UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
filed: March 17, 1995.
PALMER K. SCHREIBER, APPELLANT
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).
Before: Scirica, Lewis and Roney,*fn* Circuit Judges
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.
In 1928, Rodman Wanamaker died, leaving a will and codicils*fn1 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,*fn2 engaged attorney Palmer K. Schreiber to increase the 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, 113 L. Ed. 2d 190, 111 S. Ct. 1217 (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, 130 L. Ed. 2d 393, 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.*fn3
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, 531 Pa. 308, 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, 260 Pa. 349, 103 A. 727, 728 (Pa. 1918) ("The 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,*fn4 our review is a question of Pennsylvania law subject to de novo review.
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, 15 L. Ed. 2d 404, 86 S. Ct. 500 (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.
In general, "trusts 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).*fn5 No specific wording is required under Pennsylvania law to create a spendthrift trust.*fn6 If a spendthrift trust is created, courts will sustain its validity,*fn7 except in a few limited circumstances.*fn8
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, 399 Pa. 274, 159 A.2d 201, 204 (Pa. 1960) (citations omitted); see also In re Estate of Patrick, 487 Pa. 355, 409 A.2d 388, 390 (Pa. 1979) ("In 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, 419 Pa. Super. 582, 615 A.2d 792, 794-95 (Pa. Super. Ct. 1992) ("The polestar 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.'" 615 A.2d at 795 (quoting In re Girard Trust Corn Exch. Bank, 418 Pa. 112, 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.
The relevant provisions of the will are Paragraphs Third and Eighth. Paragraph Third*fn9 established the stock trust 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.
Paragraph Eighth*fn10 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 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, 342 Pa. 558, 20 A.2d 768, 770 (Pa. 1941); Ball v. Weightman, 273 Pa. 120, 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. "But 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 "the 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 "as 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, 273 Pa. 120, 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 . . . .
116 A. at 654.*fn11 Similarly, the Supreme Court in Riverside Trust Co. v. Twitchell, 342 Pa. 558, 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 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.*fn12
20 A.2d 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 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.*fn13
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, 399 Pa. 274, 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, 335 Pa. 241, 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.
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, 18 L. Ed. 2d 886, 87 S. Ct. 1776 (1967); Bohus v. Beloff, 950 F.2d 919, 924 (3d Cir. 1991).
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.
Section 157(c) has two fundamental purposes. First, it was intended to prevent unjust enrichment of a beneficiary,*fn14 and second, to ensure that beneficiaries were able to obtain necessary resources to protect their interests.*fn15
As the state credited with first recognizing the validity of spendthrift trusts,*fn16 Pennsylvania has more than 150 years' worth of jurisprudence on the issue.*fn17 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:
The 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 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 . . . .").
As we have noted, no Pennsylvania court has considered whether section 157(c) should be adopted.*fn18 In fact, only one state's court apparently has decided the issue. Evans & Luptak v. Obolensky, 194 Mich. App. 708, 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 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." 487 N.W.2d 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, 289 Pa. 542, 137 A. 802 (Pa. 1927); see also In re Stewart's Estate, 334 Pa. 356, 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, 349 Pa. 501, 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;*fn19 therefore, the Supreme Court's 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.*fn20 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 "an 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) ("This 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 support.'"). In fact, the language of the statute appears to go beyond even that required by the Restatement.*fn21
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, 515 Pa. 428, 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 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 Pa. 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.*fn22
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 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.*fn23 Given the rationale underlying section 157(c), and the favorable treatment Pennsylvania courts have afforded other subsections of section 157 and the Restatement overall,*fn24 we believe the Pennsylvania Supreme Court would adopt section 157(c).*fn25
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.
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 the sale occurred. Evans & Luptak v. Obolensky, 194 Mich. App. 708, 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).
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,*fn26 invasion of the spendthrift trust interest here would "negate the wishes of Rodman Wanamaker." Id. at 394.*fn27
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 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,*fn28 Pennsylvania courts have not hesitated to disregard such intent when public policy requires. See, e.g., In re Moorehead's Estate, 289 Pa. 542, 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.").*fn29
Thus, we believe the district court must determine whether Schreiber's work for Kellogg did "preserve or benefit the interest of the beneficiary."*fn30 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.*fn31
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 ("The 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 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, 349 Pa. 501, 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.*fn32 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, "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 "preserved or benefitted" Kellogg's interest in the trust.*fn33 This construction of section 157(c) does not mean that 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.
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.
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.