March 01, 2012 – Arnold Lucero v. Board of Regents of the University of New Mexico, University of New Mexico Health Sciences Center, No. 30,535

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: __________
Filing Date: 	March 1, 2012
NO. 30,535
ARNOLD LUCERO,
Plaintiff-Appellee,
v.
BOARD OF REGENTS OF THE
UNIVERSITY OF NEW MEXICO,
UNIVERSITY OF NEW MEXICO
HEALTH SCIENCES CENTER,
Defendants-Appellants.
APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Beatrice J. Brickhouse, District Judge
Law Offices of Michael E. Mozes, P.C.
Michael E. Mozes
Albuquerque, NM
for Appellee
Sheehan & Sheehan, P.A.
Quentin Smith
Albuquerque, NM
for Appellants

OPINION
WECHSLER, Judge.
{1} 	Defendants University of New Mexico Board of Regents and University of
New Mexico Health Sciences Center (UNMHSC) appeal after a bench trial resulted
in a verdict in favor of Plaintiff Arnold Lucero. 	Defendants argue that the district
court erred in denying its motion for summary judgment on Plaintiff’s breach of
contract claim because Plaintiff did not exhaust the grievance procedures contained
in UNMHSC’s human resources policies and procedures manual (the employee
handbook). 	We hold that Plaintiff must substantially comply with the mandatory
internal grievance procedures contained in the employee handbook before filing suit
for breach of contract based on an alleged failure of Defendants to follow the
employee handbook. 	Accordingly, we reverse the district court’s denial of
Defendants’ motion for summary judgment.
BACKGROUND
{2} 	Defendants employed Plaintiff beginning in 2003 as an assistant director of
environmental services, a management position. UNMHSC’s employee handbook
governed Plaintiff’s employment. 	The employee handbook contains a two-step
grievance process for “those questions, issues or concerns which are not resolved
through informal discussions with successive levels of supervisors.” Step one of the

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grievance process requires the employee to submit the grievance. Section 6.1.1 of the
handbook states that “[i]f a manager/supervisor is unable to reach an understanding
with an immediate supervisor through informal discussions, he/she may submit a
grievance in writing to the immediate supervisor or Administrator within ten (10)
work days of the occurrence of knowledge of the event causing the grievance.”
{3} 	On March 23, 2005, Defendants issued Plaintiff a notice of decision to suspend,
imposing a thirty-day suspension. On March 31, 2005, Plaintiff’s attorney sent a letter
to Melissa Chavez, a senior employee relations specialist for Defendants, advising her
that Plaintiff intended to submit a grievance by April 6, 2005. However, Plaintiff did
not submit a grievance, and Plaintiff’s attorney sent Chavez a letter on April 12, 2005,
acknowledging missing the ten-day deadline to file a grievance.
{4} 	On September 9, 2005, Defendants issued Plaintiff a notice to terminate.
Plaintiff did not submit a grievance and testified that he could not remember why he
did not file a grievance challenging the termination. More than seven months after the
termination, on April 4, 2006, Plaintiff filed a complaint in district court, alleging a
breach of express and implied contracts of employment for the suspension and
termination. On February 27, 2007, Plaintiff filed an amended complaint consisting
of three claims: (1) breach of implied contract, (2) breach of express contract, and (3)
wrongful termination. All three claims allege that UNMHSC’s employee handbook

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created a contract and that Defendants breached the contract by failing to abide by the
employee handbook’s policies and procedures governing workplace performance,
disciplinary action, a harassment-free workplace, employer-employee relations,
progressive discipline, and by disciplining Plaintiff without just cause. The employee
handbook contains all of the contractual provisions and employment policies that
Plaintiff alleges Defendants breached.
{5} 	Defendants filed a motion for summary judgment, arguing that Plaintiff’s
claims were barred because he failed to exhaust the employee handbook’s internal
grievance procedures. 	Plaintiff filed a response admitting all material facts in
Defendants’ motion, but he argued that the grievance procedures are not mandatory
and he therefore was not required to exhaust the procedures. The district court issued
an order granting in part and denying in part Defendants’ motion. The district court
granted the motion to the extent that Plaintiff based his claims on an alleged failure
of Defendants to follow grievance procedures but denied the motion as to the
remaining claims. The district court also denied Defendants’ motion to reconsider the
issue. In denying the motion to reconsider, the district court stated that “Defendant[s’]
grievance scheme is ambiguous, and by its own terms does not require Plaintiff to
exhaust Defendant[s’] grievance procedure prior to filing suit in court.” The district
court stated that it “is of great significance to this court that within . . . Defendant[s’]

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grievance procedure both ‘may’ and ‘shall’ are used. The section of the procedure
that sets out the steps to be taken by an employee if he disagrees with the
contemplated disciplinary action, uses ‘may’ when discussing the employee’s actions.
Thus, the court will presume that the use of the term ‘may’ was purposeful, and that
exhaustion of . . . Defendant[s’] grievance procedure is not a condition precedent to
Plaintiff filing suit in this court.”
{6} 	Subsequently, the district court held a four-day bench trial commencing
December 8, 2009. On May 17, 2010, the district court entered a final judgment in
Plaintiff’s favor, concluding that the employee handbook created an implied contract
that Defendants violated by suspending and terminating Plaintiff without just cause
and without appropriate progressive discipline.
{7} 	On appeal, Defendants argue that the district court erred in not granting its
motion for summary judgment. Particularly, Defendants argue that (1) an employee
cannot pursue a breach of contract claim based on policies in an employee handbook
without first exhausting the grievance procedures in the employee handbook, and (2)
the use of permissive language in the employee handbook’s grievance procedures did
not allow Plaintiff to bypass the grievance process and file a breach of contract claim.
STANDARD OF REVIEW
{8} 	Defendants’ arguments in this appeal present an issue of law arising out of

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undisputed facts. Accordingly, we apply a de novo standard of review. See Barreras
v. State Corr. Dep’t, 2003-NMCA-027, ¶ 5, 133 N.M. 313, 62 P.3d 770.
EXHAUSTION OF REMEDIES
{9} 	New Mexico courts recognize the doctrine of exhaustion of administrative
remedies. “Under the exhaustion of administrative remedies doctrine, where relief is
available from an administrative agency, the plaintiff is ordinarily required to pursue
that avenue of redress before proceeding to the courts; and until that recourse is
exhausted, suit is premature and must be dismissed.” Smith v. City of Santa Fe, 2007-
NMSC-055, ¶ 26, 142 N.M. 786, 171 P.3d 300 (alteration, internal quotation marks,
and citation omitted). The exhaustion doctrine rests on the principle that the interests
of justice are served by allowing an agency with particular expertise to resolve issues
before a claim is brought to court. Headen v. D’Antonio, 2011-NMCA-058, ¶ 13, 149
N.M. 667, 253 P.3d 957.
{10} 	Related to the exhaustion of administrative remedies doctrine, our Supreme
Court has held that an employee must exhaust grievance procedures in an employee
handbook or manual before filing claims against the employer for breach of contract
or civil rights violations based on the policies governing employment. In Francis v.
Memorial General Hospital, 104 N.M. 698, 698-99, 726 P.2d 852, 852-53 (1986), a
registered nurse sued his employing hospital for breach of contract, due process

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violations, and wrongful discharge after he voluntarily terminated his employment.
The employer had suspended the plaintiff for two days for refusing to comply with
hospital policy. 	Id. 	Pursuant to the hospital’s employee manual, the plaintiff
submitted a grievance, and the hospital scheduled a fact-finding hearing. Id. After
the hospital informed the plaintiff, as provided in the employee manual, that his
attorney could not attend the hearing, the plaintiff refused to proceed any further with
the grievance and voluntarily terminated his employment. 	Id. 	Our Supreme Court
held that the plaintiff was “estopped from asserting that he suffered a deprivation of
either a contractual expectation or a constitutionally protected entitlement” because
he failed to exhaust the grievance procedures in the employee manual. Id. at 700, 726
P.2d at 854. 	The Court reasoned that when an implied contract, in this case an
employment manual, creates rights, the rights are “limited by the terms of the
[employment manual] that gave them birth.” Id.
{11} 	Similarly, in McDowell v. Napolitano, 119 N.M. 696, 699, 895 P.2d 218, 221
(1995), the plaintiff, a university professor, sued his employer for breach of contract
and civil rights violations after being denied tenure. The defendants argued that the
district court did not have jurisdiction over the case because the plaintiff failed to
exhaust administrative remedies contained in the faculty handbook. Id. at 700, 895
P.2d at 222. 	Our Supreme Court framed the issue as whether the plaintiff

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“substantially discharged his own contractual obligations so as to be able to complain
of a breach by his employer.” 	Id. at 701, 895 P.2d at 223. 	The Court held that,
because the plaintiff substantially complied with the terms of his employment contract
by “properly follow[ing] the appeals process outlined in the Faculty Handbook [and
pursuing] the appeals process to the highest authority within the University,” the
exhaustion doctrine did not bar litigation of the plaintiff’s case. Id.
{12} 	From Francis and McDowell, we glean the general rule that an employee must
substantially comply with mandatory internal grievance procedures contained in an
employee manual or handbook before filing suit for breach of contract claims based
on an alleged failure of an employer to follow its employment policies. In applying
this general rule to this case, we note that neither Francis nor McDowell mention
whether the employee handbook or manual containing the grievance procedures also
contained the employment policies the defendants allegedly breached. In this case,
Defendants’ argument for applying the exhaustion requirement rests on the strongest
factual basis because the employee handbook contained both the grievance procedures
that Defendants allege that Plaintiff did not exhaust and the employment policies and
procedures that Plaintiff alleges that Defendants did not follow. Applying Francis
and McDowell, the district court erred by denying Defendants’ motion for summary
judgment because Plaintiff did not exhaust the grievance procedures in the employee

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handbook. 	Courts from other jurisdictions have uniformly applied the same rule,
regardless of whether the employer is a public entity or a private entity. 	See, e.g.,
McGuire v. Cont’l Airlines, Inc., 210 F.3d 1141, 1146-47 (10th Cir. 2000) (upholding
summary judgment on exhaustion grounds in favor of employer on employee’s breach
of contract claim because employee failed to complete the final two steps of the
employee handbook’s four-step grievance process); Orr v. Westminster Vill. N., Inc.,
689 N.E.2d 712, 721-22 (Ind. 1997) (stating that even if an employer’s handbook
constituted a contract, summary judgment on employee’s breach of contract claim
arising out of policies in the employee handbook was appropriate because employee
failed to exhaust grievance procedures in the employee handbook); O’Brien v. New
England Tel. & Tel. Co., 664 N.E.2d 843, 849 (Mass. 1996) (holding that an employee
must exhaust grievance procedures in an employee manual before suing for breach of
contract based on a failure of employer to follow rule requiring just cause to discipline
an employee in the employee manual).
{13} 	In addition, policy reasons support our conclusion that an employee must
exhaust internal grievance procedures contained in an employee handbook before
filing suit for breach of contract based on an alleged failure of the employer to follow
policies in the employee handbook. First, the grievance process allows an employer
to redress wrongs without burdening the courts with unnecessary litigation. 	See

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Neiman v. Yale Univ., 851 A.2d 1165, 1172 (Conn. 2004) (stating that grievance
procedures “merely ensure that the grievant and the school have an opportunity to
resolve the dispute before seeking redress in the courts, thereby conserving judicial
resources”). 	Second, not requiring an employee to exhaust internal grievance
procedures allows the employee to choose which employment policies are binding.
See, e.g., McGuire, 210 F.3d at 1147 (“An employee must accept both the benefits and
the responsibilities of an employee handbook which creates an implied contract.”).
In this case, the employee handbook required that Plaintiff allow Defendants to
redress the perceived violation of the right to be disciplined and terminated for “just
cause” stemming from the employee handbook. 	Once Plaintiff exhausted the
grievance procedure, he could have then instituted his lawsuit had he not been
satisfied with the result. See McDowell, 119 N.M. at 701, 895 P.2d at 223 (holding
that exhaustion requirement did not bar litigation of the plaintiff’s claim because he
substantially complied with grievance process); see also Neiman, 851 A.2d at 1172
(“[I]internal procedures do not preclude access to the courts should the grievant be
dissatisfied with the ultimate result.”).
{14} 	Plaintiff argues that New Mexico courts “have not adopted a broad, general rule
that a plaintiff cannot pursue a breach of contract claim founded in an employee
handbook without first exhausting the grievance procedures [and instead] have take[n]

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a more measured and considered approach in deciding whether exhaustion . . . is a
prerequisite to pursuing a breach of implied contract claim in the district courts.”
Plaintiff argues that New Mexico courts “review the nature of the grievance procedure
in deciding whether exhaustion of the procedure is required.” 	However, the cases
cited by Plaintiff address different issues. 	Some of the cases address whether a
legislative body intended an administrative scheme to be the exclusive remedy for a
plaintiff’s cause of action. 	See Barreras, 2003-NMCA-027, ¶¶ 9, 21 (addressing
whether the administrative adjudication in the state personnel act is the exclusive
remedy for breach of contract claims arising under the state personnel act); Pan Am.
Petroleum Corp. v. El Paso Natural Gas Co., 77 N.M. 481, 484, 424 P.2d 397, 399
(1966) (addressing whether a federal agency had exclusive jurisdiction to determine
whether the state legislature could impose a tax); Chavez v. City of Albuquerque,
1998-NMCA-004, ¶¶ 14-18, 124 N.M. 479, 952 P.2d 474 (determining that a
grievance procedure for municipal employees did not provide the exclusive remedy
for claims arising from an alleged breach of the municipality’s ordinance governing
employment). 	In cases addressing the exclusivity of an administrative setting, the
nature of the proceedings is an important factor to consider because a plaintiff is either
barred from court or may appeal to a court under a limited standard of review. In this
case, Defendants do not argue that the grievance process provided Plaintiff’s exclusive

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remedy, only that the process must be exhausted before Plaintiff files an action in
district court. See Chavez, 1998-NMCA-004, ¶ 14 (defining exclusive remedy as “one
which provides for a plain, adequate, and complete means of resolution”). Further,
one case cited by Plaintiff considers whether a collective bargaining agreement’s
administrative proceeding covered the plaintiff’s claims against the labor union. See
Callahan v. N.M. Fed’n of Teachers-TVI, 2005-NMCA-011, ¶ 21, 136 N.M. 731, 104
P.3d 1122, aff’d in part, rev’d in part by 2006-NMSC-010, 139 N.M. 201, 131 P.3d
51. The other case cited by Plaintiff addressed only whether policies and procedures
governing the plaintiff’s employment created an implied contract, not whether
exhaustion was required. See Whittington v. State Dep’t of Pub. Safety, 2004-NMCA-
124, ¶ 1, 136 N.M. 503, 100 P.3d 209. Plaintiff fails to cite authority supporting his
argument that New Mexico law is inconsistent with a broad, general rule requiring
exhaustion of grievance proceedings in an employee handbook.
{15} 	Plaintiff next argues that the permissive language in the grievance procedure
permits an employee to bypass the grievance process and pursue a direct court action.
Plaintiff argues that the grievance policy in this case is permissive because it states
that the employee “may,” not “shall,” file a grievance. However, we read the plain
language of Section 6.1.1 of the employee handbook, using the term “may,” to be
permissive only to the extent that it provides a potential grievant with two options:

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(1) file a grievance, thereby exhausting the remedies under the employee handbook
and allowing the grievant to then file an action in district court for an alleged breach
of the employee handbook, or (2) forego the grievance process and accept the
disciplinary decision of Defendants. 	See Neiman, 851 A.2d at 1173 (rejecting
argument that the use of “may” in an internal grievance process made the grievance
procedure permissive); United Nuclear Corp. v. Allstate Ins. Co., 2011-NMCA-039,
¶ 11, 149 N.M. 574, 252 P.3d 798 (“We consider the plain language of the relevant
provisions, giving meaning and significance to each word or phrase within the context
of the entire contract, as objective evidence of the parties’ mutual expression of
assent.” (internal quotation marks and citation omitted)), cert. granted, 2011-
NMCERT-005, 150 N.M. 667, 265 P.3d 718 . In other words, the word “may” relates
to whether the employee wishes to challenge the proposed disciplinary action by
Defendants, not whether the employee must do so. The grievance procedure in the
employee handbook is mandatory if an employee wishes to challenge a disciplinary
action.
CONCLUSION
{16} 	An employee must substantially comply with mandatory internal grievance
procedures contained in an employee handbook before filing suit for breach of
contract based on an alleged failure of the employer to follow the employee handbook.

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Because Plaintiff did not exhaust the grievance procedures in Defendants’ employee
handbook, we reverse the district court’s denial of Defendants’ motion for summary
judgment.
{17} 	IT IS SO ORDERED.
_______________________________
JAMES J. WECHSLER, Judge
WE CONCUR:
_________________________________
RODERICK T. KENNEDY, Judge
_________________________________
J. MILES HANISEE, Judge