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July 7, 2004.

JO ANNE B. BARNHART, Commissioner of Social Security, Defendant.

The opinion of the court was delivered by: DAVID LARIMER, Chief Judge, District



This is an action brought pursuant to 42 U.S.C. § 405(g) to review the final determination of the Commissioner of Social Security ("the Commissioner") that Kathleen O'Halloran ("plaintiff") is not disabled under the Social Security Act ("the Act") and, therefore, is not entitled to Disability Insurance Benefits. Plaintiff applied for benefits under Title II of the Act on May 7, 1999, alleging disability based on a mental impairment. (T. 81-83).*fn1 Her application was denied both initially and upon reconsideration. (T. 57-60; 63-65). Plaintiff requested a hearing before an Administrative Law Judge ("ALJ"), which was held on March 27, 2000. (T. 22-54). The ALJ, after considering all of the evidence, found that plaintiff was not disabled within the meaning of the Act. (T. 12-21). The ALJ's decision became the final decision of the Commissioner when, on June 14, 2002, the Appeals Council denied plaintiff's request for review. (T. 5-6). Plaintiff timely appealed the Commissioner's decision.

  Both plaintiff and the Commissioner have moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). (Dkts. ## 8 and 11). For the reasons discussed below, plaintiff's motion is granted. The Commissioner's decision is reversed and the case is remanded for further administrative proceedings consistent with this decision and order.


  A. Standards for Determining Disability

  A person is considered disabled when she is unable "to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. . . ." 42 U.S.C. § 423(d)(1)(A). A physical or mental impairment (or combination of impairments) is disabling if it is of such severity that a person "is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy. . . ." 42 U.S.C. § 423(d)(2)(A).

  To determine whether a person is disabled within the meaning of the Act, the ALJ proceeds through a five-step sequential evaluation. Bowen v. City of New York, 476 U.S. 467, 470-71 (1986) (citations omitted); Tejada v. Apfel, 167 F.3d 770, 774 (2d Cir. 1999).*fn2 Once a person has proven steps one through four, the burden then shifts to the Commissioner to show that the person "`retains a residual functional capacity to perform alternative substantial gainful work which exists in the national economy.'" Rosa v. Callahan, 168 F.3d 72, 77 (2d Cir. 1999) (quoting Bapp v. Bowen, 802 F.2d 601, 604 (2d Cir. 1986)).

  B. The ALJ's Decision

  Here, the ALJ found that plaintiff had impairments that were severe (including paranoid schizophrenia, insomnia, and alcohol abuse), but that they did not meet or equal a listed impairment. (T. 17). He next found that plaintiff retained the residual functional capacity to perform less than the full range of medium work due to "significant" non-exertional mental impairments, including a moderate inability to understand, remember, or carry out detailed instructions and a moderate inability to get along with co-workers or peers. (T. 19). Despite these non-exertional impairments, the ALJ found that plaintiff could understand, remember, and carry out simple instructions and could perform simple, repetitive tasks in a low stress work setting. Based on this RFC assessment, the ALJ concluded that plaintiff could return to her past relevant work as a press/bindery operator. The ALJ also concluded that plaintiff's alcohol abuse was not material to a finding of disability. (T. 19).

  C. The ALJ's Decision is Based on Legal Error

  The Commissioner's decision that plaintiff is not disabled must be reversed because the ALJ failed to apply the proper legal standards at the third and fourth step of his analysis. It is well-settled that the Commissioner's decision that plaintiff was ineligible to receive benefits must be reversed if it applies the incorrect legal standards or is not supported by substantial evidence. See Tejada, 167 F.3d at 773.

  1. Evaluation of Mental Impairments under 20 C.F.R. § 404.1520a

  First, the ALJ failed to properly evaluate plaintiff's mental impairment at step three in accordance with the Commissioner's regulations. 20 C.F.R. § 404.1520a requires that the ALJ follow a special technique when assessing the severity of mental impairments like schizophrenia. Specifically, the ALJ must evaluate the degree of functional loss in four areas of functioning: activities of daily living; social functioning; concentration, persistence, or pace; and episodes of decompensation. 20 C.F.R. § 404.1520a(c)(3). In addition, the ALJ must document application of this technique in the written decision. Id. at 404.1520a(e)(2) ("[T]he written decision issued by the administrative law judge or Appeals Council must incorporate the pertinent findings and conclusions based on the technique. The decision must show the significant history, including examination and laboratory findings, and the functional limitations that were considered in reaching a conclusion about the severity of the mental impairment(s). The decision must include a specific finding as to the degree of limitation in each of the functional areas described in paragraph (c) of this section."). A review of the ALJ's decision in the instant case shows that he failed to evaluate or document the degree of functional limitation in three of the four areas of functioning. The ALJ rated plaintiff's degree of limitation in her activities of daily living only. (T. 18). He then concluded summarily that "the medical evidence of record supports the conclusion that the claimant is able to function adequately in a work environment." (T. 18). However, the ALJ made no findings as to plaintiff's limitations in social functioning, concentration, persistence, or pace, and did not assess episodes of decompensation, all of which are considered to be fundamental to the ability to work. It may be that the error by the ALJ is only in the failure to document fully his evaluation of the degree of functional loss. Nevertheless, a remand is required because the Court cannot evaluate whether substantial evidence exists to support the Commissioner's decision where there is a risk that incorrect legal standards were used as a basis for that decision. See Schaal v. Apfel, 134 F.3d 496, 504 (2d Cir. 1998) (quoting Johnson v. Bowen, 817 F.2d 983, 986 (2d Cir. 1987)) ...

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