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Clark v. Unitedhealth Group, Inc.

United States District Court, D. New Mexico

June 12, 2018

KAREN CLARK, Plaintiff,
v.
UNITEDHEALTH GROUP, INC., et al., Defendants.

          PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

          HONORABLE KAREN B. MOLZEN UNITED STATES MAGISTRATE JUDGE

         THIS 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.

         On 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 Motion.

         Having 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 denied.

         I. Background

         This 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.

         When 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.

         During 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. at 22-24.

         Defendants 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.

         Plaintiff 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.

         In 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.

         II. Analysis

         A. Whether the Agreement is Supported by Consideration

         In 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 omitted).

         Plaintiff 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.

         A 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.

         Here, 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, ΒΆ 32. Defendants' suggestion that the notice provision somehow ...


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