The opinion of the court was delivered by: HARVEY BARTLE, III
Before the court is the motion of plaintiff, Palmer K. Schreiber ("Schreiber"), to allow him to execute on property of defendant, Christopher G. Kellogg ("Kellogg"), to satisfy a $ 512,863.76 judgment of this court. The judgment resulted from Kellogg's breach of contract for counsel fees owed to Schreiber, his former lawyer. Schreiber seeks to execute on Kellogg's sizeable income from a trust under the will of his great-grandfather, Rodman Wanamaker. The crucial issue is whether defendant's trust income is subject to a spendthrift provision so as to prevent alienation. The court held an evidentiary hearing on the pending motion.
This matter takes us back some 66 years, to the death of Rodman Wanamaker on March 9, 1928. He left a will and codicil under which he created a trust for his children and their issue.
For many years the principal asset of the trust was the stock of John Wanamaker, Philadelphia ("JWP"), a major department store. On March 7, 1978, Carter, Hawley, Hale, Inc. made an offer for all outstanding stock of JWP consisting of stock and cash worth approximately $ 40 million. Schreiber and his client Kellogg, who was at that time a contingent income beneficiary of the trust, undertook efforts to increase the sale price.
Partially as a result of the efforts of Schreiber and Kellogg, the store was sold in May, 1978 for $ 60 million - an increase of some $ 20 million over the initial offer. On October 10, 1978, Schreiber filed a Fee Petition with the Orphans' Court of Montgomery County, Pennsylvania, seeking $ 650,000 from the trust corpus for his services in connection with the JWP sale.
According to plaintiff, he and Kellogg had an oral fee agreement concerning his services performed in connection with the sale. At the Orphans' Court hearing on his fee petition, Schreiber testified that in order to allow Kellogg to engage the services of backup counsel for litigation support, he absolved Mr. Kellogg of personal liability and, "agreed to look solely to the court for any remuneration [he] would be entitled to in connection with the sale of John Wanamaker's." (N.T. Schreiber claim for Counsel Fees, 9/17/79). Schreiber alleges that in exchange for his waiver, Kellogg and backup litigation counsel agreed that Schreiber would receive, as a referral fee, one-third of the fees paid by Kellogg to the backup counsel in connection with the sale of JWP.
Ultimately, the Orphans' Court awarded Schreiber $ 100,000 in counsel fees and approximately $ 17,000 in interest from the corpus of the trust. He later received a judgment against another attorney involved in the sale of JWP in the amount of $ 87,907.87 plus $ 15,000 in counsel fees and interest of $ 6,138.26, for breach of their fee sharing agreement.
On October 31, 1978, subsequent to the sale of the JWP stock, Schreiber, on behalf of his client Kellogg, filed in the Orphans' Court of Montgomery County a Petition for Surcharge and Removal of Trustees, Disqualification of Counsel for the Trustees and Objections to Account ("surcharge action"). The petition alleged various acts of negligence, mismanagement and breach of fiduciary duty. The Orphans' Court denied the Petition to Disqualify Counsel for the Trustees on January 17, 1979. Schreiber, on behalf of Kellogg, appealed to the Pennsylvania Supreme Court. That court later quashed the appeal.
In early May, 1981, the parties agreed to a settlement of the entire surcharge action. The settlement obligated the trustees to hold regular meetings, make certain information available to the beneficiaries, and file a plan for the establishment of a retirement age for trustees. It also exonerated the trustees of any surcharge liability, required Kellogg to pay his own counsel fees and to obtain releases of any claims against the trust from counsel, and allowed the trustees to collect their fees from the trust corpus. Kellogg was not appointed a trustee and no trustees were removed.
On May 13, 1981, Schreiber and Kellogg signed a fee agreement which became the subject of this lawsuit. In sum, the agreement provides that Kellogg would pay Schreiber $ 80,000 with interest at a rate which was "commercially competitive considering risk and terms of payment." It further states, "The Counsel Fee shall be in full satisfaction of your obligations to me for legal services rendered by me in connection with the Surcharge Action or in connection with your obligations to me for the Referral Fees." The "referral fee" refers to the agreement between Schreiber, Kellogg and backup counsel that Schreiber would receive one-third of any fees paid to the backup counsel. Kellogg only paid $ 5,000 to backup counsel. However, the backup counsel released Kellogg from liability for any remaining fees. The May 13, 1981 agreement states that Kellogg agreed to reimburse Schreiber directly for the $ 11,402.92 which Schreiber would have received had Kellogg paid the full amount due.
Kellogg never paid the amount set forth in the May 13, 1981 agreement, and Schreiber instituted this action to collect his fees. After a non-jury trial, this court found that the May 13, 1981 agreement constituted a valid written contract for the payment of fees and entered judgment in favor of plaintiff for fees and interest of $ 512,863.76.
After this court denied defendant's post-trial motions, plaintiff sought to execute on the judgment. Defendant appealed the judgment but did not and has not filed an appeal bond. This court refused to stay execution of the judgment pending appeal. Schreiber v. Kellogg, 839 F. Supp. 1157 (E.D. Pa. 1993). As stated above, defendant receives a sizeable monthly income as a beneficiary of the Wanamaker trust. Because of apparent difficulties in executing on defendant's other assets, plaintiff seeks to attach this interest to satisfy the outstanding judgment.
Defendant first contends that this court lacks jurisdiction over plaintiff's motion because of the pendency of his appeal to the Third Circuit. This argument is without merit. The mere pendency of an appeal, without a stay, does not operate to stay execution proceedings. In re Spier Aircraft Corporation, 137 F.2d 736, 738 n.3 (3d Cir. 1943); Printing & Paper Trades v. Cuneo Eastern Press, Inc., 72 F.R.D. 588, 590 n.1 (E.D. Pa. 1976).
The trustees of the Wanamaker trust have filed a memorandum in which they contend that the Orphans' Court has exclusive jurisdiction to construe the will of Rodman Wanamaker. Alternatively, they assert that this court should abstain from exercising jurisdiction.
The contention that this court lacks jurisdiction is incorrect. As the Supreme Court stated,
Markham v. Allen, 326 U.S. 490, 494, 90 L. Ed. 256, 66 S. Ct. 296 (1946). Citing, Waterman v. Canal-Louisiana Bank & Trust Co., 215 U.S. 33, 43, 54 L. Ed. 80, 30 S. Ct. 10 (1909). The trustees rely on 20 Pa. Cons. Stat. Ann. § 711(2) which provides that the Orphans' Court division shall have jurisdiction over:
The administration and distribution of the real and personal property of testamentary trusts, and the reformation and setting aside of any such trusts . . .
As plaintiff points out, however, this statute merely refers certain matters to a particular division of the Common Pleas Court. A state statute cannot divest a federal court of jurisdiction over its execution proceedings.
The trustees have cited no case which stands for the proposition that this court lacks jurisdiction over the instant matter, but have instead pointed to cases where the federal court has abstained from exercising jurisdiction. In Ryan v. First Pennsylvania Banking and Trust Co., 519 F.2d 572 (3d Cir. 1975), the wife and children of the beneficiary of a spendthrift trust brought action against the trustee to enforce a state judgment for support payments and to restore to the trust income allegedly diverted for the payment of a loan made by the bank to the income beneficiary. The district court dismissed the action for lack of jurisdiction. In the alternative, it held that if it had jurisdiction, the facts presented an appropriate case for abstention. Subsequent to the dismissal, defendant filed in the Orphans' Court Division of the Common Pleas Court for Delaware County an account as trustee of the spendthrift trust. The Court of Appeals held that the district court had jurisdiction over all the claims and that abstention was improper with respect to the motion to compel support payments from the trust. With respect to the motion to restore income to the trust, the court held that the district court properly abstained from deciding the question because it involved unresolved state law questions and was similar to a claim of mismanagement, over which the Orphans' Court has exclusive jurisdiction under Pennsylvania law. Id. at 575.
In Reichman v. Pittsburgh National Bank, 465 F.2d 16 (3d Cir. 1972), the Court of Appeals held that the district court had jurisdiction over a surcharge action brought against the trustee of a trust. However, the court upheld the district court's dismissal of that action based on the abstention doctrine because a pending proceeding in the Orphans' Court encompassed the same issues presented in the federal action. The court there found that abstention promoted administrative efficiency and convenience.
The Supreme Court has emphasized that "the doctrine of abstention . . . is an extraordinary and narrow exception to the duty of a district Court to adjudicate a controversy properly before it." County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188, 3 L. Ed. 2d 1163, 79 S. Ct. 1060 (1959). In fact, this court has a "virtually unflagging obligation to exercise [its] properly invoked jurisdiction" unless abstention is appropriate under one of the established doctrines. Grode v. Mutual Fire, Marine and Inland Ins. Co., 8 F.3d 953 (3d Cir. 1993) quoting Colorado River Water Conservation District v. United States, 424 U.S. 800, 817, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). No party has directed this court to a federal abstention doctrine applicable to the instant facts.
The district court is not free to abstain merely because state law is unclear. Meredith v. Winter Haven, 320 U.S. 228, 234-37, 88 L. Ed. 9, 64 S. Ct. 7 (1943). In Colorado River Water Conservation District v. United States the Supreme Court explained that abstention is appropriate where there exist "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar." 424 U.S. 800, 814, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976). Furthermore, the presence of a strong federal interest in retaining jurisdiction weighs against abstention. Izzo v. River Edge, 843 F.2d 765 (3d Cir. 1988).
We now turn to the merits of the case. In a proceeding to execute on a judgment, this court is bound, pursuant to Rule 69(a) of the Federal Rules of Civil Procedure,
to follow state law in determining whether the defendant has an interest in property which is subject to execution. United States v. Yazell, 382 U.S. 341, 355-56, 15 L. Ed. 2d 404, 86 S. Ct. 500 (1966); Fink v. O'Neil, 106 U.S. 272, 27 L. Ed. 196, 1 S. Ct. 325 (1882); Custer v. McCutcheon, 283 U.S. 514, 75 L. Ed. 1239, 51 S. Ct. 530 (1931). In the absence of a federal statute providing otherwise, property which is exempt from attachment under state law is not subject to attachment in execution of a federal judgment. Yazell supra ; Fink supra. No relevant federal statute has been called to our attention. Therefore, the question before the court is whether, under Pennsylvania law, Kellogg's income interest in the Wanamaker trust may be attached in execution of this court's judgment.
The parties strongly disagree as to whether a spendthrift clause protects Kellogg's interest in the trust. A spendthrift trust exists where there is an express provision forbidding anticipatory alienation and attachments by creditors. See e.g. In re Keeler's Estate, 334 Pa. 225, 3 A.2d 413 (Pa. 1939); Wilson v. United States, 372 F.2d 232 (3d Cir. 1967). Such provisions are unquestionably valid and enforceable in Pennsylvania. See e.g. Wilson, supra and cases cited therein. Creditors, including judgment creditors, generally may not reach an interest in a trust which is protected by a spendthrift provision. See Lippincott v. Lippincott, 349 Pa. 501, 37 A.2d 741 (Pa. 1944).
When interpreting a will under Pennsylvania law, the court seeks to ascertain the intent of the testator:
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.
Estate of Wanamaker, 399 Pa. 274, 159 A.2d 201, 203 (1960) (citations omitted). No specific form of words is required to create a spendthrift provision so long as the intent of the testator can be ascertained from the will and surrounding circumstances. See e.g. Ewalt v. Davenhill, 257 Pa. 385, 101 A. 756, 758 (Pa. 1917); Winthrop Co. v. Clinton, 196 Pa. 472, 46 A. 435 (Pa. 1900). "The intent to create a spendthrift trust is not to be set aside merely because it is not clearly expressed by the scrivener ..." Riverside Trust Co. v. Twitchell, 342 Pa. 558, 20 A.2d ...