United States District Court, D. New Mexico
PROPOSED FINDINGS AND RECOMMENDED
HONORABLE KAREN B. MOLZEN UNITED STATES MAGISTRATE JUDGE
MATTER is before the Court on the Motion to Compel
Arbitration (the “Motion” - Doc.
97), filed by Defendants UnitedHealth Group, Inc., and
United Healthcare Insurance Company on October 31, 2016. The
Court has also given due consideration to Plaintiff's
Response in Opposition to Defendants' Motion to
Compel Arbitration (Doc. 100), filed November
16, 2016, Defendants' Reply in Support of Motion to
Compel Arbitration (Doc. 104), filed November
30, 2016, and Plaintiff's Surreply to Defendants'
Motion to Compel Arbitration (Doc. 131), filed
May 31, 2018.
March 1, 2018, United States District Judge Martha Vazquez
referred the Motion to United States Chief Magistrate Judge
Carmen E. Garza for proposed findings and a recommended
disposition. Doc. 116. On March 28, 2018, Judge
Garza heard oral argument on the Motion, at which time the
parties agreed to conduct a settlement conference prior to
entry of her Proposed Findings and Recommended Disposition.
Doc. 121. The settlement conference, held on May 11,
2018, was unsuccessful at reaching a negotiated resolution.
Doc. 128. Because Judge Garza was privy to
confidential information from both sides during the course of
settlement negotiations, she inquired whether the parties
would object to the referral of the Motion to the
undersigned. Doc. 129. The parties had no objection,
so the presiding judge entered her Amended Order of Reference
on May 16, 2018 that referred the Motion to the undersigned
to conduct hearings, if warranted, and to perform any legal
analysis required to recommend an ultimate disposition of the
reviewed the record, the briefing, and the relevant law, and
listened to the recording of the parties' oral arguments,
the undersigned now recommends that the Motion be
case arises from the termination of Plaintiff Karen
Clark's (“Plaintiff's”) employment by
Defendant UnitedHealth Group, Inc. (“UHG”), a
healthcare services provider. From October 10, 2011, to April
9, 2012, UHG employed Plaintiff as a Senior Investigator in a
subdivision of UHG dedicated to investigating allegations of
billing fraud and abuse. Doc 93 at 4. In her
First Amended Complaint for Violation of § 44-9-11
NMSA and Retaliatory Discharge, (Doc. 93 - the
“Amended Complaint”), Plaintiff alleges that her
position required her to investigate and report suspected
fraud, waste, and billing abuse, as well as violations of the
False Claims Act, 31 U.S.C. § 3729, and the New Mexico
Fraud Against Taxpayers Act, NMSA 1978, § 44-9-1 to -14
(2007, as amended through 2015). Id.
she was first hired, Plaintiff agreed to UHG's Employment
Arbitration Policy (the “Arbitration Agreement”
or “Agreement”). Doc. 97-1 at 4-11. In
that Agreement, the parties committed to arbitrate all claims
under any federal, state, or local statute or common law
pertaining to employment discrimination, the terms and
conditions of employment, and termination of employment,
including whistleblower and retaliatory discharge claims.
Id. at 4. Under “Amendment or Termination of
Arbitration Policy” (the “Amendment
Clause”), UHG retained the right to amend, modify, or
terminate the Agreement effective January 1st of any year,
provided it had given at least thirty-days' notice of its
intent to amend or terminate the Agreement and the substance
of any amendment. Id. at 11. UHG was permitted to
post notice on its internal website and could only amend,
modify, or terminate the agreement on January 1. Id.
The Agreement has not been modified since Plaintiff signed
it. Doc. 104 at 5 n.3. The Agreement also contains a
severability clause, stating “[i]f any portion or
provision of this [Agreement] is held to be void or
unenforceable, the remainder of this [Agreement] will be
enforceable and any part may be severed from the remainder,
as appropriate.” Doc. 97-1 at 10.
her employment, Plaintiff investigated and reported several
behavioral health services providers to federal and state
authorities. Doc. 93 at 4-5. She alleges that she
repeatedly uncovered evidence of fraud, abuse, and false
claims but that her supervisors reprimanded her for doing so
and instructed her to stop investigating and reporting her
findings. Id. at 5-22. Despite directions not to do
so, Plaintiff persisted. She contends that she was ultimately
terminated in retaliation for such activities. Id.
moved to compel arbitration of Plaintiff's claims,
arguing that they pertain to the termination of her
employment and are therefore covered by the parties'
Arbitration Agreement. Doc. 97 at 1, 5. Defendants
maintain that the Court must compel arbitration and stay this
case pending its resolution. Id. at 6.
responds that the Agreement is invalid and unenforceable,
because it was not supported by consideration and because it
is both substantively and procedurally unconscionable.
Doc. 100 at 1; Doc. 131. First, she
contends that the Amendment Clause, which permits Defendants
to unilaterally amend or terminate the Agreement after an
employee is fired, unreasonably favor the employer and
renders UHG's promises therein illusory. Doc.
100 at 3-4. Further, she contends that the circumstances
surrounding her employment render the Agreement procedurally
unconscionable. Id. at 9-10.
response, Defendants submit, first, that the Arbitration
Agreement was supported by two forms of consideration: (1)
Defendants' obligation to arbitrate its own claims, and
(2) their offer of at-will employment. Doc. 104 at
1. Second, Defendants maintain that the Agreement is not so
grossly unreasonable or unfair as to be unconscionable.
Id. at 9-11. Finally, even if the Court finds the
Amendment Clause unconscionable, Defendants suggest that the
Court may sever that portion of the Agreement and enforce the
balance. Id. at 11-12.
Whether the Agreement is Supported by Consideration
order to compel arbitration, the parties must have entered
into a valid agreement to arbitrate. Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
626 (1985). The validity of an agreement to arbitrate depends
on state contract law. First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995). Under New Mexico law,
a valid agreement to arbitrate must be supported by an offer,
an acceptance, consideration, and mutual assent. Flemma
v. Halliburton Energy Servs., Inc., 2013-NMSC-022,
¶ 28, 303 P.3d 814 (internal quotation and citation
contends that the Agreement was never valid because it was
not supported by consideration. In particular, she contends
the Agreement's Amendment Clause makes Defendants'
promise to arbitrate illusory, as Defendants could
unilaterally amend or terminate the Agreement after
Plaintiff's termination. Doc. 100 at 3-8.
promise or return promise is insufficient consideration if
that promise is illusory. Restatement (Second) of Contracts
§ 77 (1981). An illusory promise is one that
“makes performance entirely optional.”
Id. For instance, in Flemma v. Halliburton
Energy Services, the New Mexico Supreme Court found an
employer's promise to arbitrate its own claims against an
employee illusory where the employer retained the ability to
unilaterally modify or terminate the arbitration agreement
after an employee was terminated but before arbitration
began. 2013-NMSC-022, ¶¶ 27, 32. Although the
employer was required to provide notice before amending the
arbitration agreement, the court found the notice requirement
immaterial, because “terminated employees . . . would
not receive advance notice of changes to the
agreement.” Id. ¶ 33.
as in Flemma, Defendants reserved the right to
unilaterally change the Arbitration Agreement after an
employee was terminated but before a claim was filed.
Doc. 97-1 at 11. Because Defendants could so modify
that agreement, their promise to arbitrate therefore was
illusory and failed to constitute consideration under New
Mexico law. See Flemma, 2013-NMSC-022, ¶ 32.
Defendants' suggestion that the notice provision somehow