Laura Fashing United States Magistrate Judge Presiding by Consent

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on plaintiff Larry Holder's Substitute Motion to Reverse and/or Remand (Doc. 25), which was fully briefed on November 20, 2018. See Docs. 26, 27, 28. The parties consented to my entering final judgment in this case. Docs. 9, 10, 11. Having meticulously reviewed the entire record and being fully advised in the premises, I find that the Appeals Council erred by failing to consider the additional evidence submitted by Mr. Holder. I therefore GRANT Mr. Holder's motion and remand this case to the Commissioner for further proceedings consistent with this opinion.

I. Standard of Review

The standard of review in a Social Security appeal is whether the Commissioner's final decision is supported by substantial evidence and whether the correct legal standards were applied. Maes v. Astrue, 522 F.3d 1093, 1096 (10th Cir. 2008). If substantial evidence supports the Commissioner's findings and the correct legal standards were applied, the Commissioner's decision stands, and the plaintiff is not entitled to relief. Langley v. Barnhart, 373 F.3d 1116, 1118 (10th Cir. 2004). "The failure to apply the correct legal standard or to provide this court with a sufficient basis to determine that appropriate legal principles have been followed is grounds for reversal." Jensen v. Barnhart, 436 F.3d 1163, 1165 (10th Cir. 2005) (internal quotation marks and brackets omitted). The Court must meticulously review the entire record, but may neither reweigh the evidence nor substitute its judgment for that of the Commissioner. Flaherty v. Astrue, 515 F.3d 1067, 1070 (10th Cir. 2007).

"Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Langley, 373 F.3d at 1118. A decision "is not based on substantial evidence if it is overwhelmed by other evidence in the record or if there is a mere scintilla of evidence supporting it." Id. While the Court may not reweigh the evidence or try the issues de novo, its examination of the record as a whole must include "anything that may undercut or detract from the ALJ's findings in order to determine if the substantiality test has been met." Grogan v. Barnhart, 399 F.3d 1257, 1262 (10th Cir. 2005). "'The possibility of drawing two inconsistent conclusions from the evidence does not prevent [the] findings from being supported by substantial evidence.'" Lax v. Astrue, 489 F.3d 1080, 1084 (10th Cir. 2007) (quoting Zoltanski v. F.A.A., 372 F.3d 1195, 1200 (10th Cir. 2004)).

II. Applicable Law and Sequential Evaluation Process

To qualify for disability benefits, a claimant must establish that he or 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); 20 C.F.R. §§ 404.1505(a), 416.905(a).

When considering a disability application, the Commissioner is required to use a five-step sequential evaluation process. 20 C.F.R. §§ 404.1520, 416.920; Bowen v. Yuckert, 482 U.S. 137, 140 (1987). At the first four steps of the evaluation process, the claimant must show: (1) the claimant is not engaged in "substantial gainful activity"; (2) the claimant has a "severe medically determinable . . . impairment . . . or a combination of impairments" that has lasted or is expected to last for at least one year; and (3) the impairment(s) either meet or equal one of the Listings of presumptively disabling impairments; or (4) the claimant is unable to perform his or her "past relevant work." 20 C.F.R. §§ 404.1520(a)(4)(i-iv), 416.920(a)(4)(i-iv); Grogan, 399 F.3d at 1260-61. If the claimant cannot show that his or her impairment meets or equals a Listing but proves that he or she is unable to perform his or her "past relevant work," the burden of proof shifts to the Commissioner, at step five, to show that the claimant is able to perform other work in the national economy, considering the claimant's residual functional capacity ("RFC"), age, education, and work experience. Id.

III. Background and Procedural History

Mr. Holder was born in 1964, completed the tenth grade, and worked for approximately 14 years as a carpet installer, for approximately seven months as a fiberglass finisher, and for six months as a maintenance person. AR 54, 65, 82, 190, 242. Mr. Holder filed an application for Disability Insurance Benefits ("DIB") on September 10, 2015 and an application for Supplemental Security Income ("SSI") on September 17, 2015, alleging disability since July 8, 2015 due to osteoarthritis and "otheridis in wrists." AR 190-98, 241. The Social Security Administration ("SSA") denied his claims initially on October 21, 2015. AR 88-89, 113-120. Mr. Holder requested a hearing before an ALJ. AR 121-22. On April 25, 2017, ALJ Kathryn Burgchardt held a hearing. AR 49-87. ALJ Burgchardt issued her unfavorable decision on June 27, 2017. AR 12-31.

The ALJ found that Mr. Holder met the insured status requirements of the Social Security Act through June 30, 2018. AR 17. At the hearing, Mr. Holder amended his alleged onset date to February 1, 2015. AR 15, 17, 52. At step one, the ALJ found that Mr. Holder had not engaged in substantial, gainful activity since his amended alleged onset date. AR 17. At step two, the ALJ found that Mr. Holder's bilateral arthritis of the wrists, degenerative disc disease of the cervical spine, and left shoulder impairment were severe impairments. AR 17-18. At step three, the ALJ found that none of Mr. Holder's impairments, alone or in combination, met or medically equaled a Listing. AR 18-19. Because the ALJ found that none of the impairments met a Listing, the ALJ assessed Mr. Holder's RFC. AR 19-24. The ALJ found Mr. Holder had the RFC to

perform light work as defined in 20 CFR 404.1567(b) and 416.967(b) except the claimant can lift and carry 10 pounds frequently and 20 pounds occasionally. He can stand or walk with normal breaks for a total of six hours in an eight-hour workday and sit with normal breaks for a total of six hours in an eight-hour workday. He can perform pushing and pulling motions with upper and lower extremities within the weight restrictions given. He can perform activities requiring bilateral manual dexterity for both gross and fine manipulation with handling and reaching; however handling and fingering bilaterally would be limited to only frequent. The claimant should avoid unprotected heights and moving machinery. He should not climb any ladders, ropes or scaffolds, should avoid extreme cold, and should avoid overhead reach bilaterally.

At step four, the ALJ concluded that Mr. Holder could not perform his past relevant work as a carpet installer, but could return to his past relevant work as a fiberglass finisher. AR 24. The ALJ thus found Mr. Holder not disabled at step four. Alternatively, the ALJ found Mr. Holder not disabled at step five because he could perform jobs that exist in significant numbers in the national economy—such as bench assembler, photo copy machine operator, and small products assembler. AR 24-25.

Mr. Holder requested that the Appeals Council review the ALJ's unfavorable decision. AR 188-89, 310. Mr. Holder submitted additional evidence to the Appeals Council. See AR 11, 32-48. The Appeals Council did not consider or "exhibit" most of the additional evidence and found the rest "did not relate to the period at issue." AR 2. On October 24, 2017, the Appeals Council denied the request for review. AR 1-5. Mr. Holder timely filed his appeal to this Court on December 7, 2017. Doc. 1.

IV. Mr. Holder's Claims

Mr. Holder raises three arguments for reversing and remanding this case: (1) the Appeals Council erred in refusing to consider his June 21, 2017 MRI; (2) the ALJ failed to explain why key medical evidence was rejected or not considered; (3) the ALJ's finding that he can perform his past relevant work and three other jobs is inconsistent with the RFC that states he must avoid overhead reaching. Doc. 25 at 16-21. I find that the Appeals Council erred by failing to consider additional evidence submitted by Mr. Holder. Because the Appeals Council failed to consider the evidence Mr. Holder submitted, the case will be remanded so that the Appeals Council may reevaluate the ALJ's decision in light of the completed record.

V. Analysis

A. The Appeals Council erred by failing to consider additional evidence submitted by Mr. Holder.

The ALJ issued her unfavorable decision on June 27, 2017. See AR 12-31. Thereafter, Mr. Holder submitted additional evidence and requested that the Appeals Council consider the following:

1. Records from Gunnison-Griggs Orthopedics dated May 27, 2014 through June 2, 2017 (AR 32-46);
2. Records from Rocky Mountain Spine Clinic dated December 29, 2016 through March 29, 2017 (AR 391-404);
3. A lumbar MRI from an unknown source and undated (AR 47-48); and
4. A record from Rocky Mountain Spine Clinic dated June 30, 2017 (AR 11).

Mr. Holder primarily argues that the Appeals Council erred by failing to consider a June 21, 2017 MRI (evidence listed in number 3 above) which showed "very severe degenerative disc disease" at L5-S1. Doc. 25 at 16-17; AR 47. He argues that the MRI is "conclusive evidence of a lower back impairment." Doc. 25 at 16. Mr. Holder argues that this new evidence is material because the ALJ never considered disorders of the lumbar spine during the sequential evaluation process. Id. at 18. The Commissioner argues that "the Appeals Council's discussion of [the newly submitted evidence] plainly shows that it considered that evidence." Doc. 26 at 5. The Commissioner goes on to assert that "the Appeals Council was not required to give more explanation about how it considered additional evidence submitted to it than it did; and that additional evidence does not undermine the ALJ's decision in this case." Id. at 4. On the former point, I disagree with the Commissioner. I find that the Appeals Council did not consider the additional evidence. The Appeals Council stated, "[w]e did not consider . . . this [additional] evidence," AR 2, and there is no reason not to take the Council at its word. And although the Appeals Council also said that it found that "this evidence does not show a reasonable probability that it would change the outcome of the decision," id., this standard is one that relates to whether evidence qualifies for consideration (and therefore review by the Appeals Council) and does not indicate how the Appeals Council evaluated the evidence in conjunction with the rest of the record. See Threet v. Barnhart, 353 F.3d 1185, 1191-92 (10th Cir. 2003) (listing standards under 2003 regulations for determining whether new evidence qualifies for consideration); Bisbee v. Berryhill, No. 18-CV-0731 SMV, 2019 WL 1129459, at *3 & n.5 (D.N.M. Mar. 12, 2019) (unpublished) (listing current standards for determining whether new evidence qualifies for consideration, which includes whether there is a "reasonable probability that it would change the outcome").

Having considered the parties' arguments and the applicable law, I find that the ALJ erred in failing to consider the new evidence submitted by Mr. Holder.

1. Applicable Law

Whether evidence qualifies for consideration by the Appeals Council is a question of law subject to de novo review. Threet, 353 F.3d at 1191. The Appeals Council must review a case if it "receives additional evidence that is new, material, and relates to the period on or before the date of the hearing decision, and there is a reasonable probability that the additional evidence would change the outcome of the decision." 20 C.F.R. §§ 404.970(a)(5); 416.1470(a)(5) (both effective Jan. 17, 2017). Evidence is new "if it is not duplicative or cumulative," and it is material "if there is a reasonable possibility that it would have changed the outcome." Threet, 353 F.3d at 1191 (alterations omitted) (internal quotation marks omitted). The new regulations that require a claimant to show a "reasonable probability that the additional evidence would change the outcome of the decision" can be read as a heightened materiality standard. See Bisbee, 2019 WL 1129459, at *3 n.5 (noting that the new regulations "heightens the claimant's burden to prove materiality: whereas the previous test required merely a reasonable possibility of changing the outcome, now it requires a reasonable probability of changing the outcome"). Evidence is chronologically pertinent if it relates to the time period on or before the ALJ's decision. Threet, 353 F.3d at 1191. If the Appeals Council fails to consider qualifying new evidence, the case should be remanded so that the Appeals Council may reevaluate the ALJ's decision in light of the complete record. Id.

2. Inapplicable Law

The Commissioner erroneously states that "the Appeals Council's denial of [Mr. Holder's] request for review is not judicially reviewable." Doc. 26 at 4. The Commissioner cites 20 C.F.R. § 404.972 for this assertion. Id. at 5. However, 20 C.F.R. § 404.972 states that "[t]he dismissal of a request for Appeals Council review is binding and not subject to further review." (Emphasis added). The dismissal of a request for review is not the same as a denial of a request for review. The Appeals Council will dismiss a request for review when the request for review was not timely, and may dismiss it at the claimant's request. See 4 SOC. SEC. LAW & PRAC. § 53:35; see also Smith v. Berryhill, 139 S. Ct. 1765, 1772 (2019) ("If a claimant misses the deadline and cannot show good cause, . . . the Appeals Council does not deny the request but rather dismisses it."). This case does not involve a dismissal of review. Instead, it involves a denial of a request for review. See AR 1 ("[W]e have denied your request for review."). And, as previously explained, whether evidence qualifies for consideration by the Appeals Council is a question of law subject to de novo review. Threet, 353 F.3d at 1191.

Next, the Commissioner argues that this Court must "consider the additional evidence alongside the evidence in the case that was available to the ALJ . . . to determine whether the ALJ's decision remains supported by substantial evidence." Doc. 26 at 5 (citing Vallejo v. Berryhill, 849 F.3d 951, 956 (10th Cir. 2017)). Vallejo does not support this proposition. In Vallejo, the Tenth Circuit held that when a claimant submits new evidence to the Appeals Council and the Appeals Council accepts and considers it, that evidence becomes a part of the record to be considered by the Court in performing a substantial evidence review. 849 F.3d at 955. That is not the case here. In this case, the Appeals Council did not accept or consider the additional evidence. AR 2. Thus, the only question before the Court is whether the Appeals Council should have done so. See Padilla, 525 F. App'x at 712 n.1 ("If the Appeals Council did not consider the additional evidence because it did not qualify for consideration . . . , then the question on appeal is whether the Appeals Council erred in failing to do so. If the Appeals Council did accept and consider the new evidence, then the question on appeal is whether the ALJ's decision was supported by substantial evidence in light of the new evidence."). Only after the Appeals Council reviews the entire record—including the qualifying new evidence—under the standard provided in 20 C.F.R. § 404.970(a)(5), may the Court "properly review the denial of benefits . . . under the deferential substantial-evidence standard." Chambers v. Barnhart, 389 F.3d 1139, 1143 (10th Cir. 2004). However, "[i]f the Appeals Council fails to consider qualifying new evidence, the case should be remanded for further proceedings." Id. Because the Appeals Council did not accept or consider the new evidence and should have, it would be improper for this Court to perform a substantial evidence review of the ALJ's decision.

3. Analysis Under Applicable Law

For the reasons explained below, the Court finds that Mr. Holder submitted evidence that was new, chronologically pertinent, and material in that there is a "reasonable probability" that the additional evidence would change the outcome of the decision. The Appeals Council failed to consider this qualifying new evidence. The Court therefore remands so that the Appeals Council may reevaluate the ALJ's decision in light of the complete evidence.

First, there is no dispute that the June 21, 2017 MRI of Mr. Holder's lumbar spine is new evidence. It is not "duplicative or cumulative," as there was no other MRI of the lumbar spine in the record before the ALJ. The June 21, 2017 MRI indicates the following:

L5-S1 Very severe degenerative disc disease. Severe fibrovascular reactive endplate changes. Large diffuse disc bulge. No lateral recess stenosis. Moderate facet hypertrophy. Bilateral foraminal stenosis with compression of the exiting L5 nerve roots bilateral. Moderate compression of thecal sac secondary to epidural lipomatosis.

Second, the June 21, 2017 MRI is chronologically pertinent. The MRI was done before June 21, 2017. The ALJ rendered her decision on June 27, 2017. See AR 12-31. Thus, the MRI relates to the time period on or before the ALJ's decision and is chronologically pertinent. Threet, 353 F.3d at 1191. The Commissioner appears to concede that the MRI is chronologically pertinent. See Doc. 26 at 7 ("the new evidence may be sufficient to show that [Mr. Holder] had a lower back impairment as early as June 2017—about a month before the date of the ALJ's decision.").

Third, the June 21, 2017 MRI is material because there is a reasonable probability that it would have changed the outcome. See Threet, 353 F.3d at 1191; 20 C.F.R. §§ 404.970(a)(5), 416.1470(a)(5). As Mr. Holder explains, there is a reasonable probability that consideration of the MRI would have affected the sequential evaluation process, and that this would have changed the outcome of the case. At step two, the MRI would have established that Mr. Holder had a severe impairment of the lumbar spine, an impairment not considered by the ALJ.

Mr. Holder argues that there is a reasonable probability that consideration of the MRI would have resulted in a finding that he met a Listing at step three. Mr. Holder, however, fails to point to any evidence showing he would meet the definition of "inability to ambulate effectively" included in the criteria of Listing 1.04. In order to meet this Listing, a claimant must show the following:

1.04 Disorders of the spine (e.g., herniated nucleus pulposus, spinal arachnoiditis, spinal stenosis, osteoarthritis, degenerative disc disease, facet arthritis, vertebral fracture), resulting in compromise of a nerve root (including the cauda equina) or the spinal cord. With:
. . .
C. Lumbar spinal stenosis resulting in pseudoclaudication, established by findings on appropriate medically acceptable imaging, manifested by chronic nonradicular pain and weakness, and resulting in inability to ambulate effectively, as defined in 1.00B2b.

But to meet the Listing, Mr. Holder also would have had to show an "inability to ambulate effectively, as defined in 1.00B2b." This section of the Listings defines inability to ambulate effectively as

an extreme limitation of the ability to walk; i.e., an impairment(s) that interferes very seriously with the individual's ability to independently initiate, sustain, or complete activities. Ineffective ambulation is defined generally as having insufficient lower extremity functioning (see 1.00J) to permit independent ambulation without the use of a hand-held assistive device(s) that limits the functioning of both upper extremities.

To ambulate effectively, individuals must be capable of sustaining a reasonable walking pace over a sufficient distance to be able to carry out activities of daily living. They must have the ability to travel without companion assistance to and from a place of employment or school. Therefore, examples of ineffective ambulation include, but are not limited to, the inability to walk without the use of a walker, two crutches or two canes, the inability to walk a block at a reasonable pace on rough or uneven surfaces, the inability to use standard public transportation, the inability to carry out routine ambulatory activities, such as shopping and banking, and the inability to climb a few steps at a reasonable pace with the use of a single hand rail.

Nonetheless, the Court finds that there is a reasonable probability that consideration of the new evidence would have changed Mr. Holder's RFC, and therefore would have changed the outcome in this case. The ALJ discounted evidence in the record showing that Mr. Holder was limited in his ability to sit and stand long enough to do light work. There is a reasonable probability that the ALJ would not have discounted this evidence had the newly submitted evidence been part of the record. Erica Eaton, a certified physician's assistant, opined that Mr. Holder needed a "job that permits shifting positions at will from sitting, standing, or walking." AR 366. She also opined that Mr. Holder would need to "take unscheduled breaks or include periods of walking around" for five to ten minutes every hour. Id. Mr. Holder testified that he had difficulty with prolonged sitting and standing. AR 73. He testified that he could sit for a maximum of ten minutes and stand for a maximum of ten minutes: "I got to sit down or walk around or. It just always coming in and out, and it goes from one spot to the other." AR 74. The ALJ, however, found Mr. Holder capable of light work. "[T]he full range of light work requires standing or walking, off and on, for a total of approximately 6 hours of an 8-hour workday. Sitting may occur intermittently during the remaining time." SSR 83-10 (S.S.A. 1983), 1983 WL 31251 at *5. The ALJ's RFC and hypothetical to the vocational expert ("VE") was an individual who could "stand or walk with normal breaks for a total of six hours in an eight-hour workday" and who could "sit with normal breaks for a total of six hours in an eight-hour workday." AR 19, 83. When the hypothetical was changed to an individual who needed "unscheduled breaks every hour, which would include walking around leaving the workstation for five to ten minutes," the VE testified that such an individual was precluded from employment. AR 84-85.

The Commissioner argues that

The ALJ also considered and addressed [Mr. Holder's] testimony that he had lower back pain that required him to use a cane to walk and considered [Mr. Holder's] subjective symptom testimony about standing and walking limitations from pain from increased activity, but found that the evidence of record was inconsistent with that testimony.

The probability of the additional evidence changing the outcome in this case is further illustrated by the ALJ's meticulous RFC analysis of the severe impairments she did consider. The ALJ specifically discussed the medical evidence and included limitations in Mr. Holder's RFC based on his wrist impairments, on his degenerative disc disease of the cervical spine, and on his shoulder impairments. AR 21-22. The Court finds there is a reasonable probability that had the ALJ considered the new evidence showing Mr. Holder's lower back impairment, she would have included sitting and standing limitations in his RFC, and that there is a reasonable probability that this would have changed the result in this case. The Appeals Council erred in failing to consider the new evidence.

VI. Conclusion

The Appeals Council erred by failing to consider the additional evidence submitted by Mr. Holder. The Court remands so that the Appeals Council may reevaluate the ALJ's decision in light of the completed record.

IT IS THEREFORE ORDERED that plaintiff's Motion to Reverse and Remand for a Rehearing (Doc. 25) is GRANTED.

IT IS FURTHER ORDERED that the Commissioner's final decision is REVERSED, and this case is REMANDED for further proceedings in accordance with this opinion.

/s/_________

Laura Fashing

United States Magistrate Judge

Presiding by Consent