Case Title: State ex rel. Barclays Bank PLC v. Hamilton Cty. Court of Common Pleas

Citation: 1996-Ohio-286

Docket Number: 19950274

State: ohio

Court: Ohio Supreme Court

Date: 1996-02-14T00:00:00Z

Document:
The State ex rel. Barclays Bank PLC et al. v. Court of Common Pleas of 
Hamilton County, Ohio et al. 
[Cite as State ex rel. Barclays Bank PLC v. Hamilton Cty. Court of Common 
Pleas (1996),  _____ Ohio St.3d _____.] 
Prohibition -- Presence of disagreement is insufficient to create an 
actual controversy if the parties to the action do not have 
adverse legal interests -- Action to enjoin payment under letter of 
credit must include beneficiary as a party in order to present an 
actual controversy within court’s subject matter jurisdiction. 
 
-- 
1.  The presence of a disagreement, however sharp and acrimonious it may be, 
is insufficient to create an actual controversy if the parties to the action 
do not have adverse legal interests. 
2.  An action to enjoin payment under a letter of credit or a confirmation of a 
letter of credit must include the beneficiary as a party in order to present 
an actual controversy within the common pleas court’s subject matter 
jurisdiction. 
 
2 
-- 
 
(No. 95-274 -- Submitted October 10, 1995 -- Decided February 14, 
1996.) 
 
IN PROHIBITION. 
 
Relator Barclays Bank PLC (“Barclays”) is a bank organized under the 
laws of England and Wales with its headquarters and principal place of 
business in London, England.  Intervenor-relator is Star Bank.  Respondents 
are the Court of Common Pleas of Hamilton County, Judge Arthur M. Ney and 
Judge Robert P. Ruehlman (“respondents”).  The intervening parties in this 
action for a writ of prohibition include intervenors-respondents William A. 
Thurner, Howard Thiemann, Verna K. Dohme, executor of the estate of Arthur 
Dohme, and Durwood G. Rorie, Jr. (“intervenors”).1 
 
Barclays seeks a writ of prohibition from this court to enjoin respondents 
from further exercising judicial power in the underlying suits because 
respondents do not have subject matter jurisdiction.  The underlying suits 
concern standby letters of credit issued by Star Bank and confirmation letters of 
 
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credit issued by Barclays in favor of the Society of Lloyd’s (“Lloyd’s”).  To 
more fully explain the circumstances in the underlying suits a brief explanation 
of Lloyd’s follows. 
Society of Lloyd’s 
 
Lloyd’s is not an insurance company, but rather an insurance 
marketplace somewhat analogous to the New York Stock Exchange.  The 
Corporation of Lloyd’s (“the Corporation”) maintains and regulates Lloyd’s 
insurance market.  Through the Council of Lloyd’s (“Council”), the 
Corporation promulgates standard form agreements which govern the 
relationships among the entities involved with the market.  The Council acts as 
trustee of a fund maintained to ensure payment of policyholder losses.  The 
Corporation itself, however, does not underwrite any insurance. 
 
Individual investor members, called “Names,” join together in syndicates 
to underwrite the insurance risks.  Because a Name cannot conduct insurance 
business directly, each Name enters into an agency agreement with a members’ 
agent  who acts on the Name’s behalf. 
 
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To become a Name, an individual must be sponsored by an existing 
member and must apply to the Corporation.  Applicants must satisfy a means  
test to demonstrate that they possess sufficient assets to support the risk of 
possible claims.  As a condition for investing in the syndicates, each Name is 
required to post security in cash or cash equivalent, such as an irrevocable 
letter of credit, in the amount of thirty percent of the value of the Name’s 
investment.  The Council, as beneficiary, requires letters of credit to be payable 
in England.  Under a forum selection clause in the Name’s contract with 
Lloyd’s, any dispute between a Name and Lloyd’s must be decided in the 
courts of England. 
 
The security covers any underwriting losses that may occur to the 
syndicates in which the Name invests.  Losses result when claims by insurance 
policyholders exceed the amount of premiums paid to syndicates by the 
policyholders.  In the event that losses do exceed the premium amounts paid, 
the Council has the ability to make “cash calls” upon syndicate Names in 
proportion to the amount of their respective investments.  If the cash call is not 
 
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paid by a Name, the Council then may draw against the security posted by the 
Name. 
Parties’ Relationships 
 
Barclays, Star Bank and intervenors do not dispute the following facts. 
 
During the 1980s, members’ agent R.W. Sturge, Ltd., d.b.a. Falcon 
Agencies, Ltd. (“Sturge/Falcon”), solicited each intervenor to become a Name 
in Lloyd’s.  Each of the intervenors invested in Lloyd’s insurance market as a 
Name for three or more years between 1983 and 1994.2  As the intervenors’ 
members’ agent Sturge/Falcon placed the intervenors in syndicates. 
 
To fulfill the security condition for investing in the insurance syndicates, 
each intervenor elected to provide the required thirty-percent security by way 
of a letter of credit.  To that end, each intervenor contracted with Star Bank (or 
its predecessor) to issue irrevocable letters of credit payable in pounds sterling 
with the Council of Lloyd’s as beneficiary.  Because the Council required 
letters of credit to be payable in England, Star Bank requested Barclays to 
confirm each of intervenor’s letters of credit.  Star Bank sent the letters of 
 
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credit to Barclays in London and Barclays confirmed each letter of credit by 
issuing a separate confirming document.  The confirmation letters of credit 
required only that the claim be presented prior to the stated expiration date and 
in conformity with applicable international credit practices. 
 
The Underlying Suits 
 
Between 1988 and 1991, the syndicates in which intervenors had 
invested experienced underwriting losses.  To cover the losses, the Council 
made cash calls upon the intervenors and then draws against each intervenor’s 
confirmation letter of credit.  As of January 1995, intervenors had received 
additional cash calls by the Council for 1991 underwriting losses, and further 
draws against the confirmation letters of credit were imminent. 
 
Intervenors filed suit in respondents’ common pleas court against Star 
Bank and Barclays, alleging that Sturge/Falcon had sold securities to them in 
violation of the Ohio Securities Act.3  Each complaint requested a temporary 
restraining order to stop Star Bank and Barclays from paying any funds 
pursuant to the letters of credit.  The complaints also requested preliminary and 
 
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permanent injunctions.  Respondents granted the temporary restraining order 
enjoining both Star Bank and Barclays from paying on, making a demand for 
payment on, or assisting in collection of, the letters of credit. 
 
Barclays sued for a writ of prohibition from this court to enjoin 
respondents from further exercising judicial power in the underlying suits 
because, Barclays asserts, respondents do not have subject matter jurisdiction.  
After Barclays initiated the original action in this court, all four complaints 
were voluntarily dismissed.  The intervenors then refiled two new cases, 
Thurner II and Rorie II, and again alleged that Sturge/Falcon had sold 
securities to them in violation of the Ohio Securities Act.  The new complaints 
also alleged that the Council had engaged in “rampant and pervasive fraud” 
towards the intervenors by recruiting Names without informing the Names of 
massive latent or “long-tail” liabilities in the market because of asbestos and 
pollution-related losses.  Based on this, intervenors alleged that Barclays and 
Star Bank had a duty to review the evidence of fraud and to withhold payment 
on the letters of credit. 
 
8 
 
Barclays amended its complaint for writ of prohibition and included the 
two new cases which intervenors had filed 
 
Squire, Sanders & Dempsey, John R. Gall, Pamela H. Thurston and 
Philomena M. Dane, for relator Barclays Bank PLC. 
 
Dinsmore & Shohl and John W. Beatty, for intervening relator Star Bank, 
N.A. 
 
Joseph T. Deters, Hamilton County Prosecuting Attorney, and Philip L. 
Zorn, Jr., Assistant Prosecuting Attorney, for respondents. 
 
Cohen, Todd, Kite & Stanford, Donald J. Rafferty and Michael R. 
Schmidt, for intervenors William A. Thurner, Howard Thiemann, and estate of 
Arthur Dohme, Verna K. Dohme, executor. 
 
Lindhorst & Dreidame Co., L.P.A., and James M. Moore, for intervenors 
Thomas Tilsley, Durwood G. Rorie, and V. Snowden Armstrong. 
 
COOK, J.   The critical issue in this case is whether a court has subject 
matter jurisdiction to issue an injunction to stop payment on a letter of credit 
when the beneficiary of that letter of credit is not a party to the suit.  Because 
 
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respondents lack such jurisdiction, we find prohibition appropriate, and issue 
the writ. 
 
Prohibition is an extraordinary writ and we do not grant it routinely or 
easily: 
 
“‘For a writ of prohibition to issue, a relator must ordinarily establish: 
(1) that the court against whom it is sought is about to exercise judicial power, 
(2) that the exercise of such power is unauthorized by law, and (3) that, if the 
writ is denied, he will suffer injury for which no other adequate remedy 
exists.’”   State ex rel. Connor v. McGough (1989), 46 Ohio St.3d 188, 189, 
546 N.E.2d 407, 408, quoting State ex rel. Largent v. Fisher (1989), 43 Ohio 
St.3d 160, 161, 540 N.E.2d 239, 240; and State ex rel. Fyffe v. Pierce (1988), 
40 Ohio St.3d 8, 9, 532 N.E.2d 673, 674.  Intervenors concede that the first 
prong of the prohibition tripartite test is established.  In this case, the dispute 
centers on the second part of the test -- whether the respondents’ exercise of 
judicial power is unauthorized by law. 
 
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As to this central dispute, Barclays and intervenors agree that fraud by 
the beneficiary in the underlying transaction would permit a court to enjoin 
payment on the letter of credit.4  In their new cases, intervenors have alleged 
fraud in the underlying transaction on the part of Lloyd’s.  Barclays asserts, 
however, that respondents lack subject matter jurisdiction because intervenors 
have not named Lloyd’s, the beneficiary of the letters of credit, as a defendant 
in the underlying cases; therefore, no case or controversy exists, as there are no 
adverse litigants.  Intervenors, on the other hand, contend that because R.C. 
1305.13(B)(2) specifically authorizes a court to enjoin payments under letters 
of credit on the basis of fraud, respondents have subject matter jurisdiction. 
 
First we note, as respondents correctly argue, that Ohio courts of general 
jurisdiction have authority to determine their own jurisdiction. State ex rel. 
Connor v. McGough 46 Ohio St.3d at 189-190, 546 N.E.2d at 408; Ohio Dept. 
of Adm. Serv., Office of Collective Bargaining v. State Emp. Relations Bd. 
(1990), 54 Ohio St.3d 48, 562 N.E.2d 125.  In the interest of judicial economy, 
however, we  recognize an exception to this general rule.  “When a court 
 
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patently and unambiguously lacks jurisdiction to consider a matter, a writ of 
prohibition will issue to prevent assumption of jurisdiction regardless of 
whether the lower court has ruled on the question of its jurisdiction.”  Ohio 
Dept. of Adm. Serv., 54 Ohio St.3d 48, 562 N.E.2d 125, at syllabus.  Thus, to 
issue the writ of prohibition, we must find that respondents patently and 
unambiguously lacked jurisdiction.  In determining whether respondents lack 
subject matter jurisdiction, we must consider the nature of the intervenors’ 
underlying action. 
 
In Ohio, standby letters of credit are governed by R.C. Chapter 1305.  
Two interrelated features of the letter of credit make it uniquely valuable in the 
marketplace, especially in the international market.  By issuing a standby letter 
of credit, a bank substitutes its financial integrity as a stable credit source for 
that of its customer, and because of the issuing bank’s primary commitment, 
the bank’s obligation to pay is independent of the underlying transaction 
between the beneficiary and the bank’s customer.  R.C. 1305.13 (Official 
Comment 1 to UCC 5-114).  See, e.g., Centrifugal Casting Machine Co. v. Am. 
 
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Bank & Trust Co. (C.A.10, 1992), 966 F.2d 1348, 1352; Aetna Life & Cas. Co. 
v. Huntington Natl. Bank (C.A.6, 1991), 934 F.2d 695, 699, and Ground Air 
Transfer, Inc. v. Westates Airlines, Inc. (C.A.1, 1990), 899 F.2d 1269, 1272.  
The “independence principle” requires a bank issuing a standby letter of credit 
to honor any draw by the beneficiary that conforms to the express terms of the 
letter.  See, e.g., Centrifugal Casting Machine Co., 966 F.2d at 1352; Aetna 
Life & Cas. Co., 934 F.2d at 699, and Ground Air Transfer, 899 F.2d at 1272.  
The great utility of the letter of credit derives from the fact that the 
relationships between the customer, the bank, and the beneficiary are utterly 
independent of one another. 
 
As its basic premise, R.C. 1305.13 adopts the independence principle:  
“(A)  An issuer must honor a draft or demand for payment that complies with 
the terms of the relevant credit regardless of whether the goods or documents 
conform to the underlying contract for sale or other contract between the 
customer and beneficiary.”  R.C. 1305.13(B)(2), upon which intervenors base 
their cause of action, states the only pertinent exception to this rule. 
 
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Where “documents appear on their face to comply with the terms of a 
credit,” but where those documents in reality are “forged or fraudulent or there 
is fraud in the transaction,” an issuer is required to pay if the draft is presented 
by the equivalent of a holder in due course.  (Emphasis added.) R.C. 
1305.13(B)(1).  In all other cases, “[a]n issuer acting in good faith may honor 
the draft or demand for payment despite notification from the customer of 
fraud, forgery, or other defect not apparent on the face of the documents but a 
court of appropriate jurisdiction may enjoin such honor.”  (Emphasis added.) 
R.C. 1305.13(B)(2).  This statute does not authorize a court to enjoin a letter of 
credit unless it has appropriate jurisdiction. 
 
The Constitution of Ohio sets forth the basic limitations on the 
jurisdiction of the common pleas courts.  Section 4(B), Article IV of the Ohio 
Constitution vests the common pleas courts with “such original jurisdiction 
over all justiciable matters * * * as may be provided by law.”  This court, in 
interpreting Section 4(B), Article IV, has declared the following: 
 
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“It has been long and well established that it is the duty of every judicial 
tribunal to decide actual controversies between parties legitimately affected by 
specific facts and render judgments which can be carried into effect.”  Fortner 
v. Thomas (1970), 22 Ohio St.2d 13, 14, 51 O.O.2d 35, 257 N.E.2d 371, 372.  
Actual controversies are presented only when the plaintiff sues an adverse 
party.  This means not merely a party in sharp and acrimonious disagreement 
with the plaintiff, but a party from whose adverse conduct or adverse property 
interest the plaintiff properly claims the protection of the law.  Thus, we hold 
that the presence of a disagreement, however sharp and acrimonious it may be, 
is insufficient to create an actual controversy if the parties to the action do not 
have adverse legal interests.  Cf. Diamond v. Charles (1986), 476 U.S. 54, 62, 
106 S.Ct. 1697, 1703, 90 L.Ed.2d 48, 57. 
 
Turning to the context of this case, we find that in an action to enjoin 
payment on a letter of credit, the only entity with the motive and means to 
oppose an allegation of fraud in the transaction is the beneficiary.  A 
beneficiary is the only entity that has an adverse legal interest.   Today, we hold 
 
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that an action to enjoin payment under a letter of credit or a confirmation of a 
letter of credit must include the beneficiary as a party in order to present an 
actual controversy within the common pleas court’s subject matter jurisdiction. 
 
In this case, intervenors contend that Barclays and Star Bank are adverse 
parties because the banks have an obligation to refuse to pay because of 
Lloyd’s massive fraud, but the banks nonetheless are determined to continue to 
pay.  Intervenors’ argument presents a sharp and acrimonious disagreement, 
but intervenors did not sue the alleged wrongdoers.  Intervenors’ allegations of 
Lloyd’s wrongdoing are the sole basis upon which relief can be granted and 
intervenors seek to foreclose Lloyd’s right to payment under the letters of 
credit.  Thus, respondents patently and unambiguously did not have subject 
matter jurisdiction in the underlying cases because intervenors did not sue the 
beneficiary of the confirmation and standby letters of credit, Lloyd’s of 
London. 
 
Finally, as to the third prong of the prohibition test, Barclays and Star 
Bank must also demonstrate that they have no adequate remedy at law.  Three 
 
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intervenors claim that Barclays and Star Bank are asserting nothing more than a 
money issue which is easily quantifiable.  In this case, however, we find 
prohibition an appropriate remedy.  When a lower court totally lacks 
jurisdiction, “‘“the availability or adequacy of a remedy of appeal to prevent 
the resulting injustice is immaterial to the exercise of supervisory jurisdiction 
by a superior court to prevent usurpation of jurisdiction by the inferior court.”’”  
State ex rel. Largent v. Fisher (1989), 43 Ohio St.3d 160, 163, 540 N.E.2d 239, 
241, quoting State ex rel. Racing Guild of Ohio v. Morgan (1985), 17 Ohio 
St.3d 54, 56, 17 OBR 45, 47, 476 N.E.2d 1060, 1062, quoting State ex rel. 
Adams v. Gusweiler (1972), 30 Ohio St.2d 326, 329, 59 O.O.2d 387, 388, 285 
N.E.2d 22, 24. 
 
Respondents, having no subject matter jurisdiction in the underlying 
actions, are directed hereby to dismiss those actions. 
Writ allowed. 
 
MOYER, C.J., DOUGLAS, WRIGHT, F.E. SWEENEY and PFEIFER, JJ., concur. 
 
RESNICK, J., concurs in judgment only. 
 
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FOOTNOTES: 
1  Originally, six Cincinnati residents (Thurner, Thiemann, Dohme, Rorie, T.W. 
Tilsley, and V. Snowden Armstrong) who invested as “Names” in the Lloyd’s 
of London insurance market filed three similar complaints in respondents’ 
court and were allowed to intervene in this action.  A fourth suit was also filed, 
but the plaintiff in that suit, Carolyn L. Konold, did not intervene in this 
original action.  All four complaints were voluntarily dismissed.  Four of the 
intervenors then refiled two new cases.  This decision addresses the new cases 
only as the original four cases have been rendered moot by the plaintiffs’ 
voluntary dismissal. 
2. Each intervenor was a Name for the following years: 
 
Rorie  
1988 - 1994 
 
Thurner  
1985 - 1993 
 
Dohme  
1983 - 1993 
 
Thiemann  1985 - 1994 
 
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3. Initially, three of the four suits were brought against Star Bank.  However, 
each was amended to bring Barclays in as a defendant and to extend the 
temporary restraining order to Barclays. 
4. In this case, we do not reach the question of whether “fraud in the 
transaction” in R.C. 1305.13(B) refers to fraud between the customer and the 
beneficiary in the underlying investment transaction or to fraud in the separate 
transaction of presentment of a draft for payment