**UN PUBLISHED** 
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

**No. 09**  **- 2344** 

PEGGY S. LEVIN, Trustee , Plaintiff

- Appellant ,

v. WACHOVIA BANK; DAVID STROEHMANN, SR.; SAM WOLCOTT , Defendants

- Appellees

.

Appeal from the United States District Court for the Eastern District of North Carolina , at Raleigh

. Terrence W. Boyle , District Judge. ( 4:09

- cv - 00087

- BO )

Argued : March 23, 2011 Decided: June 28, 2011

Before MOTZ and WYNN , Circuit Judges , and Ronald Lee GILMAN, Senior Circui t Judge of the United States Court of Appeals for the Sixth Circuit, sitting by designation

.

Affirmed by un published opinion

. Judge Wynn wrote the opinion , in which Judge Motz and Senior Judge Gilman concurr ed

.

**ARGUED:** William Peak Janvier, EVERETT, GASKINS, HANCOCK & STEVENS, Raleigh, North Carolina, for Appellant. Michael J. Parrish, WARD & SMITH, PA, New Bern, North Carolina, for Appellees. **ON BRIEF:** James M. Hash, EVERETT, GASKINS, HANCOCK & STEVENS, Raleigh, North Carolina, for Appellant. Pau l A. Fanning, WARD & SMITH, PA, Greenville, North Carolina, for Appellees.2 Unpublished opinions are not binding precedent in this circuit.3 WYNN, Circuit Judge : This case requires us to determine whether a debtor’s remainder interests in the corpus of two spendthrift trusts are property of his bankruptcy estate. The bankruptcy court ruled that they were; on appeal, the district court ruled that they were not. For the reasons explained below , we believe the district court is correct that t he debtor’s r emainder interests are not part of his bankruptcy estate, and consequently we affirm the judgment of the district court.

I. By a trust instrument dated November 23, 1976, Gertrude S. Stroehmann created a trust (the “1976 trust”) for the benefit of he r tw o children and their issue. The corpus of the 1976 trust was first divided into two equal shares: one for the be nefit of Harold Stroehmann, Jr. (“Harold, Jr.”) and his issue , and one for the benefit of David Stroehmann, Sr. ( “ David, Sr. ” ) , and his issue. The David, Sr. share was further divided into separate shares for the benefit of his two children, J. Kathryn Stroehmann and David Stroehmann, Jr. ( “ David, Jr. ” ), the debtor in this case . Wachovia Bank, N.A. is the sole trustee of the 1976 trust. The 19 76 trust grants the trustee the power to distribute income and principal in its “ sole and absolute discretion.” The only4 mandatory distribution occurs at the trust’s terminati on, when the remaining principal and retained income are to be paid to the named beneficiaries. The instrument provides that the trust shall continue until the death of the last to die of Harold , Jr. and David , Sr. . Harold, Jr. has already died.
T he 1976 trust contains a spendthrift provision

. Article
XII states that “[t]he int erest of any beneficiary in the corpus or income of any trust shall not be subject to assignment, alienation, pledge, attachment, or claims of creditors and shall not otherwise be voluntarily or involuntarily alienated or encumb ered by such ben eficiary.” The value of the debtor’s share of the corpus of the 1976 trust was valued at $684,285 .77 as of January 6, 2009. A second trust (the “Will trust”) was created by the terms of the Last Will and Testa ment of Gertrude S. Stroehmann , which was executed on Nov ember 18, 1987

. A residuary clause in the Will directed that the residue of the estate be divided i nto two equal shares to be held in trust

. One of these shares was divided further between David, Sr. , and his children

. David, Jr., the debtor in this cas e, is one of the children of David,
Sr
. , and therefore a bene ficiary of the Will Trust. Defendants David, Sr., Samuel Wolcott, and W achovia Bank , N.A., are the trustees of the Will Trust. The Will trust mandates that the trustee make distributions of all the net5 income of a grandchild’s share in a t least quarterly installments. It further states that a trustee has absolute di scretion to invade the principal for the medical expenses, support, and education of the beneficiaries. The Will trust also c onta ins a spendthrift provision. The
“Prot ective Provision” of the Will Trust states: I direct that all legacies and all shares and interests in my estate and any property appointed under this will, whether principal or income, while in the hands of my person al representatives, trustees or the guardians of property, shall not be subject to attachment, execution, or sequestration for any tort, debt, contract, obligation or liability of any legatee or beneficiary and shall not be subject to pledge, assignment, c onveyance or anticipation. The trustees of the Will trust are directed to pay out, in full, a grandchild’s remaining share when that grandchild reaches the age of forty

- five years old. If a grandchild dies before reaching that age, the grandchild’s remain ing interest passes to other benefic iaries named in the Will trust. A codicil to the Will , dated March 10, 1988 , modifies this last provision, making the grandchild’s interest p ass to the grandchild’s estate. The codicil further provides that “[n] o pri ncipal or income of any grandchild’s trust may be used for any person other than the grandchild for whom held

. . . . ” David, Jr. was born on March 2, 1965 and reach ed the age of6 forty

- five on March 2, 2010. 1

David, Jr. , filed a Chapter 7 petition f or bankruptcy on June 12, 2007. Plaintiff Peggy S. Levin, the Chapter 7 Trustee appointed to David, Jr.’s case, filed an adversar y proceeding on March 1 4, 2008. Plaintiff asked the bankruptcy court to order Defendants to turn over all amounts distributed to the debtor under “ the Stroehmann Trust” s ince the filing of the petition, including the principal of the trust, and all future income generated by th e trust. The debtor’s interest in the principal of the Will trust had a value of $299,581 .31 as of January 6, 2009.

2

The bankruptcy court conduc ted a hearing on July 10, 2008. In a subsequent order, the bankruptcy court reasoned that the 1976 trust gives the debtor separate interests in t he trust: (1) an interest in the income from the trust during the life of the trust, (2) an interest in the principal during the life of the
trus t, and (3) a future interest in the principal that must be paid to the debtor upo n the termination of the trust

. Later in the order, the bankruptcy court recognized the latter two Defendants filed a motion to dismiss the complaint on June 18, 2008.

1 The Will trust therefore terminated, at least with regard to the debtor’s share, during the pendency of this appeal.

2 The initial complaint does not distinguish between the two trusts, but names all three Defendants as truste es.7 interests as two aspects of the same thing; the debtor’s right to receive principal is divided into: (1) the present right to receive disbursements of principal at the discretion of the trustees, and (2) the future right to receive mandatory distribution of principal upon termi nation of the trust. Ultimately, the bankruptcy court granted Defendants’ motion to dismiss as to the debtor’s right to receive income and principal distributions during the life of the trust. 3

During the course of the proceedings, Plaintiff learned that the debtor was the beneficiary of another trust, the Will
trust (discussed above) . With leave of the bankruptcy cour t , Plaintiff filed an amended complaint on February 2, 2009 , requesting an order that Defendants turn over all amounts paid since the filing of the petition under the 19 76 trust and the The bankruptcy court denied, however, the motion to dismiss “as to the debtor’s future remainder interest in the trust principal ,” finding that such an interest “is a separate property interest of the debtor that is prop erty of the bankruptcy estate.” Defendants filed a motion for summa ry judgment on January 9, 2009. Plaintiff filed a motion for summar y judgment on January 12, 2009.

3 Both the bankruptcy court and the district court found these interests protected by a valid spendthrift provision. Plaintiff does not challenge this ruling on appeal.8 Will trust, all future amounts to be paid under either trust, and declaring that the debtor’s interest in both trusts is
pro perty of the bankruptcy estate. Defendants filed a nswers to the amended complaint and filed another motion for sum mary judgment.
In an order entered on March 30, 2009 , t he bankruptcy court referred to its previous order regarding only the 1976 trust and recognized that “[t]his is the same issue previously determined in this case, only with relation t o a different tru st agreement.” Consistent with its previous order, the bankruptcy court granted Plaintiff summary judgment insofar as “the debtor’s remainder interests in both trusts are property . . . that belong [s] to the bankruptcy estate.” The bankruptcy court grant ed Defendants summary judgment “to the exte nt that the income and principal distributions during the life of the trusts are not property of t he bankruptcy estate.” Defendants appealed to the district court. The district court reversed the bankruptcy cour t, concluding that the debtor’s “future remainder in terest in the principal of the
T rusts is protected by a valid spendthrift provision.” Wachovia Bank, N.A. v. Levin , 419 B.R. 297, 303 (E.D.N.C. 2009)
. Plaintiff appealed to this Cour t.9 II. Initiall y we address a question of justiciability raised by Defendant s . Defendants argue that this appeal should be dismissed as moot since provisions in both trusts permit distribution of the entire principal prior to termination. This Court has recognized that “when, pending appeal, an event occurs, without the fault of the defendant, that makes it impossible for the court to grant effective relief to the plaintiff, should the plaintiff prevail on the merits, the appeal should be dismissed and the court should not proceed to judgment.” Cent
. States, S e. and S w. Areas Pension Fund v.
Cent
. Transp . , Inc. , 841 F.2d 92, 95

- 96 (4th Cir. 1988). “ The mootness doctrine is a limit on our jurisdiction that originates in Article III’ s case or controversy language.” Town es v. Jarvis , 577 F.3d 543, 554 ( 4th Cir. 2009) (quotation mark s and brackets omitted) , cert. denied , 130 S. Ct. 1883 (2010)
. A claim is not moot, however, as long as the parties have a concrete interest in the outcome of the litigation. In re Balt

. Emer gency Servs
. II, Corp. , 432 F.3d 557, 560 n.* ( 4th Cir. 2005)
. In the present case, Defendants argue that provisions of the trusts permit the trustees to disburse the entire principal prior to the termination of the trusts. It follows, according to Defen dants, that a judgment for Plaintiff “would not lead to10 the recovery of any value for the benefit of [the debtor’s] creditors.” Brief of Appellees at 7

- 8. Defendants conclude from this that the harm allegedly suffered by Plaintiff cannot be redr essed by a favorable decision. Defendants do not, however, assert that as trustees they have distributed the entire principal of the trusts. Indeed, noticeably lacking from Defendant s ’ argument is any suggestion that they have actually exercised their discretion under the trust provisions that they claim prevent Plaintiff from obtaining redress. Insofar as Plaintiff seeks to compel the transfer of the debtor’s presently held remainder interests in both trusts, the case is not rendered moot by the mere possibilit y that the y may later have no value. See In re Smith , 71 F.2d 378, 380 (9th Cir. 1934) ( subsequent payment of trust principal did not render appeal moot where question raised was whether debtor’s remainder interest was transferable in bankruptcy )
. Plaint iff observes in reply that the Will trust has already terminated , and the debtor’s remainder interest in that trust is now identifiable. We do not believe this circumstance has any bearing on the alleged mootness of this appeal. Insofar as the parties co ntinue to dispute the debtor’s entitlement to his remainder interests, the parties have a concrete interest in the outcome of the litigation. It follows that the case is not11 moot. See In re Balt

. Emergency Servs. II, Corp. , 432 F.3d at 560 n.*.

III.
We turn now to the merits of Plaintiff’s appeal. “We review the judgment of a district court sitting in review of a bankruptcy court de novo, applying the same standards of review that were applied in the district court.” In re Merry

- Go

- Round
Enters . , Inc. , 400 F.3d 219, 224 (4th Cir. 2005). Thus, we review the bankruptcy court’s factual findings for clear error , and we review questions of law , including summary judgment, de

novo. Id. ; see also In re French , 499 F.3d 345, 351 (4th Cir. 2007).

A. The ban kruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case,” with some exceptions. 11 U.S.C. § 541(a)(1). One such exception provides that “[a] restriction on the transfer of a beneficial intere st of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.” 11 U.S.C. § 541(c)(2). The bankruptcy court and the district court agreed that this provision excludes from the property of the bankruptcy estate12 interests in trust that are protected under a spendthrift clause that is enforceable under applicable state law. See Patterson v. Shumate , 504 U.S. 753, 758 (1992) (“The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under an y relevant nonbankruptcy law.”)

. The parties do not dispute that the 1976 trust and the Will trust are sub ject to Pennsylvania state law. Pen nsylvania law recognizes that “[a] spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.” 20 Pa. C ons . S tat . A nn . § 7742(a) ( West 2006 ) . Subject to certain exceptions not alleged to apply here , “a creditor or assignee of the beneficiary of a spendthrift trust may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.” Id. at § 7742(c). Both the bankruptcy court and the district court found that bot h trusts here contained spendthrift provisions that are valid under state law. Pennsylvania courts “construe [] spendthrift provisions broadly.” In re Blanchard , 201 B.R. 108, 125 (Bankr. E.D. Pa. 1996). “No principle in the law of wills and trusts is mo re firmly and clearly established than that the intention of the testator or settlor must prevail.” Clark v. Clark , 411 Pa. 251, 255, 191 A.2d 417, 419

- 20 (1963). “The law rests its protection13 of what is known as a spendthrift trust fundamentally on the principle of cujus est dare, ejus est disponere. [He who has a right to give, has the right to dispose of the gift.] It allows the donor to condition his bounty as suits himself so long as he violates no law in so doing.” I n re Morgan’ s Estate , 223 Pa. 2 28, 2 30, 72 A. 498, 499 ( 1909).

B.
In this case, Plaintiff argues that th e bankruptcy court correctly ruled that the debtor’s remainder interests in both trusts are pro perty of the bankruptcy estate. Plaintiff concedes that the debtor’s interest s in in come and principal during the life of the trusts are protected by the spendthrift provisions and therefore not part of the bankruptcy estate. Plaintiff contends, however, that the debtor’s remainder interest s in the corpus of the trus ts are not similarly protected. Plaintiff relies on Ginsburg v. Hilsdorf , 30 Pa. D. & C.2d 384 (1962). In Ginsburg , the Court of Common P leas of Pennsylvania considered whether the defendants’ interests in three trusts might be attached in light of the spendthrift provisions the trusts contained. Id. at 390. The defendants in Ginsburg were the vested remaindermen of the trusts’ corpus, but14 were not beneficiaries entitled to any of the income. Id. at 395

- 96. The spendthrift provision stated: No sum payable by my Trustees u nder the provisions of the foregoing trust shall be pledged, assigned, transferred or sold, or in any manner whatsoever anticipated, charged or encumbered by the beneficiaries thereunder, or any of them, or be in any manner liable in the hands of my Truste es for the debts, contracts and engagements of the beneficiar ies thereunder, or any of them. Id. at 394

- 395
. The court found it clear from this provision that the settlors intended to protect only the income beneficiary. “If they intended the spendthrift provision to protect the vested remainderman they could have said so.

. . . In failing to include the remainder interests in the spendthrift provisions, the testators have left the door open to the present attachment proceedings. ” Id. The at 395. Ginsb urg court distinguished other, more expansive, spendthrift provisions such as that which appeared in Riverside Trust Co. v. Twitchell , 342 Pa. 558 , 20 A.2d 768 (1941). The defendant in Riverside was the income beneficiary of a trust established by her aun t. Id.

that there shall be no power of anticipation or of pledge or assignment either of the income or of the principal of the Trust Fund, or of any interest therein whatsoever; and the Trus tee, its successors and assigns, shall hold and administer the Trust and pay over the income received by it as aforesaid, and the principal sum upon the termination of the Trust, as herein provided, free from any debts, liabilities, at 560, 20 A.2d at 769. The spendthrift provision there stated15 obligations or other en gagements whatsoever of the Grantor, or of any persons who, by the terms hereof, may be or become beneficiaries hereunder. Id. at 560

- 61, 20 A.2d at 769

- 70 . The Riverside court held that the spendthrift provision was meant to protect both income and princ ipal. 4 Id. The at 561

- 62, 20 A.2d at 770. Ginsburg court also distinguished the spendthrift provision that appeared in Harder v. Follansbee , 102 Pitts. L. J. 231 ( Pa. C. P. 1954)
. 5 The trust instrument in Harder directed the trustee to pay the income t o the settlor’s widow for life, and thereafter to the defendant, who also held a remainder interest in the corpus. Id. at 231. T he trust contained a spendthrift provision that stated, “neither the principal nor income of this trust fund shall in any mann er be liable to the control or answerable for the debts, contracts or engagements of the beneficiaries hereunder or liable to any charge, encumbrance, assignment, conveyance or anticipation by them.” Id. at 232. The Harder court held that the provision p rotected the defendant’s interest in both income and principal. 6

4 The provision in Riverside , the Ginsburg court said, is “a far cry from the one in the case at bar. ” Ginsburg , 30 Pa. D. & C.2d at 394. Id.

5 This case is not available on Westlaw or Lexis but may be obtained through public resources in the State of Pennsylvania.

6 The Ginsburg court stated simply that such a provision as appeared in Har der did not appear in the instant case. Ginsburg , 30 Pa. D. & C.2d at 393.16 Plaintiff notes that the spendthrift provisions here did not explicitly cover the trust principal upon termination of the
trusts , as did the provision in Riverside

. Plaintiff asserts
t hat the language of the trusts here, particularly that of the Will trust, is similar to the language of the trusts construed in Ginsburg

T he spendthrift provision of the 1976 trust protects “[t]he interest of any beneficiary in the corpus or income of any
trust ” and the spendthrift provision of the Will Trust protects

“ all shares and interests in my estate and any property appointed under this wi ll, whether principal or income.” Thus, unlike the spendthrift provision in . Plaintiff concludes that the debtor’s remainder interests in the trusts are therefore not subject to the protection o f the spendthrift provision

.

Ginsburg , the provisions here explicitly mention both the income and the corpus/ principal of the trusts. They are therefore more analogous to the spendthrift provisions distinguished by Ginsburg

Indeed, than th e provisions at issue in that case. Harder is directly on point. Like the debtor in this case, the defendant in Harder held both an interest in the income and a remainder interest in t he principal of the trust. Harder , 102 Pitts. L. J. at 231. The court held that the spendthrift provi sion obviously applied to income but also to17 the defendant’s remainder interest in the principal

. Id. at 232. The same reasoning applies here.

C.
P laintiff next argues that this Court should join those
courts that have held a debtor’s remainder interest in a spendthrift trust upon termination of the trust is part of the bankruptcy estate. See In re Britton , 300 B.R. 155 (Bankr. D. Conn. 2003); In re Crandall , 173 B.R. 836 (Bankr. D. Conn. 1994); Matter of Strasma , 26 B.R. 449 (Bankr. W.D. Wis. 1983)

. Plaintiff insists that if the debtor holds an interest in the corpus of a spendthrift trust upon its termination, “ then those funds cannot , by the plai n language of the trust, be subject to the spendthrift clause which necessarily must terminate with the
trust. ” Brief of Appellant at 18. Plaintiff recognizes that the district court relied on Pennsylvania bankruptcy cases contrary to her position, but a rgues that the courts that decided those cases “failed to consider that they were expanding the scope of spendthrift protection beyond that provided for by state law.” Brief of Appellant at 22. The district court explained that the apparent split of auth ority d oes not support the bankruptcy court’s conclusion that the principal here is unprotected because Pennsylvania law alone controls this case. As the district court recognized,18 Pennsylvania law protects remainder interests in the corpus of a trust if the spendthrift provision of the trust instrument so provides. See Clark , 411 Pa. at 256, 191 A.2d at 420 ( holding that attempted conveyance of remainder interest in a trust was invalid because the spendthrift provision prohibited beneficiary from making any binding c ommitment of principal or income during the life of the trust ); In re Blanchard , 201 B.R. at 126 (applying Pennsylvania law to provide spendthrift protection to debtor’s remainder interest in the corpus of a trust and to exclude the debtor’s i nterest in the corpus from the bankruptcy estate); In re Katz , 220 B.R. 556 , 565 (B an kr. E.D. Pa. 1998) ( holding that when the debtor’s entire interest in a trust was protected by a valid spendthrift provision, the debtor could not assign his interest in e ither the principal or the inco me before they were distributed); cf. In re Will of Rintz , 2007 Phila. Ct. Com. Pl. LEXIS 254 (June 19, 2007) ( approv ing the distribution of certain i ncome and principal directly to the trust benefic iary, despite the claims o f his Chapter 7 bankruptcy trustee, because the y were protected b y a valid spendthrift provision). The issue is thus not whether we should cho o se to follow one line of cases or another. Rather , we are compelled to follow applicable non bankruptcy law. 11 U.S.C. § 541(c)(2). In this case, that means we apply Pennsylvania law. Under19 Pennsylvania law, “ the intention of the testator or settlor must prevail.” Clark , 411 Pa. at 255, 191 A.2d at 419

- 20. For the reasons explained above, we believe that by exp licitly invoking the trust s’ principal , the settlor here intended the spendthrift provision s to apply to the debtor’s remainder interest s therein

. T he spendthrift provision s here represent “ [a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law .” 11 U.S.C. § 541(c)(2). The debtor’s remainder interest s in the trusts’ principal are therefore not included in his bankruptcy
estate. Id. The determination of the district cour t is consequently
AFFIRMED .