Bakoss v Certain Underwriters at Lloyd's, 2013 U.S. App. LEXIS 1527 (2d Cir. Jan. 23, 2013):

The parties entered into a Certificate of Insurance ("Certificate"), which they agree is an enforceable contract. Bakoss, 2011 U.S. Dist. LEXIS 110834, 2011 WL 4529668, at *7. The Certificate provided for the payment of a benefit to Bakoss in the event he became "Permanently Totally Disabled"--a status that Bakoss could invoke if "in the opinion of a Competent Medical Authority [he] [would] not recover from the effects of a Sickness or Injury to the extent that [he] [would] ever be able to resume the Material and Substantial duties of [his] occupation." 2011 U.S. Dist. LEXIS 110834, [WL] at *1 (internal quotation marks omitted). The Certificate also provides each party with the right to have Bakoss examined by a physician of its choice for the purpose of determining whether he was "totally disabled." In the event of a disagreement between each party's physician, the Certificate states that those two physicians "shall [jointly] name a third Physician to make a decision on the matter which shall be final and binding." 2011 U.S. Dist. LEXIS 110834, [WL] at *4.

In removing this case from state court in New York to the District Court, Lloyds claimed that the third-physician clause is an arbitration agreement, thus providing federal subject-matter jurisdiction pursuant to 28 U.S.C. § 1331 (federal question jurisdiction), the Convention [on the Recognition and Enforcement of Foreign Arbitral Awards], and the FAA. See 9 U.S.C. §§ 201-208. Applying federal common law, the District Court held that (1) the third-physician clause is an agreement to arbitrate, and (2) federal jurisdiction exists under the FAA. Bakoss challenges this determination by arguing, in part, that since the FAA does not supply a definition for "arbitration," the District Court should have looked to New York law, rather than federal common law, to define that term. See, e.g., Evanston Ins. Co. v. Cogswell Properties, LLC, 683 F.3d 684, 693 (6th Cir. 2012) (noting that because the FAA does not define "arbitration" the court needed to "decide which source of law provides that definition"); Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'l Ass'n, as Tr. for Trust No. 1, 218 F.3d 1085, 1086 (9th Cir. 2000) (same); Harrison v. Nissan Motor Corp. in U.S.A., 111 F.3d 343, 350 (3d Cir. 1997) (same).

Footnote 4. The FAA does not independently confer subject-matter jurisdiction on the federal courts but "provides federal jurisdiction over actions to confirm or vacate an arbitral award that is governed by the [New York Convention]." Scandinavian Reinsurance Co. Ltd. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012); see also 9 U.S.C. § 205 ("Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the [New York] Convention, the defendant or the defendants may . . . remove such action or proceeding to the district court of the United States . . . ."); id. § 203 ("An action or proceeding falling under the [New York] Convention shall be deemed to arise under the laws and treaties of the United States.").

Judge Irizarry relied upon two federal common law cases within this circuit, see McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co., 858 F.2d 825 (2d Cir. 1988), and AMF Inc. v. Brunswick Corp. ["AMF"], 621 F. Supp. 456 (E.D.N.Y. 1985), to determine "whether the agreement in question is in fact an agreement to arbitrate." Bakoss, 2011 U.S. Dist. LEXIS 110834, 2011 WL 4529668, at *6. In McDonnell Douglas Finance Corp., we considered the question of whether contractual language "calling for the appointment of an independent tax counsel . . . constitute[s] an enforceable arbitration clause" and concluded that it does because "the language clearly manifests an intention by the parties to submit certain disputes to a specified third party for binding resolution." 858 F.2d at 830. Similarly, in AMF, Judge Weinstein noted that under the FAA "[a]n adversary proceeding, submission of evidence, witnesses and cross-examination are not essential elements of arbitration" and held that "[i]f the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration." 621 F. Supp. at 460.

***We have not directly addressed whether federal courts should look to state law or federal common law for the definition of "arbitration" under the FAA. We do so now and hold that federal common law provides the definition of "arbitration" under the FAA.

"Congress sometimes intends that a statutory term be given content by the application of state law," but absent "a plain indication to the contrary" we presume that "the application of the federal act [is not] dependent on state law." Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 43, 109 S. Ct. 1597, 104 L. Ed. 2d 29 (1989) (quotation marks omitted). Unless "uniform nationwide application . . . clearly was not intended," we apply a federal standard without reference to state law. Id.

The other Courts of Appeals that have considered this question have reached differing conclusions. Compare Evanston Ins., 683 F.3d at 693 (noting the circuit split and concluding that federal law ought to govern); Salt Lake Tribune Pub'l Co. v. Mgmt. Planning, Inc., 390 F.3d 684, 689 (10th Cir. 2004) (applying federal law); Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 6-7 (1st Cir. 2004) (applying federal law), with Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058, 1061-63 (5th Cir. 1990) (applying state law); Wasyl, Inc., v. First Bos. Corp., 813 F.2d 1579, 1582 (9th Cir. 1987) (applying state law).

The circuits that apply federal common law have relied on congressional intent to create a uniform national arbitration policy. See Evanston Ins., 683 F.3d at 693 (noting that "[i]t seems counter-intuitive to look to state law to define a term in a federal statute on a subject as to which Congress has declared the need for national uniformity" (internal quotation marks omitted)); Fit Tech, 374 F.3d at 6 ("[W]hether what has been agreed to amounts to 'arbitration' under the Federal Arbitration Act depends on what Congress meant by the term in the federal statute. Assuredly Congress intended a 'national' definition for a national policy."); Salt Lake Tribune Pub'l, 390 F.3d at 688-89 (holding that federal law governs because, among other reasons, "Congress passed the FAA to ensure that state law would not undermine arbitration agreements").

By contrast, the circuits that apply state law have "articulated few reasons for doing so." Liberty Mut. Grp., Inc. v. Wright, No. 12-CV-0282, 2012 U.S. Dist. LEXIS 29414, 2012 WL 718857, at *4 (D. Md. Mar. 5, 2012); see also Fit Tech, 374 F.3d at 6 (noting that the Ninth Circuit decision in Wasyl "assumed without real analysis that state law governed"). Indeed, although Wasyl remains good law in the Ninth Circuit, a subsequent Ninth Circuit panel expressly questioned whether Wasyl had been correctly decided. See Portland Gen. Elec., 218 F.3d at 1091 (Tashima, J., concurring); id. at 1091-92 (McKeown, J., specially concurring).

We agree with the compelling analysis of the circuits that have followed federal law in defining the scope of "arbitration" under the FAA. Applying state law would create "a patchwork in which the FAA will mean one thing in one state and something else in another," Portland Gen. Elec., 218 F.3d at 1091 (Tashima, J., concurring), and there is no indication that Congress intended that result. Consequently, we hold that the District Court correctly applied federal common law in determining that the third-physician clause is an "arbitration" agreement under the FAA.