Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—M.D. Fla.: Settlement of Relator’s employment case did not release previously filed qui tam lawsuit, (Sep 16, 2026), (Sep 17, 2026)

By Jeffrey H. Brochin, J.D.

The court denied dismissal, affirming jurisdiction over the qui tam claim, despite a post-filing release, because the government’s approval is required for settlement.

A federal District Court in Florida has denied the motion to dismiss filed by Nextstep Arthropedix, LLC, (NextStep or Manufacturer) in a False Claims Act (FCA) lawsuit brought by a Relator who claimed that the Manufacturer violated the Anti-kickback statute (AKS) by way of paying royalties to hip surgeons who ordered their medical device (System). As to the argument that the Relator lacked standing due to an earlier release to the Manufacturer in an employment case, the court found that the release did not bar the FCA lawsuit that was already pending prior to the employment case release. Furthermore, the alleged royalty scheme did not fall under the Safe Harbor provision of the AKS because although it appeared to comply with that exception on paper, the Relator’s first-hand knowledge of the scheme provided sufficient particularity as to the fraudulent scheme (U.S. ex rel. Fries v. NextStep Arthropedix, LLC, No. 2:22-cv-00098-KCD-NPM (M.D. Fla. Sept. 11, 2026)).

Surgeon Consultants. NextStep is a medical-device company which designs hip, knee and spine prosthetics. In 2013, NextStep developed a total hip arthroplasty system used in hip replacement surgeries (the System), and later that year, NextStep began forming a ‘Surgeon Consultant Team’ consisting of surgeons who regularly perform hip replacement surgeries. The surgeons signed deals with NextStep under which they were paid royalties for their help developing the System. Their deals required the surgeons to submit written reports of their contributions and attend substantially all of NextStep’s design and development meetings.

However, in exchange for such consultancy, they received royalty checks in an amount equal to a fixed percentage of the net sale price for each product sold. According to the Relator, the royalty rates were set based on each surgeon’s expected order volume of NextStep’s Systems, whereby surgeons who were expected to order more Systems for their patients’ surgeries enjoyed higher royalty percentages, but all surgeons were expected to provide identical services and participate in the same number of meetings. Therefore, their payout was tethered to anticipated sales volume.

Challenge to standing. The Manufacturer argued that the Relator lacked standing to sue because he had released his qui tam claim when he settled his state-court employment action against NextStep. However, the court found the release to be unenforceable because it was executed after the instant FCA case was filed. But in addition, the court noted that the FCA allows qui tam actions to be dismissed only if the court and Attorney General give written consent to the dismissal. Because the government retains statutory veto power, most courts read the text to bar post-filing releases that attempt to unilaterally resolve a pending qui tam claim. Agreeing with the majority holdings, the court reiterated that qui tam claims belong to the government, not to relators, and therefore, it is only right that a relator cannot unilaterally settle or release a claim that never belonged to him in the first place. The court therefore denied the motion to dismiss that was based on lack of standing.

Manufacturer’s plausibility argument. The court next turned to the Manufacturer’s contention that the FCA claim lacked plausibility because its ‘premise was chronologically implausible’ since the surgeons signed their royalty deals three years before the System was cleared for sale, and therefore, it was impossible that a volume-based royalty deal could have been arranged so far in advance. However, the court was skeptical as to that argument, noting that the Relator only alleged that NextStep created its Surgeon-Consultant team ‘starting in mid-2013’ but he did not allege that the team was complete in 2013, nor did he suggest that all royalty agreements were struck that year. Therefore, the Complaint did not necessarily allege that every surgeon had entered the scheme so early on. But even if the Complaint did make such a claim, it would not have mattered because it was not unfathomable that the arrangement could have been years in the making.

Safe Harbor exception defeated. The Manufacturer also argued that the royalty deals fell squarely within the AKS’s Safe Harbor provision, specifically, the “personal services and management contracts” provision which immunizes against prosecution those who meet all of seven specific standards of the provision. The court observed that although the outward terms of the royalty deals seemed to place it within the Safe Harbor provisions, conversely, the Relator claimed that this was all a front: each deal’s royalty rates were instead according to the amount of business each surgeon was expected to bring in. The court found that this was a plausible assertion which, if true, would take NextStep’s payments outside the Safe Harbor, regardless of the deals’ on-paper disclaimers. Accordingly, the court denied the motion to dismiss based on the Manufacturer’s Safe Harbor assertions.

Rule 9(b)’s particularity requirement. The Manufacturer also contended that the requisite ‘who, what, when, where, and how of the alleged fraud’ as required for heightened FCA pleading was lacking. A relator can provide billing data or a representative sample claim proving that allegedly false claims were actually submitted, or, he can stand on ‘direct, first-hand knowledge’ of the fraud gained through employment with a manufacturer. Here, the Relator served as a vice president of NextStep from October 2013 to August 2020, and he provided NextStep various executive services including sales, product development, but perhaps most crucially, he managed the surgeon consultants, and therefore—in the words of the court—had a ‘front-row seat to the alleged kickback scheme.’

The Complaint also namedropped the executives and surgeons involved in the scheme and provided precise figures of each surgeons’ yearly kickbacks. It also offered a handful of representative samples stocked with the specific dates and amounts surgeons submitted in their false bills to Medicare. Accordingly, the court concluded that the Complaint met the particularity requirements for heightened pleading of fraud.

Based on the foregoing, the court denied the Manufacturer’s motion to dismiss.

The case is No. 2:22-cv-00098-KCD-NPM.

Judge: Dudek, K.

Attorneys: Janel Quinn (The Employment Law Group PC) for the U.S. Joseph Jackson Froliklong (Taft Stettinius & Hollister LLP) for Nextstep Arthropedix, LLC.

Companies: Nextstep Arthropedix, LLC

Cases: Whistleblowers Discharge FloridaNews