1

Certiorari Denied, April 20, 2012, No. 33,549

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2012-NMCA-055

Filing Date: March 1, 2012 

Docket 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
2

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 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 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
3

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’]

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

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
4

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. Mem’l Gen. Hosp.,

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 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 “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
5

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 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 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] 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.
6

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 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: (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-NMCA039, ¶ 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
7

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. 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

Topic Index for Lucero v. UNM Board of Regents, Docket No. 30,535

AL ADMINISTRATIVE LAW AND PROCEDURE

AL-EX Exhaustion of Administrative Remedies

AE APPEAL AND ERROR

AE-SR Standard of Review 

CP CIVIL PROCEDURE

CP-SJ Summary Judgment

CN CONTRACTS

CN-BR Breach

EL EMPLOYMENT LAW

EL-DA Disciplinary Action

EL-EC Employment Contract

EL-GR Employee Grievances

EL-EP Employer’s Policies

EL-TE Termination of Employment
8

GV GOVERNMENT 

GV-PE Public Employees