Walkwell International Laboratories, Inc. v. Noridian Administrative Services, LLC

Filing 26

MEMORANDUM DECISION AND ORDER. THEREFORE IT IS HEREBY ORDERED that Defendant's Motion for a Judgment on the Pleadings 18 is GRANTED and Plaintiff's Complaint is DISMISSED WITHOUT PREJUDICE. As Defendant's counterclaim is still at iss ue, this case remains open and counsel are directed to file a joint litigation plan on or before 1/31/2014. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT
FOR THE DISTRICT OF IDAHO

WALKWELL INTERNATIONAL
LABORATORIES, INC.,

Case No. 1:13-cv-0199-EJL-REB

Plaintiff,

MEMORANDUM DECISION
AND ORDER

vs.
NORDIAN ADMINISTRATIVE
SERVICES, LLC.,
Defendant.

Plaintiff Walkwell International Laboratories, Inc. (“Plaintiff” or
“Walkwell”) filed the instant action against Defendant Noridian Administrative
Services, LLC1 (“Defendant” or “Noridian”), alleging violation of the
Administrative Procedures Act, 5 U.S.C. §706(2)(A), tortious interference with
prospective economic advantage and negligence.2 Pending before this Court is
Defendant’s Motion for Judgment on the Pleadings pursuant to Federal Rule of
Civil Procedure 12(c).

1

Noridian Administrative Services, LLC now operates under the name of Noridian
Healthcare Solutions, LLC. (Dkt. 11, ¶ 2.)
2

Plaintiff’s Complaint also alleged breach of contract. However, in response to
Defendant’s Motion for Judgment on the Pleadings, Plaintiff conceded dismissal of the
breach of contract claim is appropriate. (Dkt. 22, p. 2.) The Court will accordingly limit
its analysis to Plaintiff’s Administrative Procedures Act, tortious interference with
prospective economic advantage, and negligence claims.
1 

Having fully reviewed the record, the Court finds that the facts and legal
arguments are adequately presented in the briefs. Accordingly, in the interest of
avoiding further delay, and because the Court conclusively finds that the decisional
process would not be significantly aided by oral argument, this matter shall be
decided on the record before this Court without oral argument. For the reasons set
forth below, the Court hereby GRANTS Defendant’s Motion for Judgment on the
Pleadings.

BACKGROUND
The Medicare Program, established under Title XVIII of the Social Security
Act, 42 U.S.C. §§ 1395-1395hhh, provides coverage for certain medical items and
services to eligible aged and disabled people. The Medicare statute is divided into
five “Parts.” Part A provides insurance coverage for inpatient hospital care and
other institutional services. 42 U.S.C. § 1395c to 1395i-5. Part B is a voluntary
program that provides supplemental medical insurance for, among other things,
covered “medical and other health services,” including physician services, and
medical supplies such as durable medical equipment (“DME”). §§ 1395j to
1395w-5. Part C of Medicare governs the “Medicare Advantage” program, which
offers Medicare beneficiaries a managed care alternative to the traditional Part A
and Part B fee-for-services system. 42 U.S.C. §§ 1395w-21 to 1395w-29. Part D
2 

provides a prescription drug benefit program, 42 U.S.C. §§ 1395w-101 to 1395w154, and Part E contains various “Miscellaneous Provisions.” 42 U.S.C. §§ 1395x
to 1395kkk-1.
Medicare Part B is relevant to this case. Walkwell is a private manufacturer
of ankle foot orthotics, a product classified as DME. 3 42 U.S.C. § 1395k. After a
DME supplier fills a Medicare beneficiary’s DME prescription, the supplier may
seek payment from Medicare under Medicare Part B. To obtain payment, the
supplier submits a claim with, inter alia, the Healthcare Common Procedure
Coding System (“HCPCS”) code or codes that identify the specific type of DME
provided to the beneficiary. Assuming Medicare eligibility, coverage, and/or other
payment requirements are satisfied, Medicare pays the supplier the amount
associated with the reported HCPCS code(s). For DME such as Walkwell’s ankle
foot orthotic, each HCPCS code has a reimbursement dollar amount based on what
is provided to the patient. Therefore, the more codes a product is assigned, the
greater the reimbursement value is to the supplier.
Walkwell is not a Medicare-certified healthcare provider or supplier that
submits claims for Medicare reimbursement. However, manufacturers of DME,
such as Walkwell, may seek HCPCS coding guidance and assistance from the
Price, Data Analysis, and Coding (“PDAC”) contractor for the Centers for

3

Examples of DME include power wheel chairs, back and knee braces, and orthotics.
3 

Medicare & Medicaid Services (“CMS”). The Secretary of the United States
Department of Health and Human Services (“HHS”), acting through CMS,
administers Medicare Part B by means of contracts with private entities referred to
as Medicare administrative contractors. 42 U.S.C. §§ 1395u(a) (“The
administrative of [Part B] shall be conducted through contracts with Medicare
administrative contractors under section 1395kk-1 of this title.”). The PDAC is
one type of Medicare administrative contractor. At all relevant times, Noridian
was the PDAC contractor for Idaho.
Through a process known as coding verification, the PDAC contractor
assists suppliers and manufacturers in determining which HCPCS code(s) may be
used to classify a DME item for the purpose of billing Medicare. Level II of
HCPCS, which applies to DME, is a standardized, national alpha-numeric coding
system created and maintained by Medicare and used by Medicare, Medicaid, and
commercial insurance plans to process claims. For each alphanumeric HCPCS
code, there is descriptive terminology that identifies the basic characteristics of like
items. CMS, and not the PDAC contractor, writes such code descriptors.4

4

The information on HCPCS coding is excerpted from Exhibit 1 to Defendant’s Motion
for Judgment on the Pleadings. (Dkt. 18-1, Ex. 1). Exhibit 1 is a document published on
CMS’s official website, “HCPCS Level II Coding Procedures,”
www.cms.gov/Medicare/Coding/MedHCPSGenInfo/HCPCSCODINGPROCESS.html
(last visited July 22, 2013). As a publication from an official government website,
Exhibit 1 is subject to judicial notice. NRDC v. Kempthorne, 539 F.Supp.2d 1155, 1167
(C.D. Cal. 2008). The Court GRANTS Defendant’s request to take judicial notice of
4 

In 2011, Walkwell chose to seek HCPS coding verification assistance from
Noridian for several of Walkwell’s ankle foot orthotics.5 On April 27, 2011,
Walkwell attended a meeting with Noridian’s coding committee to present
Walkwell’s official application for review of the Stepwell Custom ankle foot
orthotic (“STEP001”). Walkwell requested that the STEP001 receive five HCPCS
codes. On July 7, 2011, Walkwell received a coding determination from Noridian
assigning the STEP001 with four of the five requested codes. Walkwell thereafter
decided not to request reconsideration of Noridian’s determination, and instead
began the process of reengineering the molded inner boot on their device to better
adapt to the requirements of the omitted code (“L2280”). Walkwell also began
marketing the STEP001 as having four codes.
On August 3, 2011, Walkwell again met with the coding committee for
Noridian to present Walkwell’s official application for review of the newly
designed Stepwell Custom ankle foot orthotic (“STEP002”) with a different

Exhibits 1, as well as Exhibits 2-4, which are also publications from an official
government website. Defendant also requested that the Court take judicial notice of
Exhibit 5-A, the PDAC Contract between Noridian and CMS, because the contract was
incorporated by reference into Plaintiff’s Complaint. (Dkt. 18-6.) Exhibit 5-A was
incorporated by reference into Plaintiff’s breach of contract claim, which is no longer at
issue because Plaintiff concedes that its breach of contract claim should be dismissed.
The Court accordingly DENIES Defendant’s request to take judicial notice of Exhibit 5A, and has not considered the PDAC Contract in its analysis.
5

The following facts are taken from Plaintiff’s complaint (Dkt. 1-3), and must be
accepted as true for the purposes of deciding Defendant’s motion. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009).
5 

custom-molded boot. Walkwell requested the same five codes it previously
requested in its submission of the STEP001. On September 15, 2011, Walkwell
received a letter from Noridian stating that Walkwell’s request for code L2280 had
again been rejected. Walkwell filed a request for reconsideration, which Noridian
rejected, stating reconsideration of coding decisions was impossible. Walkwell
continued its marketing of the STEP001 and also entered the market with the
STEP002.
On October 13, 2011, Walkwell once again appeared before Noridian’s
coding committee and presented applications and samples for two additional
devices, the “STEP003” and “STEP004.” Walkwell requested a single code for
the STEP003 and three codes for the STEP004. On December 12, 2011, Walkwell
received four e-mail letters from Noridian assigning a different code than that
requested to the STEP003, granting the three requested codes for the STEP004,
and stating that the STEP001 and STEP002 had been reviewed and the initial
coding decision overturned. The latter determination had the effect of removing
one of the codes previously awarded to both the STEP001 and STEP002, code
L2340, from both devices.
Between the months of July through December 2011, Walkwell had
marketed the STEP001as having four codes, including code L2340. Walkwell had
similarly marketed the STEP002 as having four codes, including code L2340, from
6 

the time Noridian approved such code in September 2011 until the December 2011
revocation. Noridian revoked code L2340 from both the STEP001 and the
STEP002 unilaterally and without warning. Further, prior to the December 2011
revocation, Noridian never warned Walkwell that code L2340 was in jeopardy,
even though Noridian knew Walkwell was actively marketing the STEP001 and
STEP002 as having four custom codes. Based on the original four codes assigned
to the STEP001 and STEP002, many health care providers purchased the product
and many others expressed interest in doing so. However, when Noridian revoked
code L2340, Walkwell lost numerous orders and suffered substantial decreased
interest in its product.
Walkwell brings a claim for violation of the Administrative Procedures Act,
5 U.S.C. § 701 et. seq (“APA”), suggesting Noridian’s unilateral re-review and
revocation of code L2340 from the STEP001 and STEP002, as well as the
disallowance of code L2280 for the STEP001 and STEP002, constituted arbitrary
and capricious agency action under 5 U.S.C. § 706(2)(A). Walkwell also alleges
Noridian’s revocation of code L2340 from both the STEP001 and STEP002
improperly interfered with Walkwell’s relationships with its clients and
prospective clients, constituting tortious interference with prospective economic
advantage. Finally, Walkwell suggests Noridian unreasonably denied Walkwell’s
request for code L2280 to the STEP001 and STEP002, unreasonably revoked code
7 

L2340 from both the STEP001 and STEP002, and unreasonably assigned a
different code than that requested for Walkwell’s STEP003. Walkwell claims the
aforementioned actions pertaining to the assignment of codes to the STEP001,
STEP002 and STEP003 were improper and amounted to negligence.
Walkwell filed suit in state court on April 3, 2013.6 Noridian filed a notice
of removal on April 26, 2013. (Dkt. 1.) Noridian moved to extend the time to
respond to Walkwell’s complaint in order to discuss the possibility of the federal
government representing Noridian in this litigation with CMS and the Department
of Justice (“DOJ”). (Dkt. 6.) The Court granted Noridian’s extension request in
part (Dkt. 9), and Noridian answered Walkwell’s complaint and counterclaimed on
May 24, 2013. (Dkt. 12.) In late June, Noridian was notified that, pursuant to 28
U.S.C. § 517, the DOJ had approved Noridian’s request to provide representation
in this matter. DOJ counsel entered an appearance on June 27, 2013. On July 24,
2013, Noridian filed the instant Motion for Judgment on the Pleadings. (Dkt. 18.)
STANDARD OF REVIEW
Motions for a judgment on the pleadings are governed by Federal Rule of
Civil Procedure 12(c). The principal difference between motions filed pursuant to

6

Walkwell initially filed suit in state court in April 2012, but voluntarily dismissed its
complaint without prejudice in May 2012. (Dkt. 18-1, n. 5.) Noridian’s counterclaim
arises out of Walkwell’s alleged breach of the parties’ agreement which led to dismissal
of the 2012 action. (Id.) As neither party addresses Noridian’s counterclaim in their
briefing on Defendant’s Motion for Judgment on the Pleadings, the Court will not
consider Noridian’s counterclaim here.
8 

Federal Rule of Civil Procedure 12(b) and Rule 12(c) is the time of filing.
Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). A party
may move for a judgment on the pleadings at any point after the pleadings close.
Fed. R. Civ. P. 12(c). “Because the motions are functionally identical, the same
standard of review applicable to a Rule 12(b) motion applies to its Rule 12(c)
analog.” Dworkin, 867 F.2d at 1192.
A motion pursuant to Rule 12(b)(6) or Rule 12(c) challenges the legal
sufficiency of the claims stated in the complaint. Conservation Force v. Salazar,
646 F.3d 1240, 1242 (9th Cir. 2011). To sufficiently state a claim to relief and
survive such motion, the pleading “does not need detailed factual allegations,”
however, the “[f]actual allegations must be enough to raise a right to relief above
the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Mere “labels and conclusions” or a “formulaic recitation of the elements of a cause
of action will not do[.]” Id. (citations omitted). Rather, there must be “enough
facts to state a claim to relief that is plausible on its face.” Id. at 570. A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct
alleged. Id. at 556. The plausibility standard is not akin to a “probability
requirement,” but does require more than a sheer possibility that a defendant acted
unlawfully. Id.
9 

In Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), the Supreme Court identified
two “working principals” that underlie Twombly. First, although a court must
accept as true all factual allegations in a complaint when ruling on 12(b)(6) or
12(c) motion, the court need not accept legal conclusions as true. Id. “Rule 8
marks a notable and generous departure from the hyper-technical, code-pleading
regime of a prior era, but it does not unlock the doors of discovery for a plaintiff
armed with nothing more than conclusions.” Id. at 678-79. Second, only a
complaint that states a plausible claim for relief will survive a motion to dismiss.
Id. at 679. “Determining whether a complaint states a plausible claim for relief will
. . . be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Id.
In light of Twombly and Iqbal, the Ninth Circuit has summarized the
governing standard as follows: “In sum, for a complaint to survive a motion to
dismiss [or Rule 12(c) motion], the nonconclusory factual content, and reasonable
inferences from that content, must be plausibly suggestive of a claim entitling the
plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009)
(internal quotation and citation omitted). Apart from factual insufficiency, a
complaint is also subject to dismissal where it lacks a cognizable legal theory,
Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990), or where the

10 

allegations on their face show that relief is barred for a legal reason. Jones v. Bock,
549 U.S. 199, 215 (2007).

ANALYSIS
A. Walkwell’s APA Claim
Walkwell claims the coding verification decisions Noridian made on
Walkwell’s STEP001 and STEP002 ankle foot orthotics violated the APA. (Dkt.
1-3, ¶¶ 29-31.) Specifically, Walkwell maintains Noridian violated 5 U.S.C. §
706(2) by unilaterally re-reviewing, amending and removing code L2340 from the
STEP001 and STEP002, and by disallowing code L2280 for the STEP001 and
STEP002. Under section 706(2)(A) of the APA, an agency action must be upheld
unless it is found to be “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.” 5 U.S.C. § 706(2)(A). The party challenging an
agency’s action as arbitrary and capricious bears the burden of proof. WildEarth
Guardians v. Salazar, 741 F.Supp.2d 89, 97 (D.D.C. 2010) (citation omitted).
Review of agency actions is “highly deferential,” “presume[es] the agency
action to be valid,” and requires that the Court affirm the agency action “if a
reasonable basis exists for its decision.” Northwest Ecosystem Alliance v. U.S.
Fish and Wildlife Serv., 475 F.3d 1136, 1140 (9th Cir. 2007) (citation omitted).
The court is not to substitute its judgment for that of the agency, and deference to
11 

the agency’s technical expertise and experience is particularly important with
respect to questions involving scientific matters. Id.; Mt. Graham Red Squirrel v.
Espy, 986 F.2d 1568, 1571 (9th Cir. 1993) (citation omitted). However, “the
presumption of agency expertise may be rebutted if the decisions, even though
based on scientific expertise, are not reasoned.” Greenpeace v. National Marine
Fisheries Serv., 80 F.Supp.2d 1137, 1147 (W.D. Wash. 2000).
Walkwell fails to adequately allege an APA claim in at least two respects.
First, it is not clear that Noridian, a private entity with a contract with CMS to
provide PDAC coding guidance, is an “agency” within the meaning of the APA.
By its own language, “the APA does not extend to an entity that is not a federal
agency[.]” W. State Univ. of S. Cal. v. Am. Bar Ass’n, 301 F.Supp.2d 1129, 1133
(C.D. Cal. 2004); McKinney v. Caldera, 141 F.Supp.2d 25, 31 (D.D.C. 2001) (“A
fundamental prerequisite to APA review is that the judicial challenge be to
‘agency’ action.”). Medicare administrative contractors such as Noridian, though
they receive federal funds and act as agents for HHS, do not necessarily constitute
an agency within the meaning of the APA. See, e.g., Kaiser Foundation Hospitals
v. Sebelius, 649 F.3d 1153, 1155 (9th Cir. 2011) (quoting Irvine Med. Ctr. v.
Thompson, 275 F.3d 823, 826 (9th Cir. 2002) (fiscal intermediaries function as
agents for the Secretary of HHS).

12 

Plaintiff suggests Noridian is an agency because it is mandated with the
authority to provide coding determinations, is funded by CMS, and is charged with
the function to render coding determinations. (Dkt. 22, p. 9.) However, the fact
that CMS created the role of PDAC contractor does not mean Noridian is a federal
agency because even where the government has established a government position
or federal entity, such government action does not transform the government
position or federal entity into an APA agency.7 McKinney, 141 F.Supp.2d at 33
(holding that the Judge Advocate General, a statutorily-created legal position
appointed by the President, was not an APA agency); Lombardo v. Handler, 397
F.Supp. 792, 793 (D.D.C. 1975), aff’d, 546 F.2d 1043 (D.C. Cir. 1976) (National
Academy of Sciences was not an “agency” under the APA despite fact it was
established by Act of Congress). The receipt of federal funds is also not
determinative of whether an entity is an agency. Dong v. Smithsonian Inst., 125
F.3d 877, 882 (D.C. Cir. 1997) (Smithsonian is not a federal agency although it
receives “extensive federal funding and must submit a detailed annual statement of
expenditures to Congress[.]”). Finally, the fact that Nordian is mandated with the
authority to render coding determinations does not mean Noridian is a federal
agency because Noridian’s authority derives from and is subordinate to CMS.

7

Although CMS created the role of PDAC contractor it did not create Noridian, a private
entity. Instead, CMS awarded the PDAC contract to Noridian after a competitive
procurement among existing third-party entities. (Dkt. 18-1; Ex. 3.)
13 

(Dkt. 18, Ex. 3) (stating the PDAC contractor shall perform its responsibilities
under the direction of CMS); Baxter Healthcare Corp. v. Weeks, 643 F.Supp.2d
111, 113 (D.D.C. 2009) (CMS is responsible for maintaining and revising national
HCPCS codes); McKinney, 141 F.Supp.2d at 34 (Judge Advocate General was not
a federal agency because it was subordinate to the Department of the Army as a
whole and was not vested with “substantial independent authority.”). Walkwell
has failed to allege facts to plausibly suggest Noridian is a federal agency under the
APA.8
Second, even if Noridian could be considered a federal agency, Walkwell’s
APA claim is deficient because Walkwell fails to identify a specific statutory or
regulatory basis which would support APA review. APA review “requires
references to the legal duty [allegedly violated and] set forth in the governing
substantive statute.” Nat’l Wildlife Fed’n v. U.S. Army Corps of Eng’rs, 132
F.Supp.2d 876, 889 (D. Or. 2001). Because § 706(2)(A) of the APA “does not

8

Although the PDAC contractor makes HCPCS coding determinations on behalf of the
federal government, it appears HHS is the real party in interest. Anderson v. Occidental
Life Ins. Co., 727 F.2d 855, 856 (9th Cir. 1984) (“The United States is the real party in
interest in actions against Medicare carriers because recovery would come from the
federal treasury.”); Matranga v. Travelers Ins. Co., 563 F.2d 677 (5th Cir. 1977); see also
Bushman v. Seiler, 755 F.2d 653, 654, n. 2 (8th Cir. 1985) (“Intermediaries and carriers
act on behalf of the Administrator in carrying out certain administrative responsibilities
that the law imposes. Accordingly, their agreements and contracts contain clauses
providing for indemnification with respect to actions taken on behalf of the Administrator
and the Administrator is the real party of interest in any litigation involving the
administration of the program.”) (quoting 42 C.F.R. § 421.5(b) (1983)). As the parties
have not briefed this issue, the Court will not further address it here.
14 

create substantive rights,” a plaintiff has “no right to sue for a violation of the APA
in the absence of a ‘relevant statute’ whose violation ‘forms the legal basis for
[the] complaint.’” El Rescate Legal Servs., Inc. v. Exec. Office of Immigration
Review, 959 F.2d 742, 753 (9th Cir. 1991) (citing 5 U.S.C. § 702 and Lujan v.
Nat’l Wildlife Fed’n, 497 U.S. 871 (1990)); Or. Nat. Res. Council v. Thomas, 92
F.3d 792, 800, n. 10 (9th Cir. 1996) (“[T]here can be no ‘arbitrary and capricious’
review under APA § 706(2)(A) independent of another statute.”). Walkwell’s
complaint alleges “Noridian has violated 5 U.S.C. § 706(2)(A) by unilaterally rereviewing, amending and removing [code] L2340 on both STEP0001 and
STEP0002 [and by] disallowing [code] L2280 for STEP0001 and STEP0002,” but
fails to identify any other statute Noridian purportedly breached. (Dkt. 1-3, ¶¶ 3031.) Because Walkwell has not identified a “legal duty set forth in the governing
substantive statute” against which Noridian’s actions can be reviewed under §
706(2)(A) of the APA, Walkwell fails to adequately allege an APA claim.9 Nat’l

9

The only reference to violation of a federal statute in Walkwell’s complaint appears in
its prayer for relief, wherein Walkwell requests “an Order of this Court finding that the
process under which Defendant has made determinations related to Plaintiff’s products is
arbitrary, capricious, and otherwise contrary to the process set out in Title XVIII of the
Social Security Act.” (Dkt. 1-3, p. 9.) Title XVIII of the Social Security Act refers to the
entire Medicare Act, which is “embodied in hundreds of pages of statutes and thousands
of pages of often interrelated regulations[.]” Shalala v. Illinois Council on Long Term
Care, Inc., 529 U.S. 1, 13 (2000). As Defendant notes, such an indeterminate reference
to a massive statutory scheme does not discharge Plaintiff’s burden to allege a plausible
APA claim by more than “threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements.” (Dkt. 18-1, pp. 11-12) (citing Iqbal, 556 U.S.
at 678).
15 

Wildlife Fed’n, 132 F.Supp.2d at 889; see also Preferred Risk Mut. Ins. Co. v. U.S.,
86 F.3d 789, 792-93 (8th Cir. 1996) (rejecting APA claim where Plaintiff did not
provide a substantive regulation that could provide the basis for APA judicial
review).
In response to Defendant’s Motion for Judgment on the Pleadings, Plaintiff
does not identify a substantive statute or regulation Noridian allegedly violated, but
instead contends Walwell’s interests fall within the zone of interests sought to be
protected under Medicare’s payment scheme, 42 U.S.C. § 1395m. (Dkt. 22, pp. 910.) As a manufacturer of DME, and not a supplier, it is not clear that Walkwell’s
interests are, in fact, within the zone of interests protected under 42 U.S.C. §
1395m. Section 1395m does not control manufacturers, and instead regulates
Medicare contractors responsible for adjudicating and issuing Medicare payments
for healthcare claims. See, e.g., Int’l Rehab. Sciences, Inc. v. Sebelius, 688 F.3d
994, 997-98 (9th Cir. 2012) (summarizing Medicare Part B). As the PDAC
contractor, Noridian does not adjudicate or pay DME claims. (Dkt. 18-1, p. 4, n.
3.) However, even if Walkwell’s interests could be considered as within the zone
of interests protected under 42 U.S.C. § 1395m, Walkwell has failed to offer any
explanation of how Noridian’s conduct violated this provision. (Dkt. 22, pp. 9-10.)
As APA review is not available absent an “operative statute” with “clear
guidelines” by which a court can review the “agency’s” decisions, Walkwell fails
16 

to adequately plead a claim for violation of the APA. Drake v. F.A.A., 291 F.3d
59, 70-71 (D.C. Cir. 2002). The Court accordingly GRANTS Noridian’s Motion
for Judgment on the Pleadings with respect to Walkwell’s APA claim.

B. Walkwell’s Tort Claims
Walkwell’s second count is for tortious interference with prospective
economic advantage, and its third count is for negligence. Walkwell claims
Noridian tortiously interfered with Walkwell’s prospective economic advantage by
amending code L2340 from both the STEP0001 and STEP0002. (Dkt. 1-3, ¶¶ 3738.) Walkwell maintains Noridian acted negligently by revoking code L2340 from
STEP0001 and STEP0002, by denying code L2280 from the STEP0001 and
STEP0002, and by assigning the STEP0003 with a different code than that
requested. (Id., ¶¶ 43-46.) Walkwell’s tort claims fail because the conduct
Walkwell challenges involves Noridian’s performance of discretionary functions
that are within its duty as a Medicare contractor. Noridian is therefore entitled to
official immunity from such claims.
1. Official Immunity bars Walkwell’s tort claims
The Supreme Court has held that federal officials are absolutely immune
from state-law tort liability if “the challenged conduct [1] is within the outer
perimeter of an official’s duties and [2] is discretionary in nature.” Westfall v.
17 

Erwin, 484 U.S. 292, 300 (1988). Although Congress partially supplanted Westfall
as applied to federal officials, “the Westfall test remains the framework for
determining when nongovernmental persons or entities are entitled to the same
immunity.” Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 72 (2d Cir.
1998); Mangold v. Analytic Servs. Inc., 77 F.3d 1442, 1446-50 (4th Cir. 1996)
(“We believe the rationale for the protections articulated in . . . Westfall . . . also
applies to the extent . . . this case involves a discretionary governmental function
which has been delegated to the private sector.”); Group Health, Inc. v. Blue Cross
Ass’n, 739 F.Supp. 921, 931 (S.D.N.Y. 1990).
Under the Westfall test, Medicare contractors such as Defendant are immune
from tort liability for discretionary acts taken in the performance of their official
functions. Nichole Med. Equip. & Supply, Inc. v. Tricenturion, Inc., 694 F.3d 340,
351 (3d Cir. 2012) (“TriCenturion and NHIC, as Medicare contractors, are entitled
to immunity for discretionary conduct that falls within the outer perimeter of their
official duties.”); Midland Psychiatric Assocs., Inc. v. U.S., 145 F.3d 1000 (8th Cir.
1998) (Medicare fiscal intermediary was entitled to official immunity against
provider’s tortious interference with contract claim arising out of intermediary’s
alleged wrongful denial of provider’s Medicare claims); Mangold, 77 F.3d at 144748 (concluding that official immunity attaches to discretionary governmental
functions even when they have been delegated to the private sector).
18 

It is undisputed that Noridian’s official function as the PDAC contractor is
to provide coding determinations for DME equipment such as Walkwell’s ankle
foot orthotics. See, e.g., Dkt. 1-3, ¶ 49 (stating “Noridian was awarded a contract
which authorizes it to be the PDAC to make coding determinations for DME”); Id.
¶ 9 (alleging that Noridian is the “PDAC provider who is a private contractor that
makes coding determinations for DME for [CMS].”); Dkt 18-1, Ex. 4 (“The PDAC
is responsible for providing suppliers and manufacturers with assistance in
determining which HCPCS code should be used to describe [DME] items for the
purposes of billing Medicare.”).
Noridian’s function of providing coding determinations is also discretionary
in nature. The PDAC contractor applies technical expertise and judgment in
determining which, if any, HCPCS codes should be used to describe DME items
for purposes of Medicare function. (Dkt. 18-1, Ex. 3) (“The PDAC MAC was
developed because of the unique and specialized requirements that distinguish
[DME] suppliers, claims processing, and statistical analyses from other similar
functions . . . under Medicare.”). Identifying and applying relevant HCPCS codes
to specific DME requires understanding of Medicare’s “complex” “legal, policy
and operating environment.” (Id.) Discretion inheres in this function. Group
Health, 739 F.Supp. at 932 (“Decisionmaking on the part of fiscal intermediaries
necessitates the exercise of discretion and considered judgment[.]”).
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Walkwell does not dispute that the Westfall test is applicable. (Dkt. 22, p.
10.) Instead, Walkwell contends that Noridian’s conduct “was so egregious that it
falls outside the scope of the immunity afforded by the Westfall test.” (Id.)
Walkwell contends state law controls the determination of whether a federal
official was acting within the scope of employment under the Westfall test, and
suggests conduct is outside the scope of employment under Idaho law if “the
employee acts from purely personal motives . . . in no way connected with the
employer’s interest.” (Id., pp. 10-11) (citations omitted). Walkwell argues the
motives with which Noridian acted in revoking the L2340 code presents a question
of fact, and suggests there “is ample evidence upon which it could be found that
Noridian acted from purely personal motives in revoking the L2340 code.” (Id., p.
11.) Although such evidence is absent from the Complaint, Walkwell’s scope of
employment argument also relies on the wrong test, as Walkwell invokes the test
for scope of employment under the Westfall Act, or the Federal Employees
Liability Reform and Tort Compensation Act, 28 U.S.C. § 2679(d)(1). See also
Pauly v. U.S. Dept. of Agriculture, 348 F.3d 1143, 1150 (9th Cir. 2003) (“Under
the Federal Employees Liability Reform and Tort Compensation Act, known as the
Westfall Act, a federal employee is immune from suit upon certification of the
Attorney General that the employee was acting within the scope of his
employment.”). However, Noridian’s official immunity defense is rooted in
20 

federal common law, and not federal statute. Under federal common law, personal
motives are irrelevant to the official immunity analysis. Bushman v. Seiler, 755
F.2d 653, 656 (8th Cir. 1985) (allegation that Defendant’s action was prompted by
personal motives did not bar official immunity, as it “matters not that the grievance
is motivated by financial self-interest.”) (internal quotation and citation omitted).
In Bushman, the Eighth Circuit considered plaintiff’s claims that an
employee of a Medicare carrier committed libel and slander when he issued a letter
to an insurance company, after the insurance company’s request for an
investigation of plaintiff podiatrists, which allegedly defamed plaintiffs’ podiatry
practice. Id. At oral argument, plaintiffs conceded that defendant was acting
within the scope of his duties as a Medicare consultant when he sent the letter at
issue. Plaintiffs argued, however, that the wrongful nature of the letter’s contents
was sufficient to strip defendant of immunity. The court rejected this argument,
finding it would unduly restrict the official immunity defense. Id. at 656. In so
holding, the court noted:
[T]o separate the activity that constitutes the wrong from its surrounding
context—an otherwise proper exercise of authority—would effectively
emasculate the immunity defense. Once the wrongful acts are excluded
from an exercise of authority, only innocuous activity remains to which
immunity would be available. Thus, the defense would apply only to
conduct for which it is not needed.
Id. (quoting Wallen v. Domm, 700 F.2d 124, 126 (4th Cir. 1983)).

21 

Like plaintiffs in Bushman, Walkwell admits Noridian was acting within the
scope of its duties as the PDAC contractor when it issued coding determinations
for Walkwell’s ankle foot orthotics, but suggests such determinations were
improperly tainted by Noridian’s personal motivations. However, because
Noridian was acting within its authority, and was exercising the discretion granted
to it as the PDAC contractor when it issued the coding determinations, Noridian’s
personal motivations are irrelevant for purposes of official immunity. Id., at 656,
n. 3; see also Ricci v. Key Bancshares of Maine, Inc., 768 F.2d 456, 462 (1st Cir.
1985) (“[T]he malicious nature of the conduct is, for purposes of immunity
analysis, irrelevant. The conduct need only be the kind of action which, if done for
legitimate purposes, falls within the scope of the official’s authority.”) (emphasis
in original); Barr v. Matteo, 360 U.S. 564, 571-75 (1959) (the scope of official
immunity is such that it cannot be defeated by allegations or proof of deliberate
malice on the part of the federal official so charged, as long as the conduct in
question falls within the “outer perimeter of [the official’s] . . . line of duty.”);
Evans v. Wright, 582 F.2d 20, (5th Cir. 1978) (official immunity barred suit for
tortious interference by providers of DME to Medicare patients against integrity
specialists in Medicare program where defendants’ actions, “even if misguided,”
were within the scope of defendant’s investigative duties).

22 

In Little v. City of Seattle, 863 F.2d 681, 683 (9th Cir. 1998), the Ninth
Circuit noted that, in addition to involving conduct within the outer perimeter of
official duties and the exercise of discretion, a court must also, “before granting
official immunity,” determine whether the “‘official function would suffer under
the threat of prospective litigation,’” and whether the benefits to effective
government and the rule of law outweigh the costs imposed on the victims.”
(quoting Saul v. Larsen, 847 F.2d 573, 575 (9th Cir. 1988)). The Court finds that
policy considerations support extending official immunity to the PDAC contractor
when issuing HCPCS coding determinations. See, e.g., Group Health, 739 F.Supp.
at 933 (“To subject fiscal intermediaries to suit in tort whenever they render an
incorrect opinion would disrupt the proper functioning of the Medicare program as
it is currently structured.”); Pani, 152 F.3d at 73-74 (“The public interest in having
Medicare fraud detected and prevented would be thwarted if these non-government
entities, who have no personal financial interest in detecting or preventing
Medicare fraud, were to find themselves facing damages suits for their efforts in
doing so.”) Subjecting the PDAC contractor to suit in tort would inhibit the ability
of Noridian and other Medicare administrative contractors to issue appropriate
HCPCS coding determinations, as well as limit their function as independent
decisionmakers. Group Health, 739 F.Supp. at 933.

23 

Noridian was acting within the scope of its authority as the PDAC contractor
when it issued its discretionary HCPCS coding determination with respect to
Walkwell’s ankle foot orthotics. Accordingly, Noridian is entitled to official
immunity and Walkwell’s tortious interference with prospective economic
advantage and negligence claims must be dismissed.
2. Walkwell’s tort claims do not satisfy basic pleading requirements
Even if Plaintiff’s tort claims were not barred under the doctrine of official
immunity, Plaintiff has failed to adequately plead either tortious interference with
prospective economic advantage or negligence. The elements of a cause of action
for interference with prospective economic advantage are:
(1) [T]he existence of a valid economic expectancy; (2) knowledge of the
expectancy on the part of the interferer; (3) intentional interference inducing
termination of the expectancy; (4) the interference was wrongful by some
measure beyond the fact of the interference itself, and (5) resulting damage
to the plaintiff whose expectancy has been disrupted.
Wesco Autobody Supply, Inc. v. Ernest, 243 P.3d 1069, 1081, 149 Idaho 881
(Idaho 2010).
Walkwell fails to allege, other than in conclusory fashion, that Noridian’s
alleged interference was either intentional or that such interference was wrongful
by some measure beyond the fact of the interference itself. To establish wrongful
interference, a plaintiff must provide proof that either: “(1) the defendant had an
improper objective or purpose to harm the plaintiff; or (2) the defendant used
wrongful means to cause injury to the prospective business relationship.” Idaho
24 

First Nat’l Bank v. Bliss Valley Foods, Inc., 824 P.2d 841, 861, 121 Idaho 266
(Idaho 1991). Although Walkwell claims Noridian’s action of amending code
L2340 from both the STEP0001 and STEP0002 was “improper,” the Complaint
contains no facts, well-pleaded or otherwise, to support this conclusion or to
explain why Noridian’s coding determination was improper other than because it
was contrary to Walkwell’s coding request.10
Finally, in order to establish a cause of action for negligence, a plaintiff must
allege:
(1) A duty, recognized by law, requiring the defendant to conform to a
certain standard of conduct; (2) a breach of duty; (3) causal connection
between the defendant’s conduct and the resulting injury; and (4) actual
loss or damage.
Turpen v. Granieri, 985 P.2d 669, 672, 133 Idaho 244 (1999).
Walkwell’s complaint does not provide any non-conclusory facts to suggest
Noridian’s coding determinations breached a duty owed to Walkwell, and instead
only asserts Noridian’s actions were “unreasonable” and “improper.” (Dkt. 1-3, ¶¶
43-46.) Such unsupported statements do not cross “the line between possibility

10

Plaintiff submitted a number of extra-complaint materials with its Opposition to
Defendant’s Motion for Judgment on the Pleadings, including several declarations and
exhibits. Although such documents provide more context for Plaintiff’s claim that
Noridian’s actions were improper and unreasonable, they were not included with the
Complaint, and do not meet the criteria for judicial notice. However, even if the Court
were to consider such documents, it finds that such materials do not change the outcome
of this decision.
25 

and plausibility of ‘entitlement to relief’” and are consequently subject to
dismissal. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557)).
Walkell’s tortious interference with prospective economic advantage and
negligence claims must be dismissed because Walkwell fails to provide nonconclusory factual content to plausibly suggest it is entitled to relief. Moss v. U.S.
Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). Further, Plaintiff’s Opposition to
Defendant’s Motion for Judgment on the Pleadings states only that Plaintiff
“sufficiently asserted allegations and cognizable legal theories as to Counts . . . 2
and 3,” but does not provide any analysis or argument to support its claims for
tortious interference with prospective economic advantage and negligence. (Dkt.
22, p. 2.) Walkwell accordingly fails to state a plausible tort claim.
ORDER
Based on the forgoing, the Court finds Plaintiff has failed to allege facts
sufficient to state a claim for relief.
THEREFORE IT IS HEREBY ORDERED that Defendant’s Motion for a
Judgment on the Pleadings (Dkt. 18) is GRANTED and Plaintiff’s Complaint is
DISMISSED WITHOUT PREJUDICE.
As Defendant’s counterclaim is still at issue, this case remains open and
counsel are directed to file a joint litigation plan on or before January 31, 2014.

26 

SO ORDERED.

DATED: January 13, 2014

_________________________
Edward J. Lodge
United States District Judge

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