On December 17, 2024, the FDA published five (5) warning letters previously issued to makers of knockoff GLP-1 drugs. Four of the five warning letters were to companies (specifically, Xcel Research, Prime Vitality, Summit Research Peptides, and Swisschem) that claimed to distribute GLP-1s “for research use only” in spite of ample evidence to the contrary. The fifth, issued to Verony, was based on its manufacturing and distribution of oral GLP-1s that it falsely claimed were approved by FDA.

There should be no controversy or confusion about these warning letters. The companies which received them are not compound pharmacies, and therefore had no authority to manufacture or distribute these drugs based on the well-publicized shortage impacting the GLP-1 market. Thus, these products were not legitimate compounded copies authorized by federal law – they were simply knockoffs, as stated in the title of this article. Similarly, in spite of the fact that many GLP-1 drugs are approved by FDA, none of these companies had an FDA approval or, for example, a license to manufacture and distribute them from the drug companies that do. Ultimately, as FDA explains in the letters, these were simply adulterated, misbranded, unapproved new drugs.

Although the violations observed in the warning letters are easily understood, the letters reveal two important lessons that companies sometimes take too long to learn.

First, FDA can inspect a company without ever entering the company’s facility. Specifically, in each of these cases, FDA was able to observe serious regulatory violations based only on a review of the companies’ websites and social media posts. FDA routinely conducts similar, web-based inspections, which are well suited to reveal a product’s “intended use” – often the determining factor in whether a product is a “drug.” See 21 CFR § 201.128 (intended use can be derived from a broad array of “objective” factors, including “labeling claims, advertising matter, or oral or written statements.”) See also 21 USC § 321(g) (defining “drug” based on, inter alia, its intended use). Once FDA establishes the intended use, FDA can review its own records to determine that the company is not registered with FDA and/or has no drug approval, at which point the product is an “unapproved new drug.” Adulteration and misbranding violations follow in line, both of which are based on statutes carrying civil and criminal penalties.

Second, claiming that a product is for “research use only” – when in reality it is not – is no defense to otherwise clear regulatory violations. For instance, in each of the warning letters to Xcel Research, Prime Vitality, Summit Research, and Swisschem, FDA observed that the companies marketed their products as for “research use only,” but also observed from the companies’ websites and social media pages that the companies intended the products to be used by human patients. Again, FDA can establish a product’s intended use without stepping foot in a facility, and “research use only” disclaimers are easily overwhelmed by other publicly available evidence.

This is not a new phenomenon, and there are many prior examples of FDA running roughshod over similar “research” claims. For example, in this case, a Maryland man was criminally prosecuted for selling bodybuilding peptides with “research/laboratory use only” claims, which the government explained were used “as a ruse to avoid FDA scrutiny.” This case saw the same result, with the government explaining that the defendants “employed the bogus “research chemicals” disclaimer to conceal that they and others were distributing misbranded drugs and unapproved new drugs for use by their customers.”

Ultimately, GLP-1s are a relatively new phenomenon presenting many novel legal issues for FDA and stakeholders. These warning letters, however, pave no new ground, but should still be reviewed and understood by describing regulatory violations which companies are well advised to avoid.

Author’s Note: This is an updated version of the post to our blog dated October 30, 2024. Later that day, FDA announced the resolution of Novo Nordisk’s semaglutide shortage, which altered the conclusion of our original post and warranted this update.

Glucagon-like peptide-1, or “GLP-1” drugs, such as Ozempic® and Mounjaro®, have exploded in popularity in the United States for weight management and the treatment of obesity. However, GLP-1 drugs were not originally intended for that purpose, and their manufacturers have struggled to satisfy consumer demand. This supply/demand mismatch has resulted in well documented shortages which have, as a matter of law, authorized compounding pharmacies to make copycats. However, as supply inches towards demand, complex legal questions arise driven by FDA regulations and the monopoly protections afforded to patentholders.

This article explores what’s next for these generationally popular weight loss drugs. Stay tuned to the end for important takeaways and action items.

A. Approved GLP-1 drugs and market exclusivity.

GLP-1 is a hormone found in a class of injectable drug products (“GLP-1 drugs”) which lower serum glucose levels and thereby manage metabolism for patients with diabetes and obesity disorders. Examples of GLP-1 drugs include the following:

Historically, FDA did not approve GLP-1 drugs for weight loss. Instead, as an example, FDA approved the first GLP-1 drug (Byetta®) in 2005 for patients with type 2 diabetes, and many products followed suit with similar indications. It was not until 2022 that FDA first approved a GLP-1 drug – Novo Nordisk’s Wegovy® – for “weight management”; for patients with obesity. Of course, in tandem with their efforts to obtain FDA approvals, the manufacturers of these products sought and obtained patent protection, which effectively prohibited other companies from making copycats involving the patented or drug substances (exenatide, semaglutide, and so on).

In most instances, the combination of FDA approval and patent protection affords the
manufacturer a legally protected monopoly over the drug substance in the United States, sometimes for 12 years or longer until the patent expires and generics can enter the market. In addition to the lawsuits patentholders can file to protect their monopolies, FDA plays a key gatekeeping function by reviewing patent information as part of drug approval applications, taking care to not approve the same patent-protected drug substance twice. See 21 U.S.C. § 355(b)(1)(viii).

This monopoly power is commonly seen as a well-deserved reward to the manufacturer for its investment in research and development and discovery of new drugs to benefit the public health. As one court has explained:

The system of developing new drugs in this country exemplifies the maxims “no
risk, no reward” and “more risk, more reward.” Developing new drugs is a risky, lengthy, and costly endeavor, but it also can be highly lucrative. Only one in every 5,000 medicines tested for the potential to treat illness is eventually approved for patient use, and studies estimate that developing a new drug takes 10 to 15 years and costs more than $1.3B. No rational actor would take that kind of a risk over that period of time without the prospect of a big reward.. The reward, if any, comes when the drug is approved and patented, giving the pioneer or “brand name” company that developed it a monopoly over the sale of the new drug for the life of the patent. The pioneer company can then exploit the patent monopoly by charging higher prices than it could if competitors were allowed to sell bioequivalent or “generic” versions of the drug. In that manner, the pioneer company is usually able to recoup its investment and gain a profit, sometimes a super-sized one.

FTC v. Watson Pharma., 677 F.3d 1298, 1300 (11 th Cir. 2021) (emphasis added) (overruled on other grounds as stated in FTC v. Actavis, 570 U.S. 136 (2013).

In spite of this awesome monopoly protection for approved, patented drugs, important
exceptions exist, which is how we arrived where we are today with compounded copies of GLP- 1 drugs proliferating the market.

B. Compounding Pharmacies and GLP-1 drugs.

Traditionally, compound pharmacies played a local, niche role in the U.S. drug supply chain, specifically by mixing drug ingredients tailored to the needs of individual patients. See e.g. Thompson v. W. States Med. Ctr., 535 U.S. 357, 360–61 (2002). “Compounding is typically used to prepare medications that are not commercially available, such as medication for a patient who is allergic to an ingredient in a mass-produced product.” Id., at 361. Given that local, niche role, the regulators of first resort were state pharmacy boards, rather than FDA.

Inevitably, however, compound pharmacies outgrew their traditional role, and bad things
happened resulting in federal legislation. Specifically, in 2012, the New England Compounding Center made and distributed three lots of epidural steroid injections which were tainted with fungal meningitis and distributed in interstate commerce leading to 48 patient deaths and more than 700 cases of persistent fungal infections.

After the ensuing congressional investigation, in 2013 Congress passed the Drug Quality and Security Act (DQSA), which created a new category of compounders called “outsourcing facilities.” See 21 USC § 353b. Unlike the “traditional” compound pharmacies making individualized products for individual patients, § 353b allows outsourcing facilities to manufacture large amounts of drugs without individually identifiable patients and prescriptions, subject to i) good manufacturing practice requirements, and ii) routine FDA inspections. Traditional compounders, i.e. those which make compounded drugs for individual patients, are subject to regulation by 21 USC § 353a.

To be clear, in the vast majority of circumstances, §§ 353a and 353b make clear that compound pharmacies and outsourcing facilities cannot make copycats of approved, commercially available drugs. See § 353a(b)(1)(D) (prohibiting compounders from compounding “regularly or in inordinate amounts…any drug products that are essentially copies of a commercially available drug product.”); § 353b(a)(5) (prohibiting the compounding of a drug which is “essentially a copy of one or more approved drugs.”)

However, even if a particular drug is approved and a manufacturer has a legally authorized monopoly over it, § 353b includes an important carveout allowing for the compounding of “copies” if the drug is on a “shortage list” published and maintained by FDA pursuant to 21 USC § 356e. Federal law defines “drug shortage” as “a period of time when the demand or projected demand for the drug in the United States exceeds the supply,” 21 USC § 356c(h)(2), and FDA considers a shortage “resolved” when “all the manufacturers are able to meet total national historical demand.”

This is the statutory authority upon which compounded copies of FDA approved GLP-1 drugs
have proliferated in the United States – creating greater access at a lower cost for patients, albeit with a greater safety risk than the approved, brand named versions. Indeed, as of this moment, all of the GLP-1 drugs on the list above, with the exception of Tirzepatide (Mounjaro®) (discussed below), remain on FDA’s drug shortage list, so outsourcing facilities can continue making copies of them.

C. Tirzepatide (Mounjaro® and Zepbound®) and FDA’s Drug Shortage List

Tirzepatide, known by its brand names Mounjaro® (for diabetes) and Zepbound® (for weight
loss), is a GLP-1 drug over which Eli Lilly & Co. (“Lilly”) has a legal monopoly. In December 2022, as demand for all GLP-1 drugs skyrocketed with the news that they could be safe and effective for obesity and weight management, FDA included tirzepatide on its shortage list, which opened the floodgates for compounded copies.

But as the FDA giveth, the FDA taketh away, and companies in the compounded tirzepatide business are now confronting the reality of Lilly having pumped billions of dollars into its manufacturing capabilities and an urgent shareholder demand to recoup the profit. To their credit, public companies distributing compounded GLP-1 drugs have acknowledged this risk. See, e.g. Hims & Hers Health, Inc., Form 10-Q, June 30, 2024 (“Additionally, certain aspects of the GLP-1 compounding to which we offer access is based on current shortages of branded GLP-1s, and we cannot predict when such shortages will be resolved. While FDA does not limit compounding to drug shortages and we believe there are paths to continue offering access to certain compounded GLP-1s after the shortage ends, we cannot guarantee that we will be able to continue offering these products in the same manner, to the same extent, or at all, due to a variety of factors outside our control, including supply chain, intellectual property, regulatory and resource allocation matters.”)

On October 2, 2024, this risk materialized when FDA announced on its website that Lilly had resolved the tirzepatide shortage, meaning that companies making and distributing compounded copies needed to stop in their tracks, regardless of ongoing patient care. However, on October 7, 2024, the Outsourcing Facilities Association (“OFA”) filed suit against FDA in federal court in Fort Worth, alleging that FDA’s decision to remove tirzepatide from the shortage list violated the Administrative Procedure Act (APA) because, inter alia, FDA failed to provide notice and seek comments from affected stakeholders. In response to the OFA lawsuit, FDA announced on October 11 that it was re-evaluating its position and promised to publish a final decision by November 21. In the meantime, FDA also committed that it would not take action against compounders for making copies of tirzepatide.

D. Semaglutide (Ozempic® and Wegovy®)

Semaglutide, known by its brand names Ozempic® (for diabetes) and Wegovy® (for weight loss), is the GLP-1 drug over which Novo Nordisk (“Novo”) has a legally-protected monopoly. On October 30, 2024, FDA removed semaglutide from its shortage list, so companies making and distributing compounded copies are now required to stop in their tracks as well. Shares of Hims & Hers immediately dropped by 14% on the news, but again, the company had long since cautioned its shareholders of this risk.

E. What happens to companies compounding or distributing “copies” of GLP-1 drugs after shortages are resolved?

To the extent a particular GLP-1 drug (for instance, tirzepatide or semaglutide) is removed from FDA’s shortage list, and to the extent compounders and telehealth companies continue making and selling copies, they are subject to enforcement by FDA and, courts have held, civil liability to the drug company who owns the patent.

Primarily, when a compounding pharmacy creates a copy of an approved drug which is not
subject to a shortage as determined by FDA, the compounder is no longer immune from the federal misbranding and unapproved new drug statutes, both of which could result in FDA enforcement and serious regulatory consequences. However, given the resources available to major drug companies (e.g. Lilly), the more likely course of action is the drug companies taking the enforcement lead, as Lilly just did during the brief period after OFA filed its suit and before FDA pressed pause on its decision that the terzepatide shortage had been resolved.

In most cases, private litigants are barred from weaponizing another party’s FDA compliance status in litigation because, under federal law, only the FDA can. See 21 U.S.C. § 337(a) (“…all such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States.”) See e.g. Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 349, n.4 (2001) (“The FDCA leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions…”).

In spite of § 337, in two recent cases courts have held that private litigants can enforce the shortage list in court – specifically by bringing Lanham Act suits for unfair competition and false advertising. First, in Azurity Pharmaceuticals Inc. v. Edge Pharma, LLC, 45 F.4 th 479 (1 st Cir. 2022), the First Circuit reversed the District of Massachusetts which held otherwise because “the adjudication of this claim simply requires a court to ascertain whether a particular drug appears” on the shortage list. Id., at 501. In other words, for the First Circuit, why leave it to FDA if the violation is readily apparent? In Pacira Biosciences Inc. v. Quva Pharma Inc., No. 23-cv- 4147, 2024 WL 4329142 (S.D. Tex. Aug. 26, 2024), the court reached the same result, specifying that “a claim that merely requires a court to cross-reference a list is not precluded,” but “claims that require a court to interpret, apply, or enforce the FDCA remain precluded.”

Such is the importance of FDA’s shortage list and OFA’s lawsuit against FDA. If FDA does not place tirzepatide and semaglutide back on its shortage list, compounded copies will be fair game in court for Lilly and Novo, and companies like Hims and others selling them will need to need to prepare their litigation strategies and/or quickly find alternative products. Of course, different courts today may interpret the law differently given the widespread use of compounded tirzepatide and semaglutide and the added consumer cost prohibition will inevitably create. Meanwhile, if OFA can convince the court to enjoin FDA and require that tirzepatide (and, if it supplements its case, semaglutide) return to the shortage list pending rulemaking procedures, there could be some breathing room, but that case is an uphill battle.

F. Next Up: Novo Nordisk argues that semaglutide is too difficult to compound.

In addition to the purported resolution of the GLP-1 shortages, Novo Nordisk has challenged the regulatory status of compounded GLP-1 drugs by petitioning FDA to prohibit compounding pharmacies from making copies of semaglutide because it is too complex to do so with any guarantee of safety or effectiveness. This argument is premised on separate provisions of 21 USC §§ 353a and 353b which authorize FDA to create and maintain a list of drugs that present “demonstrable difficulties” for compounding. Novo’s argument is a shot across the bow for all compounded GLP-1 products, and the industry should expect other manufacturers to follow suit with a wave of similar challenges.

Novo’s path forward on this issue, however, is a slog – because unlike the shortage list, § 353b requires that FDA implement the “demonstrably difficult” list “by regulation.” Moreover, the statute requires that FDA convene an “advisory committee” on compounding which “shall include representatives from the National Association of Boards of Pharmacy, the United States Pharmacopeia, pharmacists with current experience and expertise in compounding, physicians with background and knowledge in compounding, and patient and public health advocacy organizations.” See 21 USC § 353b(c). Thus, even assuming Novo’s argument has merit, FDA’s proposed rule implementing the list is still not final, and no GLP-1 drug was nominated as “demonstrably difficult” in the first draft. Given Novo’s purported resolution of the semaglutide shortage, its argument that semaglutide is too complex for compounding will likely take a back seat.

G. Takeaways and Action Items

Over the past two years, compounded copies of GLP-1 drugs have proliferated based on unique market conditions and corresponding accommodations under federal law. However, as patentholders ramp up their manufacturing capabilities, the accommodations fade, and the risk of FDA enforcement and civil litigation reappear.

Companies, including telehealth firms and compounding pharmacies, should expect and prepare for the following:

• Lilly and Novo have convinced FDA that the shortage of their respective GLP-1 drugs has resolved. If FDA does not return tirzepatide and semaglutide to its shortage list, companies compounding and selling them will need to prepare for litigation and/or find alternative products.
• Novo has petitioned FDA to place semaglutide on a list of drugs which are too difficult to compound – but FDA will need to submit that request to a notice and comment rulemaking process. Companies compounding and selling copies should be prepared to participate in the rulemaking and have their voices heard, keeping in mind that manufacturers of other GLP-1 drugs can bring similar petitions of their own at any time.
• Petitions to either remove GLP-1 drugs from FDA’s shortage list or place them on FDA’s “demonstrably difficult” list will continue – so all companies in the space should stay vigilant.
• Companies adulterating or misbranding compounded GLP-1 drugs remain subject to FDA enforcement and litigation against patentholders regardless of FDA’s shortage list.

Ultimately, as already proved by the events of October 2024, major changes may continue to occur with little or no notice – and stakeholders should expect the only constant to be change.

In close succession, the Supreme Court of the United States recently decided two short but meaningful cases that arbitration litigants must keep in mind: Coinbase, Inc. v. Suski, 144 S.Ct. 1186 (May 23, 2024) and Smith v. Spizziri, 144 S.Ct. 1173 (May 16, 2024).

Coinbase, Inc. v. Suski, 144 S.Ct. 1186 (May 23, 2024) – A tale of a fourth order.

In Coinbase, the Supreme Court dealt with a unique situation in the deceptively complex topic of whether a court or an arbitrator decides questions of arbitrability (e.g., “whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy”). Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 69 (2010) (citations omitted). The situation in Coinbase was unique because, as described below, the case involved two contracts with competing dispute resolution clauses which made the question of arbitrability especially challenging.

Before proceeding to the merits of Coinbase, a brief primer on arbitration jargon is helpful. Arbitration practitioners already recognize terms like “gateway,” “arbitrability,” “threshold,” and “delegation.”¹ SCOTUS has used these terms in cases involving questions of arbitrability – both in cases deciding whether a dispute is arbitrable at all, and in cases deciding whether the arbitrability is decided by a court or an arbitrator. Thanks to Coinbase, each of the following terms is now part of SCOTUS’s lexicon and should be understood by all arbitration practitioners:

• First Order Dispute: A first-order dispute is a “contest over ‘the merits of the dispute.’”
• Second Order Dispute: A second-order dispute involves the question of “whether [the parties] agreed to arbitrate the merits” of the dispute.
• Third Order Dispute: A third-order dispute involves the question of who, i.e. an arbitrator or judge, wields the authority to decide a second-order dispute.
• Fourth Order Dispute: Implicitly new from Coinbase—the decision does not call it that—a fourth-order dispute involves the question of who, i.e. an arbitrator or judge, decides the third-order dispute when faced with conflicting instruments.

Coinbase, 144 S.Ct. at 1193 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995).

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¹ I covered these items in this article.

Returning to the merits of Coinbase, the parties executed two contracts with conflicting conflict-resolution provisions. The first contract contained an arbitration provision that delegated to an arbitrator the power to decide all disputes under the contract, including whether a given disagreement is arbitrable.² By contrast, the subsequent contract contained a forum selection clause that required contractual disputes to be decided in court in California.³ See id., at 1190-91.

When a legal dispute broke out between the parties, one side insisted that the first contract’s delegation clause established the terms by which all disputes were to be resolved—so that the arbitrability of the dispute was arbitrable—while the other side insisted that the second contract’s forum selection clause superseded the first agreement and the delegation clause. Thus, the case presented the following fourth-order dispute: “When two such contracts exist, who decides the arbitrability of a contract-related dispute between the parties—an arbitrator or the court?” Coinbase, at 1191. As SCOTUS described:

In prior cases, we have addressed three layers of arbitration disputes: (1) merits, (2) arbitrability, and (3) who decides arbitrability. This case involves a fourth: What happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?

Id., at 1193.

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² The delegation provision provided as follows: “This Arbitration Agreement includes, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement. All such matters shall be decided by an arbitrator and not by a court or judge.” Coinbase, at 1191 (emphasis in original).
³ The forum selection clause provided as follows: “The California courts (state and federal) shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion and the laws of the state of California shall govern the promotion. Each entrant waives any and all objections to jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts.” Coinbase, at 1191.

The Court answered the question by noting that “traditional contract principles” always apply. Id. And indeed they do. It is well-established that parties cannot be compelled to arbitrate the merits of a dispute, let alone its arbitrability, unless they agreed to do so. See id., citing First Options, 514 U.S. at 942; Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 69 (2019) (“before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.”). As to arbitrability, the Supreme Court “has consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by ‘clear and unmistakable’ evidence.” Henry Schein, 586 U.S. at 69 (quoting First Options, at 944).

After noting these basic principles, the Court held that the question of which conflict-resolution provision controlled boiled down to whether the parties had agreed to arbitrate the arbitrability of their dispute, “and, per usual, that question must be answered by a court.” Coinbase, at 1193 (emphasis in original). By “default,” it is courts, not arbitrators, who decide arbitrability. Attix v. Carrington Mortg. Servs, LLC, 35 F.4th 1284, 1395 (11th Cir. 2022). See AT&T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 649 (1986) (“Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.”). Thus, the Court held that the arbitrability question must be answered by the court. Coinbase, at 1193.

To be clear, the holding did not turn on whether the second contract’s forum selection clause superseded the first contract’s delegation provision. The Court did not address that issue as it was “outside the scope” of the question presented. Coinbase, at 1194. Instead, again, the Court based its decision on the default principle that arbitrability must be determined by courts, as opposed to arbitrators, unless the parties expressly agreed otherwise. Coinbase, at 1194-95. That, in a nutshell, is a fourth-order dispute, and courts by default resolve them.

Smith v. Spizziri, 144 S.Ct. 1173 (May 16, 2024) – Stayed, not dismissed.

Time flies. It had been 24 years since the Supreme Court passed on the issue of whether a court should, when compelling parties to arbitrate, stay the case instead of dismissing it. See Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 87, n. 2 (2000). The issue had already been brewing and it kept brewing after 2000, leading to a circuit split with four federal circuits on one side and six on the other.⁴ The Supreme Court finally decided the issue in Smith v. Spizziri, 144 S.Ct. 1173 (May 16, 2024), in which it sided with the Circuits that adhered to the plain text of the Federal Arbitration Act (FAA) provision that governs the enforcement of arbitration agreements, 9 U.S.C. §3.

Section 3 of the FAA (titled, “Stay of proceedings where issue therein referable to arbitration”) provides as follows:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. §3 (emphasis added).

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⁴ Recognizing a trial court’s discretion to dismiss, rather than stay, action where all the issues are subject to arbitration were Green v. SuperShuttle Int’l, Inc., 653 F.3d 766, 769–770 (8th Cir. 2011); Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 156, n. 21 (1st Cir. 1998); Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); Sparling v. Hoffman Constr. Co., 864 F.2d 635, 637–638 (9th Cir. 1988). Interpreting section 3 of the FAA as requiring a stay were Arabian Motors Grp. W.L.L. v. Ford Motor Co., 19 F.4th 938, 941–943 (6th Cir. 2021); Katz v. Cellco P’ship, 794 F.3d 341, 345–347 (2d Cir. 2015); Halim v. Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 561 (7th Cir. 2008); Lloyd v. HOVENSA, LLC, 369 F.3d 263, 269–271 (3d Cir. 2004); Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d 953, 955 (10th Cir. 1994); Bender v. A.G. Edwards & Sons, Inc., 971 F.2d 698, 699 (11th Cir. 1992).

The statutory text is plain enough, but the Ninth Circuit and other courts of appeal had instead held that a court had the discretion to dismiss, rather than stay, the action where all the issues are subject to arbitration. See Forrest v. Spizziri, 62 F.4^th 1201, 1203 (9th Cir. 2023) (“Although the plain text of the FAA appears to mandate a stay pending arbitration upon application of a party, binding precedent establishes that district courts may dismiss suits when, as here, all claims are subject to arbitration.”) (citing cases dating to 1978). That approach to arbitration is now historical.

Based on Spizziri, courts must now stay the case; there is no discretionary dismissal. The “text, structure, and purpose all point to the same conclusion: When a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.” Spizziri, 144 S.Ct. at 1176 (footnote omitted; emphasis added).⁵ Whatever inherent authority the trial court may have (such as here to dismiss a case rather than stay it) “‘may be controlled or overridden by statute or rule.’” Id., at 1177-78 (quoting Degen v. U.S., 517 U.S. 820, 823 (1996)). Section 3 of the FAA did “exactly that.” Id., at 1178. The Court buttressed its holding with the following vocabulary lessons:

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⁵ Dismissal may be proper only if there is an independent, unrelated basis for it such as if the court lacks jurisdiction. See Spizzirri, at 1176, n. 2.

• “[T]he use of the word ‘shall’ ‘creates an obligation impervious to judicial discretion.’” Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 (1998).
• “‘Unlike the word “may,” which implies discretion, the word “shall” usually connotes a requirement.’” Maine Cmty. Health Options v. U.S., 590 U.S. 296, 310 (2020) (quoting Kingdomware Tech., Inc. v. U.S., 579 U.S. 162, 171 (2016)).
• “Just as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay….’ Even at the time of the enactment of the FAA, that term denoted the ‘temporary suspension’ of legal proceedings, not the conclusive termination of such proceedings.” Black’s Law Dictionary 1109 (2d ed. 1910) (“Stay of proceedings”).

Spizziri, at 1177 (emphasis added).

The Court also explained that section 3 of the FAA requires a stay and not a dismissal because it “ensures that the parties can return to federal court if arbitration breaks down or fails to resolve the dispute. That return ticket is not available if the court dismisses the suit rather than staying it.” Id. (footnote omitted). The aptly named “return ticket” “comports with the supervisory role that the FAA envisions for the courts,” which includes, for example:

• appointing an arbitrator, (see 9 U.S.C. § 5);
• enforcing subpoenas issued by arbitrators to compel testimony or produce evidence (see 9 U.S.C. § 7);
• confirming the award, thus facilitating recovery on an arbitral award (see 9 U.S.C. § 9); and
• though the Court did not say so, adjudicating an application to vacate an arbitral award (see 9 U.S.C. § 10) or modify an arbitral award (see 9 U.S.C. § 11).

Smith, at 1178. As observed by the Court, “It is no answer to say, as respondents do, that a party can file a new suit in federal court in those circumstances. Even if that is true as a practical matter, … requiring a party to file a new suit ignores the plain text of § 3.” Id., at 1177 n. 3.