JONES v. BERRYHILL
Filing
16
MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE JOI ELIZABETH PEAKE signed on 10/1/2018. RECOMMENDED that the Commissioner's decision finding no disability be REVERSED, and that the mat ter be REMANDED to the Commissioner under sentence four of 42 U.S.C. § 405(g). The Commissioner should be directed to remand the matter to the ALJ for proceedings consistent with this Recommendation. To this extent, Defendant's Motion for Judgment on the Pleadings (Doc. # 14 ) should be DENIED, and Plaintiff's Motion for Judgment Reversing the Commissioner (Doc. # 12 ) should be GRANTED. However, to the extent that Plaintiff's motion seeks an immediate award of benefits, it should be DENIED. (Daniel, J)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
GINA L. JONES,
Plaintiff,
v.
NANCY A. BERRYHILL,
Social Security Administration,
Defendant.
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1:17CV1059
MEMORANDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
Plaintiff Gina L. Jones (“Plaintiff”) brought this action pursuant to Section 205(g) of
the Social Security Act (the “Act”), as amended (42 U.S.C. § 405(g)), to obtain judicial review
of a final decision of the Commissioner of Social Security denying her claim for Disability
Insurance Benefits (“DIB”) under Title II of the Act. The parties have filed cross-motions
for judgment, and the administrative record has been certified to the Court for review.
I.
PROCEDURAL HISTORY
Plaintiff protectively filed her application for DIB on July 15, 2013, alleging a disability
onset date of June 15, 2013. (Tr. at 23, 236-39.)1 She later amended her alleged onset date to
January 31, 2014. (Tr. at 23, 286.) Plaintiff’s claim was denied initially (Tr. at 113-25, 141-49),
and that determination was upheld on reconsideration (Tr. at 126-37, 152-59). Thereafter,
Plaintiff requested an administrative hearing de novo before an Administrative Law Judge
1
Transcript citations refer to the Administrative Record [Doc. #10].
(“ALJ”). (Tr. at 160-61.) Plaintiff, represented by a non-attorney representative, appeared and
testified at the subsequent hearing on April 18, 2016. (Tr. at 23.)
The ALJ ultimately concluded that Plaintiff was not disabled within the meaning of the
Act from her alleged onset date through July 7, 2016, the date of the administrative decision,
because she had still been engaged in substantial gainful activity. (Tr. at 30.) On September
22, 2017, the Appeals Council denied Plaintiff’s request for review of that decision, thereby
making the ALJ’s conclusion the Commissioner’s final decision for purposes of judicial review.
(Tr. at 1-6).
II.
LEGAL STANDARD
Federal law “authorizes judicial review of the Social Security Commissioner’s denial of
social security benefits.” Hines v. Barnhart, 453 F.3d 559, 561 (4th Cir. 2006). However, “the
scope of [the] review of [such an administrative] decision . . . is extremely limited.” Frady v.
Harris, 646 F.2d 143, 144 (4th Cir. 1981). “The courts are not to try the case de novo.”
Oppenheim v. Finch, 495 F.2d 396, 397 (4th Cir. 1974). Instead, “a reviewing court must
uphold the factual findings of the ALJ [underlying the denial of benefits] if they are supported
by substantial evidence and were reached through application of the correct legal standard.”
Hancock v. Astrue, 667 F.3d 470, 472 (4th Cir. 2012) (internal brackets omitted).
“Substantial evidence means ‘such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.’” Hunter v. Sullivan, 993 F.2d 31, 34 (4th Cir. 1993)
(quoting Richardson v. Perales, 402 U.S. 389, 390 (1971)). “It consists of more than a mere
scintilla of evidence but may be somewhat less than a preponderance.” Mastro v. Apfel, 270
F.3d 171, 176 (4th Cir. 2001) (internal citations and quotation marks omitted). “If there is
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evidence to justify a refusal to direct a verdict were the case before a jury, then there is
substantial evidence.” Hunter, 993 F.2d at 34 (internal quotation omitted).
“In reviewing for substantial evidence, the court should not undertake to re-weigh
conflicting evidence, make credibility determinations, or substitute its judgment for that of the
[ALJ].” Mastro, 270 F.3d at 176 (internal brackets and quotation marks omitted). “Where
conflicting evidence allows reasonable minds to differ as to whether a claimant is disabled, the
responsibility for that decision falls on the ALJ.” Hancock, 667 F.3d at 472 (internal quotation
omitted). “The issue before [the reviewing court], therefore, is not whether [the claimant] is
disabled, but whether the ALJ’s finding that [the claimant] is not disabled is supported by
substantial evidence and was reached based upon a correct application of the relevant law.”
Craig v. Chater, 76 F.3d 585, 589 (4th Cir. 1996).
In undertaking this limited review, the Court notes that in administrative proceedings,
“[a] claimant for disability benefits bears the burden of proving a disability.” Hall v. Harris,
658 F.2d 260, 264 (4th Cir. 1981). In this context, “disability” means the “‘inability 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.’” Id. (quoting 42 U.S.C.
§ 423(d)(1)(A)).2
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“The Social Security Act comprises two disability benefits programs. The Social Security Disability Insurance
Program . . . provides benefits to disabled persons who have contributed to the program while employed. The
Supplemental Security Income Program . . . provides benefits to indigent disabled persons. The statutory
definitions and the regulations . . . for determining disability governing these two programs are, in all aspects
relevant here, substantively identical.” Craig, 76 F.3d at 589 n.1 (internal citations omitted).
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“The Commissioner uses a five-step process to evaluate disability claims.” Hancock,
667 F.3d at 472 (citing 20 C.F.R. §§ 404.1520(a)(4); 416.920(a)(4)). “Under this process, the
Commissioner asks, in sequence, whether the claimant: (1) worked during the alleged period
of disability; (2) had a severe impairment; (3) had an impairment that met or equaled the
requirements of a listed impairment; (4) could return to her past relevant work; and (5) if not,
could perform any other work in the national economy.” Id.
A finding adverse to the claimant at any of several points in this five-step sequence
forecloses a disability designation and ends the inquiry. For example, “[t]he first step
determines whether the claimant is engaged in ‘substantial gainful activity.’ If the claimant is
working, benefits are denied. The second step determines if the claimant is ‘severely’ disabled.
If not, benefits are denied.” Bennett v. Sullivan, 917 F.2d 157, 159 (4th Cir. 1990).
On the other hand, if a claimant carries his or her burden at each of the first two steps,
and establishes at step three that the impairment “equals or exceeds in severity one or more
of the impairments listed in Appendix I of the regulations,” then “the claimant is disabled.”
Mastro, 270 F.3d at 177. Alternatively, if a claimant clears steps one and two, but falters at
step three, i.e., “[i]f a claimant’s impairment is not sufficiently severe to equal or exceed a listed
impairment, the ALJ must assess the claimant’s residual function[al] capacity (‘RFC’).” Id. at
179.3 Step four then requires the ALJ to assess whether, based on that RFC, the claimant can
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“RFC is a measurement of the most a claimant can do despite [the claimant’s] limitations.” Hines, 453 F.3d
at 562 (noting that pursuant to the administrative regulations, the “RFC is an assessment of an individual’s
ability to do sustained work-related physical and mental activities in a work setting on a regular and continuing
basis . . . [which] means 8 hours a day, for 5 days a week, or an equivalent work schedule” (internal emphasis
and quotation marks omitted)). The RFC includes both a “physical exertional or strength limitation” that
assesses the claimant’s “ability to do sedentary, light, medium, heavy, or very heavy work,” as well as
“nonexertional limitations (mental, sensory, or skin impairments).” Hall, 658 F.2d at 265. “RFC is to be
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“perform past relevant work”; if so, the claimant does not qualify as disabled. Id. at 179-80.
However, if the claimant establishes an inability to return to prior work, the analysis proceeds
to the fifth step, which “requires the Commissioner to prove that a significant number of jobs
exist which the claimant could perform, despite [the claimant’s] impairments.” Hines, 453
F.3d at 563. In making this determination, the ALJ must decide “whether the claimant is able
to perform other work considering both [the claimant’s RFC] and [the claimant’s] vocational
capabilities (age, education, and past work experience) to adjust to a new job.” Hall, 658 F.2d
at 264-65. If, at this step, the Government cannot carry its “evidentiary burden of proving
that [the claimant] remains able to work other jobs available in the community,” the claimant
qualifies as disabled. Hines, 453 F.3d at 567.
III.
DISCUSSION
In the present case, the ALJ found at step one of the sequential analysis that Plaintiff
had engaged in substantial gainful activity since January 31, 2014, her amended alleged onset
date. (Tr. at 25.) The ALJ therefore denied Plaintiff’s disability claim at this initial step. (Tr.
at 30.) Plaintiff now argues that the ALJ misapplied the regulations governing whether her
self-employment income qualified as substantial gainful activity.
The Social Security Act defines “disability” as the “inability 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
determined by the ALJ only after [the ALJ] considers all relevant evidence of a claimant’s impairments and any
related symptoms (e.g., pain).” Hines, 453 F.3d at 562-63.
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continuous period of not less than 12 months.” 42 U.S.C. § 423(d)(1)(A) (emphasis added).
Substantial gainful activity (“SGA”) is “work activity that involves doing significant physical
or mental activities” that is “the kind of work usually done for pay or profit, whether or not a
profit is realized.” 20 C.F.R. § 404.1572 (emphasis added). With limited exception, a claimant
who is engaged in SGA does not qualify for the payment of disability benefits. See 20 C.F.R.
§ 404.1571.
The regulations further define SGA with respect to self-employed individuals
specifically. See 20 C.F.R. § 404.1575; see also Social Security Program Policy Statement 8334, Titles II and XVI: Determining Whether Work is Substantial Gainful Activity – SelfEmployed Persons, 1983 WL 31256 at *2 (1983) (“SSR 83-34”). The regulations provide that
in evaluating a self-employed person’s work activities:
We will consider your activities and their value to your business to decide
whether you have engaged in substantial gainful activity if you are selfemployed. We will not consider your income alone because the amount of
income you actually receive may depend on a number of different factors, such
as capital investment and profit-sharing agreements…. We will evaluate your
work activity based on the value of your services to the business regardless of
whether you receive an immediate income for your services.
20 C.F.R. § 404.1575(a)(2). The regulations then set out three applicable tests for determining
SGA for self-employed individuals:
(i) Test One: You have engaged in substantial gainful activity if you render
services that are significant to the operation of the business and receive a
substantial income from the business. Paragraphs (b) and (c) of this section
explain what we mean by significant services and substantial income for
purposes of this test.
(ii) Test Two: You have engaged in substantial gainful activity if your work
activity, in terms of factors such as hours, skills, energy output, efficiency,
duties, and responsibilities, is comparable to that of unimpaired individuals in
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your community who are in the same or similar businesses as their means of
livelihood.
(iii) Test Three: You have engaged in substantial gainful activity if your work
activity, although not comparable to that of unimpaired individuals, is clearly
worth the amount shown in § 404.1574(b)(2) when considered in terms of its
value to the business, or when compared to the salary that an owner would pay
to an employee to do the work you are doing.
20 C.F.R. § 404.1575(a)(2). The regulations further note that, if a claimant has not engaged in
SGA under Test One, then the ALJ will consider the alternative Test Two and Test Three.
Id.
In this case, the ALJ applied Test One. Under Test One, as noted above, a claimant is
engaged in SGA if the claimant “render[s] services that are significant to the operation of the
business and receive[s] substantial income from the business.” 20 C.F.R. § 404.1575(a)(2)(i)
(emphasis added). Thus, Test One has two parts: (1) significant services; and (2) substantial
income.
In evaluating the “substantial income” prong of Test One, the ALJ must first determine
the amount of “countable income.” 20 C.F.R. § 404.1575(c). To determine countable income,
“the adjudicator must first determine the [claimant’s] net income (i.e., gross income less
normal business expenses)” and must then “deduct the value of any significant amount of
unpaid help furnished” by others. SSR 83-34 at *4. After having determined the countable
income, the ALJ must then determine if that countable income is “substantial.” Income is
considered substantial if:
(i) It averages more than the amounts described in § 404.1574(b)(2); or
(ii) It averages less than the amounts described in § 404.1574(b)(2) but it is either
comparable to what it was before you became seriously impaired if we had not
considered your earnings or is comparable to that of unimpaired self-employed
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persons in your community who are in the same or a similar business as their
means of livelihood.
20 C.F.R. § 404.1575(c)(2).4 This regulatory provision is further addressed in Social Security
Ruling 83-34 as follows:
A self-employed individual will have substantial income from a business if
“countable income” . . . from the business averages more per month than the
amount shown for the particular calendar year in the SGA Earnings Guidelines.
. . . Even if “countable income” from the business does not average more than
the applicable amount shown in the Guidelines, a self-employed individual will
have substantial income from a business if the livelihood which he or she
derives from the business is comparable to that which he or she had before
becoming disabled, or is comparable to that of unimpaired self-employed
individuals in his or her community engaged in the same or similar businesses
as their means of livelihood.
SSR 83-34, at *4; see also 20 C.F.R. § 404.1575(c)(2). Simply put, to demonstrate that a
claimant meets the “substantial income” prong of Test One, an adjudicator must find that the
claimant’s countable income either (1) averages more than the amounts set forth in the
Earnings Guidelines, or (2) is comparable to her pre-disability earnings, or (3) is “comparable
to that of unimpaired self-employed individuals in his or her community engaged in the same
or similar businesses.” Id.
In the present case, the ALJ found that Plaintiff had “engaged in substantial gainful
activity from January 31, 2014 through the present.” (Tr. at 26.) As noted above, in reaching
this conclusion the ALJ applied Test One, and the ALJ specifically found that Plaintiff had
4
The cross-reference to “amounts described in § 404.1574(b)(2)” is a reference to the SGA Earnings
Guidelines, which is “[a]n amount adjusted for national wage growth, calculated by multiplying $700 by the
ratio of the national average wage index for the year 2 calendar years before the year for which the amount is
being calculated to the national average wage index for the year 1998.” 20 C.F.R. § 404.1574(b)(2). The Social
Security Administration lists the yearly national wage index at: http://www.ssa.gov/OACT/COLA/AWI.html,
and the monthly substantial gainful activity amounts at: http://www.ssa.gov/OACT/COLA/sga.html.
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“received a substantial income from her hairdressing business.” (Tr. at 26-27 (emphasis
added).) In making the substantial income determination, the ALJ recalculated Plaintiff’s net
profits for 2014 and 2015, and included as profits some categories of expenses that Plaintiff
had deducted as normal business expenses for tax purposes. (Tr. at 27-28.) Based on this
recalculation, the ALJ found that Plaintiff’s net profit for 2014 was $5,456 and net profit for
2015 was $12,531. (Tr. at 28.) The ALJ then compared these amounts to the Earnings
Guidelines. However, even with these recalculations, the ALJ acknowledged that Plaintiff’s
income “was $7,384 short of the SGA level in 2014,” and “$549 short of this level in 2015.”
(Tr. at 29.) In other words, the ALJ specifically determined that Plaintiff’s “countable income”
did not average more than the amount set out in the Earnings Guidelines for either of those
years.5 Therefore, to meet the “substantial income” prong of Test One, the ALJ was required
to show that the amount Plaintiff earned in those years was comparable either to her predisability earnings or to the earnings of similarly-situated unimpaired individuals. See SSR 8334 at *7 (“If the self-employed person’s average monthly ‘countable income’ does not exceed
the amount shown for the particular calendar year in the Earnings Guidelines, it is necessary
to consider whether his or her livelihood from the business is comparable to either that which
he or she had before becoming disabled, or to that of unimpaired self-employed persons in
the community engaged in the same or similar businesses as their means of livelihood.”).
However, in this case, the ALJ made no such finding and did not even purport to undertake
5
As noted by the ALJ, the Earnings Guideline was $1,070 per month in 2014 ($12,840 per year), and $1,090
per month in 2015 ($13,080 per year). (Tr. at 25.)
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such an analysis.6 The ALJ instead simply compared Plaintiff’s countable income to the
Earnings Guidelines, without any reference to or reliance on the alternative tests. (Tr. at 2829.) As discussed above and as acknowledged by the ALJ, Plaintiff’s countable income was
below the Earnings Guidelines for 2014 and 2015. Therefore, consideration of the alternative
comparisons was required to support a finding of substantial income under Test One.7 The
Court will not attempt to undertake such comparisons or analysis in the first instance, and
absent further explanation or analysis by the ALJ, the Court cannot find substantial evidence
to support the ALJ’s determination that Plaintiff received a substantial income. Accordingly,
the Court finds that substantial evidence fails to support the ALJ’s finding at step one of the
sequential analysis.8
IT IS THEREFORE RECOMMENDED that the Commissioner’s decision finding
no disability be REVERSED, and that the matter be REMANDED to the Commissioner
under sentence four of 42 U.S.C. § 405(g). The Commissioner should be directed to remand
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In fact, the ALJ acknowledged that Plaintiff’s “annual reported net self-employment profits do document a
sharp decline starting in 2013 and continuing into 2014 and 2015, which is consistent with her alleged onset
date.” (Tr. at 25.) The records reflect that Plaintiff’s self-reported net profits were over $20,000 per year for
every year from 2005 to 2012, but dropped to $12,910 in 2013, and further dropped to $3,316 in 2014 and
$7,350 in 2015. (Tr. at 273, 276-77.) As noted above, the ALJ re-calculated Plaintiff’s net profits for 2014 and
2015 to include certain categories of expenses that were taken as deductions on Plaintiff’s tax returns, but the
ALJ did not compare these amounts to Plaintiff’s pre-2013 earnings, and even with the recalculations, there
still appears to be a significant reduction from Plaintiff’s pre-disability income. Moreover, the ALJ did not
similarly re-calculate the net profits for 2013 and earlier years in order to make a fair comparison between the
time periods before and after Plaintiff’s alleged disability. The ALJ also made no attempt to compare Plaintiff’s
income to the income of unimpaired, self-employed individuals in her community.
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If these alternative comparisons did not support a finding of substantial income under Test One, the ALJ
could then consider Test Two and Test Three, which were not addressed here.
The Court notes that Plaintiff also disputes the ALJ’s calculation of her “countable income,” particularly the
ALJ’s decision to include certain amounts that were deducted as business expenses on Plaintiff’s tax returns.
In addition, Plaintiff challenges the ALJ’s determination that she provided “significant services” under Test
One. See 20 C.F.R. § 404.1575(b). The Court need not consider these challenges at this time, since Plaintiff
can further address all of these issues on remand, which is required in any event for the reasons set out above.
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the matter to the ALJ for proceedings consistent with this Recommendation. To this extent,
Defendant’s Motion for Judgment on the Pleadings [Doc. #14] should be DENIED, and
Plaintiff’s Motion for Judgment Reversing the Commissioner [Doc. #12] should be
GRANTED. However, to the extent that Plaintiff’s motion seeks an immediate award of
benefits, it should be DENIED.
This, the 1st day of October, 2018.
/s/ Joi Elizabeth Peake
United States Magistrate Judge
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