## Facts

- Rodman Wanamaker’s 1928 will created a large trust for his children and descendants; the trust was later valued at roughly $120 million.
- For decades, the trust corpus included stock in the John Wanamaker department store.
- In 1978, a buyer offered $40 million for the stock; Christopher G. Kellogg, a descendant and contingent income beneficiary, retained attorney Palmer K. Schreiber to help improve the transaction’s terms.
- The stock ultimately sold for $60 million, about $20 million above the initial offer; Schreiber attributed part of that increase to his efforts.
- Schreiber later represented Kellogg in a surcharge action against the trustees alleging negligence, mismanagement, and breach of fiduciary duty; the case settled with governance reforms but no identified direct monetary recovery.
- As part of the settlement, Kellogg agreed to pay his own counsel and to obtain releases of claims against the trust from his counsel.
- Schreiber received an award from the Orphans’ Court of $117,000 in counsel fees and interest from the trust corpus for certain services.
- Kellogg did not fully pay Schreiber for additional fees; Schreiber obtained a judgment against Kellogg and then filed a diversity action to execute on Kellogg’s beneficial interest in the trust.
- Schreiber argued that the trust’s spendthrift protection either did not apply to Kellogg or should yield to an exception for services that protected or enhanced the beneficiary’s trust interest.

## Issues

1. Whether the trust instrument contained a valid spendthrift provision that protected Kellogg’s beneficial interest from execution by Schreiber.
2. If a valid spendthrift provision applied, whether Pennsylvania law would recognize Restatement (Second) of Trusts § 157(c), allowing limited creditor access when the creditor furnished services to protect a beneficiary’s spendthrift interest.
3. Whether Schreiber’s services (improving the stock sale terms and pursuing the surcharge action) qualified for any § 157(c) recovery, and if so, to what extent.

## Decision

- The Third Circuit affirmed that the trust included an effective spendthrift clause extending to Kellogg and generally barring creditors from reaching his interest.
- The court reversed in part, predicting that Pennsylvania would adopt the narrow Restatement (Second) of Trusts § 157(c) exception for services that protect or benefit a beneficiary’s trust interest.
- The court held the exception was limited: it did not permit execution against Kellogg’s entire trust interest for the full amount of Schreiber’s judgment.
- The court remanded for further proceedings to determine what portion of Schreiber’s services, if any, actually preserved or increased Kellogg’s interest and was not already compensated, such that recovery could be allowed under § 157(c).

## Legal Principles

- A valid spendthrift clause restrains both voluntary and involuntary alienation of a beneficiary’s interest and generally prevents creditors from executing on that interest.
- When applying state trust law, federal courts give substantial weight to prior state-court interpretations of the same trust instrument in determining settlor intent and the scope of restraints.
- Under Restatement (Second) of Trusts § 157(c), a spendthrift restraint may be pierced in limited circumstances to allow a creditor who furnished services to protect or benefit the beneficiary’s interest to reach that interest.
- Any § 157(c) recovery is confined to services that actually preserved or increased the beneficiary’s trust interest and should be limited to avoid eroding the general protection of spendthrift trusts.
- Prior compensation from trust assets for the same work may restrict or preclude additional recovery against the beneficiary’s trust interest.

## Conclusion

The court upheld the trust’s spendthrift protection for the beneficiary but recognized a narrow exception permitting an attorney to reach a spendthrift interest only to the extent the attorney’s uncompensated services actually protected or enhanced that interest, requiring a remand to determine the proper, limited application of that exception.


Schreiber v. Kellogg, 50 F.3d 264 (3d Cir. 1995)