County Orphans' Ct. Feb.
27, 1975). Thus, Kellogg became a contingent beneficiary as a
result of this 1975 decision; he became an income beneficiary
upon the death of his mother in August 1989. Cf. Schreiber v.
Kellogg, 849 F. Supp. 382, 384 nn.1-2 (E.D. Pa. 1994) (decision
on execution of judgment). He receives $31,500 per month in
income from the trust. Schreiber v. Kellogg, 839 F. Supp. 1157,
1160 (E.D. Pa. 1993) (decision on motion to stay judgment).
purchase price of the stock. Partially as a result of those
efforts, the stock was sold for $60 million, about $20 million
more than the original offer. For his services, the Montgomery
County Orphans' Court awarded Schreiber $117,000 in counsel fees
and interest from the corpus of the trust, and he later received
a judgment of nearly $88,000, plus counsel fees and interest,
against another attorney involved in the stock sale for breach of
a fee-sharing agreement.
In October 1978, after the stock was sold, Schreiber
filed a surcharge action on behalf of Kellogg against the
trustees of the Wanamaker trust, alleging negligence,
mismanagement, and breach of fiduciary duty. In May 1981, the
parties settled the suit. The trustees agreed to hold regular
meetings, make certain information available to beneficiaries,
and file a plan for the creation of a retirement age for
trustees. For his part, Kellogg agreed to pay his own counsel
fees and to obtain a release of any claims against the trust from
his counsel. Schreiber and Kellogg then signed a fee agreement
that provided for Kellogg to pay Schreiber $80,000, plus interest
at a "commercially competitive" rate.
When Kellogg failed to pay the amount due, Schreiber
filed this suit for breach of contract. The district court
awarded him $512,864 for counsel fees and interest, and we
affirmed. Schreiber v. Kellogg, 37 F.3d 1488 (3d Cir. 1994).
During the pendency of the appeal, Schreiber asked the
district court to execute on Kellogg's interest in the trust to
satisfy the judgment. The court denied the motion, holding that
Wanamaker had intended to provide spendthrift protection for his
great-grandchildren and Kellogg's interest in the trust was
protected. Schreiber v. Kellogg, 849 F. Supp. 382, 389 (E.D. Pa.
1994). The court also ruled that Pennsylvania courts would not
apply, under the circumstances of this case, section 157(c) of
the Restatement (Second) of Trusts (1959), which permits judgment
creditors that preserve or benefit an interest in a spendthrift
trust to reach that interest to enforce valid claims. Id. at
394. Schreiber appealed.
The district court had diversity jurisdiction pursuant
to 28 U.S.C. § 1332 (1988). We have jurisdiction under 28 U.S.C.
§ 1291 (1988). Our review of the district court's construction
of Pennsylvania law is de novo. Salve Regina College v. Russell,
499 U.S. 225, 231 (1991) ("We conclude that a court of appeals
should review de novo a district court's determination of state
law."); Grimes v. Vitalink Communications Corp., 17 F.3d 1553,
1557 (3d Cir.) ("The determinations regarding state law, where
appropriate, will be reviewed de novo."), cert. denied, 115 S.
Ct. 480 (1994). Our standard of review of the district court's
interpretation of the Wanamaker will depends on whether
Pennsylvania law treats such an interpretation as a question of
law or of fact.3
3
. Because this is a diversity case, we look to state law to
determine whether a trial court's interpretation of a will is a
question of law subject to de novo review or one of fact under a
clearly erroneous standard. See United States v. Tabor Court
Realty Corp., 803 F.2d 1288, 1304 (3d Cir. 1986) (citation
omitted) ("In Pennsylvania, the existence of actual intent [for a
fraud action] is a question of fact; therefore, the court's
determination is reviewed on the clearly erroneous standard."),
Under Pennsylvania law, interpretation of a will
generally is a question of law, as long as the court determines
the meaning of the document solely from its language and not from
any surrounding circumstances. Cf. In re Estate of Livingston,
612 A.2d 976, 981 n.2 (Pa. 1992) ("In this case, the courts were
called upon to interpret the legal effect of a writing. This
entails reaching a conclusion of law."); Miller v. Bower, 103 A.
727, 728 (Pa. 1918) ("[T]he question dividing the parties was
resolved into a pure question of law arising out of the
construction of the will . . . ."). Because the district court
here apparently did not consider any evidence beyond the four
corners of the will,4 our review is a question of Pennsylvania
law subject to de novo review.
(..continued)
cert. denied, 483 U.S. 1005 (1987); De Oliveira v. United States,
767 F.2d 1344, 1347 (9th Cir. 1985) (citations omitted) ("Because
the testator lived in California, California law governs the
construction of his will. Under California law, the construction
of a will is a question of law unless the construction turns on
the credibility of extrinsic evidence.").
4
. Although the district court noted that it had conducted an
evidentiary hearing on the motion to execute on the trust
interest, Schreiber, 849 F. Supp. at 384, the parties agree that
the "primary purpose" of the hearing involved the applicability
of section 157(c) of the Restatement (Second) of Trusts (1959) --
not interpretation of the will itself. The trustees of the
Wanamaker trust contend that the district court also received
evidence relating to Wanamaker's intent at that hearing, but they
failed to point out any evidence or testimony on intent. The
only evidence allegedly heard consisted of testimony and an
affidavit noting that no one had ever before questioned the
applicability of the spendthrift provision to Wanamaker's great-
grandchildren, but this evidence does not bear directly on the
question of Wanamaker's intent. Furthermore, the district court
does not cite any factor other than the language of the will and
case law to support its holding on the issue of Wanamaker's
intent.
II.
Under Rule 69(a) of the Federal Rules of Civil
Procedure, a federal court must follow relevant state law in a
proceeding to execute on a judgment, unless a federal statute
dictates otherwise. See United States v. Yazell, 382 U.S. 341,
354-58 (1966). Because no applicable federal statute exists
here, we look to Pennsylvania law to determine whether Schreiber
may execute on Kellogg's interest in the Wanamaker trust.
A.
In general, "[t]rusts in which the interest of a
beneficiary cannot be assigned by him or reached by his creditors
have come to be known as 'spendthrift trusts.'" 2A Austin W.
Scott & William F. Fratcher, The Law of Trusts § 151, at 83 (4th
ed. 1987).5 No specific wording is required under Pennsylvania
law to create a spendthrift trust.6 If a spendthrift trust is
5
. Spendthrift trusts originated as a means to provide for
people known as "spendthrifts," such as "infants, mental
incompetents, [and] married women." See Case Comment,
Spendthrift Trusts -- The Public Policy Exception, 45 Mo. L. Rev.
369, 372 (1980). The beneficiary of a spendthrift trust,
however, need not be a spendthrift. See id. ("[I]t is no longer
necessary that the beneficiary be a spendthrift."); Restatement
(Second) of Trusts § 152 cmt. g ("A spendthrift trust may be
created in favor of a beneficiary although he is competent to
manage his own affairs."); 2A Austin W. Scott & William F.
Fratcher, The Law of Trusts § 151, at 83 (4th ed. 1987) ("[I]t is
quite immaterial whether or not the beneficiary is in fact a
spendthrift.").
6
. See Riverside Trust Co. v. Twitchell, 20 A.2d 768, 770 (Pa.
1941) ("The intent to create a spendthrift trust is not to be set
aside merely because it is not clearly expressed by the
scrivener."); J. Brooke Aker, Pennsylvania Estate Planning and
Drafting § 113.3, at 3 (1978) (noting that "no particular words
are required" to create a spendthrift trust). But see In re
Benson, 615 A.2d 792, 795 (Pa. Super. Ct. 1992) (stating that
created, courts will sustain its validity,7 except in a few
limited circumstances.8
Because the purported spendthrift trust here was
created in a will, we must consider the intent of the testator,
which under Pennsylvania law controls interpretation of a will's
provisions. In construing the same will at issue here, the
Pennsylvania Supreme Court explained:
The intention of the testator is the pole
star in the interpretation of every will and
that intention must be ascertained from a
consideration of the entire will, including
its scheme of distribution, as well as its
language, together with all the surrounding
and attendant circumstances.
In re Estate of Wanamaker, 159 A.2d 201, 204 (Pa. 1960)
(citations omitted); see also In re Estate of Patrick, 409 A.2d
388, 390 (Pa. 1979) ("[I]n construing a will, the intent of the
testator, if it can be ascertained, must prevail.").
Similarly, the intent of the creator of a trust
controls the interpretation of the trust document. See In re
Benson, 615 A.2d 792, 794-95 (Pa. Super. Ct. 1992) ("The polestar
(..continued)
courts cannot "rewrite" or "distort" the language of a document
creating a trust "in order to attain what is believed to be
beneficial or wise or even what it is believed that the settlor
would or should have provided if he possessed a knowledge of all
presently existing circumstances").
7
. See, e.g., In re Benson, 615 A.2d at 794 ("[W]here a
spendthrift trust is in issue, the courts will uphold the
spendthrift provisions as a means to enforce the settlor's right
to dispose of his property as he chooses . . . .").
8
. For a discussion of exceptions to the spendthrift trust rule,
see infra part III.
in every trust is the settlor's intent and that intent must
prevail"). Pennsylvania courts agree the writing establishing a
trust "'must be considered to be the best and controlling
evidence of the settlor's intent.'" Id. at 795 (quoting In re
Girard Trust Corn Exch. Bank, 208 A.2d 857, 859 (Pa. 1965)).
Because the trust here was created in the Wanamaker will, we look
to the language of that will to determine the validity of the
purported spendthrift provision.
B.
The relevant provisions of the will are Paragraphs
Third and Eighth. Paragraph Third9 established the stock trust
9
. Although Paragraph Third continued for six pages, the most
relevant part for our discussion appeared primarily on the first
page. It provided:
I own all the shares of the Capital
Stock of John Wanamaker Philadelphia. I
order and direct they shall be held, In
Trust, . . . for the following uses and
purposes, to wit:
To receive all dividends, income or
money derived therefrom, as same shall be
declared and made payable by the Corporation
of John Wanamaker Philadelphia, it being my
wish, and direction, a Sinking Fund shall be
created into which there shall be annually
paid, from the net profits of John Wanamaker
Philadelphia, . . . an amount equal to not
less than fifty (50) per cent. of the annual
profits, to be used in payment, and
liquidation, on account of any indebtedness
due by the above Corporation . . . and the
difference between the amount of said net
annual profits, and the amount paid into said
Sinking Fund, shall then annually be divided
equally between my three (3) children,
Fernanda W. Heeren, John Wanamaker, Jr.,
Marie Louise Munn, during their life, for
and divided certain proceeds between Wanamaker's children "for
their sole and separate use, not to be anticipated, or assigned
by them, in any manner whatever, nor subject to any attachment,
alienation or sequestration for their debts, contracts or
engagements." There is no dispute that this language established
a spendthrift trust protecting Wanamaker's children.
(..continued)
their sole and separate use, not to be
anticipated, or assigned by them, in any
matter whatever, nor subject to any
attachment, alienation or sequestration for
their debts, contracts or engagements.
Paragraph Eighth10 stipulated that the trust
established in Paragraph Third also shall provide for descendants
of the Wanamaker children "subject to the provisions herein
previously contained." The fundamental disagreement in this case
is whether this language extends the spendthrift protection from
Paragraph Third to cover the bequest to Wanamaker's grandchildren
and great-grandchildren in Paragraph Eighth. The district court
held that it did, thereby providing spendthrift protection to
Kellogg's interest. Schreiber, 849 F. Supp. at 388-89. But
Schreiber contends the phrase merely means that a gift made in a
10
. Paragraph Eighth provided:
In further Trust, on the part of my said
Trustees, to hold said Capital Stock, and all
dividends, income or money derived therefrom,
subject to the provisions herein previously
contained, for the benefit of all the child,
or children, of all the children of my three
(3) children, for and during the term of
their natural life, or lives, of such of my
said grandchildren, and for the period of
twenty-one (21) years after the date of the
decease of the last surviving grandchild. In
further Trust, at the expiration of the
period of twenty-one (21) years, after the
date of the decease of the last surviving
grandchild, of my children, then said stock,
or the proceeds which may be derived
therefrom, to be equally divided, share and
share alike, into as many parts as there may
then be great-grandchildren of mine,
surviving, and the descendant of any great-
grandchild, then surviving, the latter to
receive and enjoy, subject to the provisions
heretofore stated such share as their parent,
or parents, would have enjoyed, had they then
not been deceased.
(emphasis added).
preceding paragraph takes precedence over a gift stated later in
the will.
To resolve this dispute, we must look to the language
and structure of the entire will. See, e.g., Riverside Trust Co.
v. Twitchell, 20 A.2d 768, 770 (Pa. 1941); Ball v. Weightman, 116
A. 653, 654 (Pa. 1922). After the first two paragraphs made
unrelated bequests, Paragraph Third created the stock trust and
divided the proceeds into three general categories. First,
between one-half and two-thirds of the income from the trust was
to pay outstanding debts of the John Wanamaker corporate
entities. Second, the remainder of the stock income was to be
shared by Rodman Wanamaker's three children, subject to the
spendthrift provisions noted earlier. Upon the death of the
Wanamaker children, their children were to split one-half of
their parent's share. Third, the other half share would be
accumulated to fund various charities.
Paragraph Seventh noted that if, under Paragraph Third,
the first category of money was not needed to pay Wanamaker
corporate debts, then the entire income of the trust should be
divided among the Wanamaker children. "[B]ut the provisions as
to the amount which shall go to my children's children, in the
event of the decease of the former, shall remain as provided for
in the paragraph heretofore." The final relevant section,
Paragraph Eighth, directed the trust income to the Wanamaker
children's descendants "subject to the provisions herein
previously contained."
Although Schreiber contends the limiting phrase in
Paragraph Eighth merely prioritizes among gifts made in the will,
we believe it means something more. Paragraph Third created a
detailed scheme of distribution to different categories of
beneficiaries subject to certain conditions and restrictions, and
the paragraphs following made bequests according to that scheme.
We believe the restrictive phrase in Paragraph Eighth was meant
to subject the bequests made therein to all applicable provisions
of the previous paragraphs; the phrase was meant to state that
the descendants of Rodman Wanamaker would receive the trust
income under the scheme as established in Paragraph Third and
followed in the other relevant paragraphs. That scheme included
a spendthrift provision for the individual beneficiaries. We see
no reason why that provision should not be among those to which
the bequests in Paragraph Eighth were explicitly made "subject."
Other provisions of the will support this
interpretation. For example, Paragraph Fifth mandated the
creation of an artisans school and adopted "[t]he same method of
creating a principal sum" as used to fund a children's home
established in Paragraph Third. Paragraph Sixth provided for a
sanitarium with funding "[a]s provided under the last paragraph,
and fully set forth in the third paragraph." Thus, it appears
Rodman Wanamaker created a detailed funding mechanism from stock
income in Paragraph Third of his will and envisioned that
bequests made in the paragraphs following would conform to the
rules applicable to that category of income.
Pennsylvania case law also supports this result. In
Ball v. Weightman, 116 A. 653 (Pa. 1922), the Pennsylvania
Supreme Court upheld spendthrift protection for a testator's
great-grandchildren, even though the will specifically included
such protection only for the testator's grandchildren.
Repeatedly noting that it examined the "entire will" for an
indication of the testator's intent, the court stated it saw:
nothing to indicate an intent to discriminate
between beneficiaries, or to require the
trustees to distribute the income direct to
some, and not so to others. Testator's
manifest purpose was to secure the income of
his estate for the personal use of his
descendants during the life of the trust, and
such protection is no more essential to a
child or grandchild than to a great-
grandchild . . . .
Id. at 654.11 Similarly, the Supreme Court in Riverside Trust
Co. v. Twitchell, 20 A.2d 768 (Pa. 1941), decided that a deed of
trust explicitly granting spendthrift protection over the
principal of the trust, but not to the income, was meant to cover
both.
Plaintiff argues that the expression
contained in the trust agreement . . .
signifies an intent to protect merely the
principal. Yet when the instrument is
examined as a whole, it readily appears that
11
. It is true that Ball partially relied on the fact that
"throughout the will, testator seems to use the words
'grandchildren,' 'issue,' and 'descendants' indiscriminately,
when referring to those who might become lineal descendants of
his children." 116 A. at 654. We acknowledge that this is not
the situation with the Wanamaker will. But the Pennsylvania
Supreme Court in Ball also relied on its examination of the
entire will and the lack of any indication that the testator
intended to discriminate between beneficiaries, id., a form of
analysis that proves useful in this case.
the grantor definitely intended an equal
protection of the income. The intent to
create a spendthrift trust is not to be set
aside merely because it is not clearly
expressed by the scrivener.12
Id. at 770. From these cases, it appears the Pennsylvania
Supreme Court broadly construes spendthrift provisions when the
testator has indicated a desire to incorporate such protection
into a trust, but has failed to clearly define the scope of
coverage.
Nevertheless, Schreiber notes that a separate trust
created in the Wanamaker will explicitly made spendthrift
protection applicable to the interests of all beneficiaries, the
12
. In fact, the Pennsylvania Supreme Court has interpreted a
trust created in a will to have spendthrift protection even when
the will contained no such express language:
Is this a spendthrift trust? It may be
admitted that it lacks some of the usual
provisions of such a paper, notably the
absence of any clause protecting the income
from attachment, etc. If, however, we can
gather from the will itself, and from the
light of the circumstances surrounding the
testator at the time he made it, that his
intent was to create a spendthrift trust,
such intent ought not to be defeated because
his conveyancer blundered.
Appeal of Grothe, 19 A. 1058, 1059 (Pa. 1890); see also Aker,
supra, § 113.3, at 3 (noting that "no particular words are
required" to create a spendthrift trust and that "a spendthrift
clause may be implied"); 6 The Hon. David G. Hunter et al.,
Pennsylvania Orphans' Court Commonplace Book § 6(b), at 48 (2d
ed. 1959) (citing numerous cases) ("Where such appears in the
will to be the manifest intention of the testator, a spendthrift
trust will be sustained, although the testator has not provided
in terms that the estate of the beneficiary shall not be liable
for his debts.").
Wanamaker children and their descendants alike. Paragraph Second
created a trust from life insurance proceeds and directed the
money be dispersed to Wanamaker's children "without power on
their part to anticipate or assign the same, in any manner
whatever, or be subject to any attachment, alienation or
sequestration for their debts, contracts or engagements." It
further provided that, upon a child's death, the child's income
be paid to the child's issue "in accordance with the same terms
and conditions under which the parent, or parents enjoyed the
same during their lifetime." Thus, Schreiber contends Wanamaker
knew how to make spendthrift protection applicable to all
beneficiaries, his children and their descendants alike, but he
chose not to do so with the beneficiaries of the Paragraph Third
stock trust.
We agree with the district court that, in the context
of this will, there is no meaningful difference between the
phrases "in accordance with the same terms and conditions" and
"subject to the provisions herein previously contained." The
different terminology instead appears merely to be a result of
the structure of the will. In just over one page, Paragraph
Second established a relatively simple insurance trust,
designated the Wanamaker children as beneficiaries protected by a
spendthrift provision, and provided that the children's
descendants would benefit "in accordance with the same terms and
conditions under which the parent, or parents enjoyed the same
during their lifetime." By contrast, Paragraph Third established
the stock trust, created categories of funding, and made bequests
to the Wanamaker children subject to the spendthrift clause.
Eight pages later, after further elaboration on the stock trust
and its beneficiaries, Paragraph Eighth then named the Wanamaker
children's descendants as beneficiaries "subject to the
provisions herein previously contained." Thus, Paragraph Eighth
made the Wanamaker children's descendants subject to the entire
scheme of distribution created for the stock trust -- not just a
few limiting provisos as under the Paragraph Second insurance
trust.13
13
. The language of Paragraph Second supports the proposition
that Wanamaker intended spendthrift protection to cover his
great-grandchildren under the Paragraph Third stock trust. In In
re Wanamaker Estate, No. 38,456 (Montgomery County Orphans' Ct.
Feb. 27, 1975), which interpreted this same trust, the issue was
whether Wanamaker's great-grandchildren succeeded to their
parents' income interests in the Paragraph Third stock trust.
Although Paragraphs Third and Eighth did not resolve the issue,
Paragraph Twenty-Second of the will addressed similar
distribution rights under a residuary trust. Based largely upon
the wording of this other trust, Judge Taxis concluded that
Wanamaker's great-grandchildren were beneficiaries of the
Paragraph Third stock trust:
[T]he language [of the Paragraph Twenty-
Second trust] clearly evidences a general per
stirpital plan of distribution by the
testator. Almost certainly the testator's
intention concerning "Stock Trust" income
would have been equally explicit but the
scrivener failed to provide for the gap in
time from the death of a grandchild until
termination of the trust. There is no
indication anywhere in the will that the
testator intended to establish a pattern of
income distribution in the "Stock Trust"
distinct from that of the Residuary Trust.
Id., slip op. at 5-6. Similarly, there is no indication in the
will that Wanamaker intended to establish a level of spendthrift
protection for the stock trust distinct from that created for the
Paragraph Second insurance trust.
Furthermore, we are reluctant to impose artificial
distinctions between these similar phrases in a will that has
been criticized repeatedly for its careless drafting. See, e.g.,
In re Estate of Wanamaker, 159 A.2d 201, 203 (Pa. 1960) ("A
number of provisions of Mr. Wanamaker's will (a) were ambiguous,
and others (b) would have violated the Rule against Perpetuities
. . . ."); In re Wanamaker's Estate, 6 A.2d 852, 854 (Pa. 1939)
(noting the wording of Paragraph Eighth of the will was
"characteristic of the slovenly method of the scrivener" and
referring to "confused language used by the testator").
Therefore, given the language and structure of the
will, the acknowledged imprecision in its terminology, and the
broadness with which Pennsylvania courts have treated spendthrift
provisions, we agree with the district court and hold that the
spendthrift provision here encompasses Kellogg's interest in the
trust.
III.
Because a spendthrift provision is involved, we must
decide whether Pennsylvania would adopt section 157(c) of the
Restatement (Second) of Trusts, which permits creditors to reach
spendthrift trust interests to satisfy claims for services or
materials that preserved or benefitted the beneficiary's interest
in the trust. No Pennsylvania court has resolved this question.
Indeed, neither the parties nor this court could locate more than
one reported decision from any jurisdiction addressing this
issue. Accordingly, we must determine whether the Pennsylvania
Supreme Court would adopt section 157(c) and, if so, whether it
is applicable under the facts of this case. See Commissioner v.
Estate of Bosch, 387 U.S. 456, 465 (1967); Bohus v. Beloff, 950
F.2d 919, 924 (3d Cir. 1991).
A.
Section 157 of the Restatement (Second) of Trusts
provides:
Although a trust is a spendthrift trust or a
trust for support, the interest of the
beneficiary can be reached in satisfaction of
an enforceable claim against the beneficiary,
(a) by the wife or child of the
beneficiary for support, or by the wife for
alimony;
(b) for necessary services rendered to
the beneficiary or necessary supplies
furnished to him;
(c) for services rendered and materials
furnished which preserve or benefit the
interest of the beneficiary;
(d) by the United States or a State to
satisfy a claim against the beneficiary.
(emphasis added).
Section 157(c) has two fundamental purposes. First, it
was intended to prevent unjust enrichment of a beneficiary,14 and
14
. Restatement (Second) of Trusts § 157(c) cmt. d ("In such a
case the beneficiary would be unjustly enriched if such a claim
were not allowed"); Scott & Fratcher, supra, § 157.3, at 208
("The purpose of the settlor in imposing restrictions on the
alienation of the beneficiary's interest is to prevent him from
losing his interest by his own improvidence. There is no reason,
however, why his interest under the trust should be exempt from
the claims of those who have by their services conferred a
benefit on his interest. He should not be permitted to profit at
their expense.").
second, to ensure that beneficiaries were able to obtain
necessary resources to protect their interests.15
B.
As the state credited with first recognizing the
validity of spendthrift trusts,16 Pennsylvania has more than 150
15
. See Erwin N. Griswold, Spendthrift Trusts § 346, at 410 (2d
ed. 1947) ("Without such a remedy, needy beneficiaries may be
wholly unable to enforce their interests or to obtain protection
in case the trust is not properly administered."); see also Anne
S. Emanuel, Spendthrift Trusts: It's Time to Codify the
Compromise, 72 Neb. L. Rev. 179, 196 (1993) (Section 157(c)
"assures that the beneficiary's interest in the trust will not be
diminished or lost because the person in a position to protect it
declines to do so for fear her efforts would be uncompensated.").
16
. See, e.g., John L. Bigelow, Support Claims of the Wife and
the Spendthrift Trust Interest of the Husband-Beneficiary, 51
Dick. L. Rev. 1, 3 (1946) ("the doctrine of the spendthrift trust
is said to have originated" in Pennsylvania); Griswold, supra, §
26, at 22 (footnote omitted) ("These early Pennsylvania cases not
only were the foundation of spendthrift trusts in that state, but
they were also frequently cited and relied on in other
jurisdictions. They formed the principal basis of the dictum in
Nichols v. Eaton [91 U.S. 716 (1875)] which was the greatest
single factor in the establishment of spendthrift trusts in the
United States."); Wills - Spendthrift Clause - Legacies -
Assignment, Fiduciary Rev., June 1941, at 1 ("Pennsylvania was
the first jurisdiction to recognize spendthrift trusts.").
Griswold explained that the development of spendthrift trusts
occurred in Pennsylvania because the state had no equity courts
and the law courts had no equity powers:
The result was that if a man had what
elsewhere would have been regarded as an
equitable right, there was little or no means
of dealing with it in Pennsylvania.
Creditors were therefore unable to reach the
interest of a beneficiary, since there was no
procedure at law for that purpose. . . .
When, in later years, the Pennsylvania courts
gradually acquired equity powers, spendthrift
trusts had become firmly established, and an
accepted part of the law.
Griswold, supra, § 26, at 21-22.
years' worth of jurisprudence on the issue.17 Originally,
"spendthrift trusts were upheld in their entirety by Pennsylvania
courts on the theory that property rights include the right to
place any type of restriction on . . . disposition." Wills -
Spendthrift Clause - Legacies - Assignment, Fiduciary Rev., June
1941, at 1. Yet, as time passed, Pennsylvania courts began
recognizing exceptions to the spendthrift trust rule, see id. at
1-4, even when that meant overruling prior case law. See, e.g.,
John L. Bigelow, Support Claims of the Wife and the Spendthrift
Trust Interest of the Husband-Beneficiary, 51 Dick. L. Rev. 1, 2
(1946) (noting Pennsylvania courts' "change of position from one
extreme to the other" with regard to a woman's ability to attach
the spendthrift interest of her husband).
This evolution of spendthrift trust law in Pennsylvania
is consistent with the law's development in the majority of
American jurisdictions. As one treatise explained:
[T]he trend of the last twenty-five
years has been to limit and qualify
spendthrift trusts, either by statute or by
judicial decisions which create exceptions of
the types described at a later point. The
spirit of nineteenth century individualism
which originally validated these trusts is
meeting opposition of a socially-minded
character.
George G. Bogert & George T. Bogert, Handbook of the Law of
Trusts § 40, at 154 (5th ed. 1973) (footnote omitted); see also
17
. The Pennsylvania doctrine on spendthrift trusts apparently
originated in the 1829 case of Fisher v. Taylor, 2 Rawle 33 (Pa.
1829) (Smith, J.). See Wills - Spendthrift Clause - Legacies -
Assignment, supra, at 1.
Jacob Mertens, Jr., Mertens Law of Federal Income Taxation §
49E.35 (1993) ("Inroads have been made upon the effectiveness of
spendthrift trusts by permitting certain classes of claims to be
satisfied from the income of such trusts . . . .").
C.
As we have noted, no Pennsylvania court has considered
whether section 157(c) should be adopted.18 In fact, only one
state's court apparently has decided the issue. Evans & Luptak
v. Obolensky, 487 N.W.2d 521 (Mich. Ct. App.), appeal denied, 496
N.W.2d 289 (Mich. 1992), involved a situation similar to this
case. In Evans, the trust beneficiary hired a law firm to secure
the best price for the primary assets of the trust, but failed to
pay the firm after the sale occurred. The firm obtained a
judgment against the beneficiary, and a lower court denied
execution on the trust proceeds. The Michigan Court of Appeals,
in adopting section 157(c), reversed and remanded. The court
18
. Kellogg claims the Pennsylvania Supreme Court rejected the
application of section 157(c) in In re Heyl's Estate, 43 A.2d 130
(Pa. 1945), which involved a trust established for two sisters by
their father. One sister made an agreement with the trustee by
which the trustee would build her a house and she would pay for
it out of future trust income. When the beneficiary revoked the
agreement, the court held that she had been without right to
assign her interest and thus the original agreement with the
trustee was void. Because the burden of maintaining the house
fell back to the corpus of the trust, it impaired the other
beneficiary's interest, but that factor was not deemed sufficient
to justify violating the spendthrift provisions. Id. at 131-32.
Although this case demonstrates the reluctance of state courts to
intrude upon spendthrift provisions, it does not reject the
Restatement position. The case certainly does not fall under
157(c), because the trustee's action did not "preserve or
benefit" the beneficiary's interest in the trust.
noted that Michigan courts already had approved the other
sections of the Restatement: "From the preceding analysis it is
clear that the Restatement has been approved by every applicable
appellate decision in Michigan since 1983 and that all the
subsections of § 157 of the Restatement that were in issue in the
cases were adopted with approval by either the Court of Appeals
or the Supreme Court." Id. at 523.
Schreiber contends that, as in Evans, the state courts
in Pennsylvania have adopted all the other subsections of section
157. Subsection (a), which permits trust assets to be reached to
satisfy alimony or support claims, has been substantially -- if
not entirely -- adopted in Pennsylvania. For more than sixty
years, the Pennsylvania Supreme Court has permitted wives to
reach the assets of spendthrift trusts to satisfy claims for
support. See In re Moorehead's Estate, 137 A. 802 (Pa. 1927);
see also In re Stewart's Estate, 5 A.2d 910 (Pa. 1939).
The district court noted, however, that the
Pennsylvania Supreme Court refused to permit an out-of-state
alimony judgment to reach assets of a spendthrift trust in
Lippincott v. Lippincott, 37 A.2d 741 (Pa. 1944); thus, the
district court said the Supreme Court implicitly rejected part of
Restatement section 157(a). Schreiber, 849 F. Supp. at 391.
Yet, at the time of Lippincott, Pennsylvania had no provision for
alimony in an absolute divorce;19 therefore, the Supreme Court's
19
. Pennsylvania had no provision for alimony in an absolute
divorce until the General Assembly enacted the Divorce Code of
1980. See 23 Pa. Cons. Stat. Ann. §§ 3101-05, 3701-07 (1991)
refusal to create a public policy exception for alimony payments
should not be seen as a rejection of section 157 because the
state at the time did not even recognize such payments.20
Furthermore, the state now has a broad statute that provides:
Income of a trust subject to spendthrift or
similar provisions shall nevertheless be
liable for the support of anyone whom the
income beneficiary shall be under a legal
duty to support.
20 Pa. Cons. Stat. Ann. § 6112 (1975). This statute apparently
encompasses claims for alimony, as required by section 157(a).
See 23 Pa. Cons. Stat. Ann. § 3103 (1991) (defining alimony as
"[a]n order for support granted by this Commonwealth or any other
state to a spouse or former spouse in conjunction with a decree
granting a divorce or annulment"); Karen A. Fahrner et al., Bregy
on Selected Sections of the Pennsylvania Probate, Estates and
Fiduciaries Code § 6112, at 170 (Supp. 1993) ("[T]his part of the
Lippincott decision would be different under the wording of
present §6112 which makes spendthrift income liable to 'anyone
whom the income beneficiary shall be under a legal duty to
(..continued)
(containing part of the Divorce Code of 1990, which replaced the
1980 version).
20
. A law review article noted at the time of the Lippincott
decision that its result was required because the state had no
public policy in favor of support for former spouses: "With the
termination of the marriage the husband's duty of support, and
the State's interest as a third party, ceases. Thus the reason
for denying a spendthrift trust ascendancy in such a situation
ceases when public policy no longer exists." Bigelow, supra, at
10.
support.'"). In fact, the language of the statute appears to go
beyond even that required by the Restatement.21
As for Restatement section 157(b), the Pennsylvania
Supreme Court cited the subsection with approval in Lang v.
Commonwealth of Pa., Dep't of Public Welfare, 528 A.2d 1335,
1341-42 (Pa. 1987). In Lang, the Supreme Court noted that "[a]
support trust, though containing an implied spendthrift
provision, can generally be reached to satisfy claims for
necessary services rendered to the beneficiary. See Restatement
(Second) of Trusts, § 157 (1959)." Because Lang involved a
21
. We consider it significant that the Pennsylvania courts
repeatedly have expanded this exception to the spendthrift trust
rule. In the late 1800s and early 1900s, the Pennsylvania
Supreme Court refused to permit a wife to attach her husband's
interest in a spendthrift trust. See, e.g., Board of Charities
v. Lockard, 48 A. 496, 496 (Pa. 1901) ("We agree entirely with
all that has been said about the duty of the beneficiary to
support his wife and child; but that does not authorize
interference with the right of another individual to dispose of
his own property as he may see fit."); see also Thackara v.
Mintzer, 100 Pa. 151, 154-55 (Pa. 1882). Yet, over the next
several decades, the Pennsylvania courts did an "obvious about-
face in the law" and began to permit attachments of spendthrift
interests. See Bigelow, supra, at 2.
Furthermore, commentators have stated that nationwide
"[a] division of authorities exists on questions concerning
whether the beneficiary's interest in a spendthrift trust can be
reached by his wife and children to enforce claims for support,
or by a former wife for an alimony claim." William H. Wicker,
Spendthrift Trusts, 10 Gonz. L. Rev. 1, 5 (1974). We find it
noteworthy that, unlike some jurisdictions which continue to
reject claims for invasion of a spouse's spendthrift trust
interest, Pennsylvania courts appear to be in accord with the
Restatement position. In fact, instead of Pennsylvania adopting
the Restatement, one commentator suggested that the Restatement
"adopted this Pennsylvania common law view." Bigelow, supra, at
7.
support trust, however, the district court held the case did not
stand for the proposition that interests in a spendthrift trust
could be reached under section 157(b). We disagree. Section
157, by its terms, encompasses both spendthrift and support
trusts. The Lang court did not express any intention to
distinguish between those types of trusts in determining the
applicability of the Restatement; it simply cited section 157
with approval.
Furthermore, in Quigley Estate, 22 D. & C.2d 598
(Montgomery County Orphans' Ct. 1960), Judge Alfred L. Taxis,
Jr., approved a beneficiary's assignment of her interest in a
spendthrift trust to the Pennsylvania Department of Welfare. The
court, in upholding the "right of the Commonwealth to recover for
furnishing the legatee with such fundamental necessities of
life," expressly cited section 157 as support for its decision.
Id. at 599; see also Wills - Spendthrift Clause - Legacies -
Assignment, supra, at 2 (citing numerous Pennsylvania cases)
("The state may reach spendthrift trusts in reimbursement for the
care of an income cestui who has become a public charge.").
Quigley Estate and similar cases adopt the reasoning
not only of section 157(b), but also of section 157(d), which
allows spendthrift trust interests to be reached in satisfaction
of government claims. Another Pennsylvania case upholding the
application of section 157(d) is Scott Estate, 11 Pa. D. & C.2d
589 (Montgomery County Orphans' Ct. 1957), in which the Treasury
Department served a writ of attachment on the executors of a
trust to recover unpaid taxes of the beneficiary. Judge Taxis
noted the applicability of section 157(d), but stated he did "not
assume to decide the effectiveness of this attachment." Id. at
592. Nevertheless, relying in part on section 157(d), the court
permitted the amount of the unpaid taxes to be retained, pending
a resolution of the attachment. Id. at 592-93.22
The district court stated that these cases demonstrated
that Pennsylvania courts had not adopted the other subsections of
section 157 in their entirety. Yet, we believe this overlooks a
crucial point. The Michigan court, in adopting section 157(c),
commented that "the Restatement has been approved by every
applicable appellate decision in Michigan since 1983." Evans,
487 N.W.2d at 523. In Pennsylvania, the courts have approved the
relevant Restatement subsections in every applicable case for a
much longer period, with an understandable exception in
Lippincott, 37 A.2d at 743-44. We have found no Pennsylvania
22
. For decades, commentators have cited Scott Estate for the
proposition that Pennsylvania permits the United States to attach
spendthrift trust interests to recover unpaid taxes. See, e.g.,
Aker, supra, § 113.3, at 4 ("Despite existence of a spendthrift
clause, the legatee's interest may be attached by the United
States for delinquent income taxes . . . ."); Hunter et al.,
supra, § 6(k), at 52 ("attachment by U.S. for income taxes of
legatee is valid"). Furthermore, it is doubtful whether
Pennsylvania even has the power to shield interests in a
spendthrift trust from federal tax liens. See First Northwestern
Trust Co. v. Internal Revenue Serv., 622 F.2d 387, 390 (8th Cir.
1980) (noting the "well established legal principle that the
income from a spendthrift trust is not immune from federal tax
liens, notwithstanding any state laws or recognized exemptions to
the contrary"); United States v. Rye, 550 F.2d 682, 685 (1st Cir.
1977) ("In the area of spendthrift trusts, the courts have
consistently held that a restraint on transferability, whether
arising from the trust instrument or from state law, does not
immunize the beneficiary's interest from a federal tax lien.").
case that has expressly declined to follow Restatement section
157 or even criticized it. In fact, Pennsylvania courts
routinely cite as authority for their decisions the Restatement
of Trusts, including sections of the Restatement governing
spendthrift trusts.23 Given the rationale underlying section
157(c), and the favorable treatment Pennsylvania courts have
afforded other subsections of section 157 and the Restatement
overall,24 we believe the Pennsylvania Supreme Court would adopt
section 157(c).25
23
. In fact, a few years after publication of the original
Restatement of Trusts in 1935, the Pennsylvania Supreme Court
handed down In re Keeler's Estate, 3 A.2d 413 (Pa. 1939), a
decision that "relie[d] principally" on the Restatement
provisions on spendthrift trusts and on Erwin N. Griswold's book,
Spendthrift Trusts. See Trusts - Spendthrift - For Support -
Assignment - Unrevoked, Fiduciary Rev., Mar. 1939, at 1. For
other examples of the Pennsylvania Supreme Court's citation to
the Restatement on spendthrift trust issues, see Lang v.
Commonwealth of Pa., Dep't of Public Welfare, 528 A.2d 1335,
1341-42 (Pa. 1987); Morton v. Morton, 147 A.2d 150, 152 (Pa.
1959); Murphey v. C.I.T. Corp., 33 A.2d 16, 18 (Pa. 1943); see
also Hunter et al., supra, § 6(a)-(b), at 47-49; Robert Levin et
al., Summary of Pennsylvania Jurisprudence: Trusts and Gifts
Inter Vivos §§ 183-186, at 153-159 (1962).
24
. Counsel for Kellogg suggested at oral argument that, even if
we hold that Pennsylvania would adopt Restatement section 157(c),
our decision might not apply retroactively to testamentary
trusts, such as the one here, established before publication of
the first Restatement of Trusts in 1935. We disagree. Section
157 appears to have been a distillation of existing law on the
subject, not a radical change. In fact, the most fundamental
development in this area of Pennsylvania law on spendthrift
trusts may well have been In re Moorehead's Estate, 137 A. 802
(Pa. 1927), which first permitted the invasion of a spendthrift
trust interest on public policy grounds. As noted, this case
appeared almost a decade before the publication of the first
Restatement and may even have influenced the adoption of section
157. See supra note 21. The decision in Moorehead's Estate,
like most cases in this area, applied retroactively to the trust
involved. As the United States Supreme Court has noted, "As a
IV.
Although we hold that the Pennsylvania Supreme Court
would adopt Restatement section 157(c), we still must determine
whether the district court properly ruled that Pennsylvania
courts would not apply the Restatement "under the circumstances
of this case." Schreiber, 849 F. Supp. at 394.
A.
As an initial matter, we consider whether this type of
case, involving an attorney seeking reimbursement for services
rendered in connection with a trust interest, generally fits
within section 157(c). We believe it does. In fact, as we have
noted, the only case heretofore adopting section 157(c) involved
a beneficiary who hired a law firm to secure the best price for
the primary assets of a trust, but failed to pay the firm after
(..continued)
rule, judicial decisions apply 'retroactively.' Indeed, a legal
system based on precedent has a built-in presumption of
retroactivity." Solem v. Stumes, 465 U.S. 638, 642 (1984)
(citation omitted).
25
. The district court noted the Pennsylvania Supreme Court's
admonition that the invasion of spendthrift trust assets should
be an "extraordinary" remedy employed only when truly vital
interests were at stake. Schreiber, 849 F. Supp. at 392 (quoting
Lippincott v. Lippincott, 37 A.2d 741, 743 (Pa. 1944)). Although
we have noted that the result of Lippincott would no longer be
valid because of changes in the laws regarding alimony and
invasion of spendthrift trust interests for support payments, see
supra notes 19-21 and accompanying text, Pennsylvania courts have
not backed away from the reasoning of Lippincott, i.e., that only
"extraordinary" circumstances warrant invasion of spendthrift
trusts. Endorsement of section 157(c), however, will not alter
the extraordinary nature of the remedy, given the relatively few
exceptions allowed by the Restatement and the limited number of
cases that have cited to them.
the sale occurred. Evans & Luptak v. Obolensky, 487 N.W.2d 521
(Mich. Ct. App.), appeal denied, 496 N.W.2d 289 (Mich. 1992).
Furthermore, one commentator cited this situation as an
example of the proper application of the principles underlying
section 157(c):
Although an attorney, so far as payment
for his general services is concerned, stands
no better than an ordinary creditor in
reaching the interest in a spendthrift trust,
he is, nevertheless, entitled in New York to
recover from his client's income for services
rendered in connection with the client's
interest in the trust. These cases seem to
be a proper application of the principle that
the beneficiary's interest in a spendthrift
trust may be alienated for the purpose of
preserving or improving its value.
Erwin N. Griswold, Spendthrift Trusts § 346, at 409-10 (2d ed.
1947) (footnotes omitted); see also Scott & Fratcher, supra, §
157.3, at 209. But see Griswold, supra, § 346, at 410 (noting
that "attorneys have not been so successful" in some states in
recovering under this theory).
B.
In considering the applicability of section 157(c), the
district court conducted an evidentiary hearing and held that
Pennsylvania courts would not apply Restatement section 157(c) to
this case. Schreiber, 849 F. Supp. at 384, 394. Specifically,
the court determined that, because Rodman Wanamaker had expressly
indicated he wished the trustees to remain free from interference
by the beneficiaries,26 invasion of the spendthrift trust
26
. See Schreiber, 849 F. Supp. at 393 (quoting provisions of
the will).
interest here would "negate the wishes of Rodman Wanamaker." Id.
at 394.27
The district court received evidence on this issue, and
we consider its decision to be a factual finding. Yet, we
believe the court applied an incorrect legal standard to decide
this aspect of the case. There is nothing in the Restatement
providing that, in applying the section 157 exceptions to the
spendthrift rule, the testator's intent should be considered.
If a testator's intent controlled whether an exception
to spendthrift protection was allowed, then none of the
Restatement section 157 exceptions could ever apply. This is so
because if a testator had intended the result mandated by the
27
. The district court divided Schreiber's representation of
Kellogg into two time periods: representation during the sale of
the Wanamaker stock and representation during the subsequent
surcharge action against the trustees. As for the representation
during the sale of the stock, the district court held that
Schreiber had discharged Kellogg for all liability for that
period. Id. Because Schreiber did not appeal this portion of
the district court's ruling, the only representation at issue is
Schreiber's work for Kellogg during the surcharge action against
the trustees.
Kellogg contends that the entire fee issue is barred by
the doctrine of res judicata, because the Montgomery County
Orphans' Court already awarded Schreiber fees in connection with
his representation of Kellogg. See supra part I. As the
district court indicated, however, the Orphans' Court fee award
involved Schreiber's representation during the sale of the stock
only, not his later work on the surcharge action. See Schreiber,
849 F. Supp. at 384-85. As we have noted, Schreiber received
more than $200,000 for his representation involving the sale of
the stock: $117,000 in counsel fees and interest awarded by the
Montgomery County Orphans' Court and $88,000, plus counsel fees
and interest, from a judgment obtained against another attorney
involved in the stock sale for breach of a fee-sharing agreement.
See supra part I.
section 157 exceptions, then presumably he would have said so in
the will, and there would be no need to look beyond the will for
policy reasons that warrant invasion of the trust. Despite the
usual importance of a testator's intent in construing the terms
of a will or trust,28 Pennsylvania courts have not hesitated to
disregard such intent when public policy requires. See, e.g., In
re Moorehead's Estate, 137 A. 802, 806 (Pa. 1927) ("A testator
has a right . . . to dispose of his own property with such
restrictions and limitations not repugnant to law, as he sees
fit, and his intentions ought to be carried out, unless they
contravene some positive rule of law or are against public
policy.").29
Thus, we believe the district court must determine
whether Schreiber's work for Kellogg did "preserve or benefit the
28
. See supra part II.A.
29
. See also Morton v. Morton, 147 A.2d 150, 151 (Pa. 1959) ("It
has long been our public policy that the spendthrift provisions
of a trust cannot defeat the claims of the wife of a beneficiary
for maintenance and support."); In re Stewart's Estate, 5 A.2d
910, 914 (Pa. 1939) (citation omitted) ("Since we have declared
that spendthrift trusts are against public policy in this State
as to claims of wives for maintenance and support, they are
entitled to recover against the beneficial interest of their
husbands as though no spendthrift clause was contained in the
will or deed creating them."); Thomas v. Thomas, 172 A. 36, 41
(Pa. Super. Ct. 1934) ("To the extent that the cases prior to the
decision in Moorehead's Estate differ therefrom, the former must
be considered as overruled. It is a step in the right direction
and consonant with public policy and good morals."); Levin et
al., supra, § 183, at 155 ("A spendthrift or other protective
trust cannot be established in contravention of statute or public
policy.").
interest of the beneficiary."30 Schreiber contends that this
analysis does not require the court to decide whether an actual
preservation or benefit to the beneficiary's interest occurred,
but instead whether a good-faith attempt to preserve or benefit
the interest was made.31
We disagree. By its terms, section 157(c) does not
require merely an action that might preserve or benefit the
beneficiary's interest, but instead mandates that the action
achieve the result of preserving or benefitting the interest in
the trust. See § 157(c) ("the interest of the beneficiary can be
reached . . . for services rendered and materials furnished which
preserve or benefit the interest of the beneficiary"); see also
Griswold, supra, § 366, at 445 ("[T]he creditor should be allowed
to recover at least to the extent that his labor and materials
have improved the value of the beneficiary's interest.").
The purposes behind section 157(c) support this
interpretation. Section 157(c) permits the attachment of
spendthrift interests because a beneficiary "should not be
permitted to profit at [his creditor's] expense." Scott &
Fratcher, supra, § 157.3, at 208. Similarly, the Restatement
notes that section 157(c) is necessary because "the beneficiary
30
. The parties dispute whether the district court made a
finding whether Schreiber did "preserve or benefit" Kellogg's
interest. We do not believe the district court made such a
determination.
31
. Evans & Luptak v. Obolensky, 487 N.W.2d 521, 523 (Mich. Ct.
App.), appeal denied, 496 N.W.2d 289 (Mich. 1992), raised this
issue but left it undecided.
would be unjustly enriched if such a claim were not allowed."
Restatement § 157(c) cmt. d. In cases in which the beneficiary's
interest is not actually preserved or benefitted, however, the
beneficiary has received no "profit" at all; thus, he cannot have
been "unjustly enriched." We believe this interpretation is
consistent with the Pennsylvania Supreme Court's admonition that
the invasion of spendthrift trust interests should be an
"extraordinary and drastic remedy." Lippincott v. Lippincott, 37
A.2d 741, 743 (Pa. 1944).
Nevertheless, Schreiber contends this interpretation
would emasculate one of the policies underlying section 157(c),
namely, ensuring that needy beneficiaries obtain the necessary
resources to protect their interests in a trust. Without a
standard allowing recovery for "good-faith" attempts, Schreiber
argues, few attorneys or other creditors would ever agree to help
beneficiaries in these circumstances. Schreiber cites no legal
authority for this proposition.32 We believe his argument is
answered by the widespread acceptance of the most common practice
designed to ensure that those in need obtain proper
representation: contingency fee agreements, which require a
favorable result to generate fees. As one treatise noted,
32
. In fact, the district court's August 3, 1993 findings appear
to contradict the basis for Schreiber's argument. The court
noted that Schreiber advised Kellogg not to sue the trustees
because "it would be a long hard fight to prevail in any
surcharge action." Tr. at 6. The court also stated that none of
the other members of the Wanamaker family supported Kellogg's
surcharge action against the trustees. Id. at 8. Yet, Schreiber
still agreed to represent Kellogg in the surcharge action.
"Contingency arrangements ideally have the advantages of
encouraging quality work and discouraging excessive work, because
the attorney's compensation is directly tied to the quality of
the outcome . . . ." Robert E. Litan & Steven C. Salop,
Reforming the Lawyer-Client Relationship Through Alternative
Billing Methods, 77 Judicature 191, 195 (1994). This approach is
also similar to that embodied in the various federal fee-shifting
statutes: Attorneys can recover their fees in certain cases, but
only when they represent the "prevailing party." See, e.g., 28
U.S.C. § 2412 (1988 & Supp. V 1993) (permitting award of
attorneys' fees to "prevailing party" under Equal Access to
Justice Act); 42 U.S.C. § 1988 (Supp. V 1993) (allowing award of
attorneys' fees to "prevailing party" in civil rights cases).
Like Restatement section 157(c), these statutes reward only those
efforts that actually succeed in benefitting a plaintiff, not
those that are well-intentioned but fail. See Baumgartner v.
Harrisburg Hous. Auth., 21 F.3d 541, 548 (3d Cir. 1994) (noting
the Supreme Court has adopted "a result-oriented approach" to fee
awards). Accordingly, we do not believe it unfair to require
Schreiber to demonstrate that the surcharge action actually
"preserve[d] or benefit[ted]" Kellogg's interest in the trust.33
This construction of section 157(c) does not mean that
33
. Whether creditors may recover for a non-pecuniary
preservation or benefit to a trust interest is a more difficult
question. We note that in other contexts we have not always
required attorneys to prove a pecuniary benefit in order to
recover fees. But we have required that the benefit must be
real. See, e.g., Bell Atlantic Corp. v. Bolger, 2 F.3d 1304,
1310-13 (3d Cir. 1993).
those who unsuccessfully attempt to benefit an interest in a
spendthrift trust should not be paid for their services. It
merely means that the equities of the situation are not so far in
their favor as to warrant the "extraordinary and drastic remedy"
of an invasion of a spendthrift trust interest. Such creditors
still may pursue alternative measures to collect debts.
V.
Based upon the foregoing, we will reverse and remand
this case to the district court for a determination of whether
Schreiber's work for Kellogg did "preserve or benefit the
interest of the beneficiary," within the meaning of Restatement §
157(c). In all other respects, we will affirm the judgment of
the district court.
Palmer K. Schreiber v. Christopher G. Kellogg
No. 94-1551
LEWIS, Circuit Judge, concurring.
I would have found that the Wanamaker will's
spendthrift protection did not protect from attachment Kellogg's
interest in the Wanamaker trust. Furthermore, I am somewhat
skeptical about whether the courts of Pennsylvania would adopt
section 157(c) of the Restatement (Second) of Trusts. However,
the majority provides a well-reasoned and defensible rationale
with respect to both of its conclusions, and the issues being far
from clear, I concur. On remand Schreiber may receive at least a
portion of the money Kellogg owes him, and I am sure that if we
are wrong about section 157(c), the courts of Pennsylvania will
let us know in due course.