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SMALLEY v. BOWEN

April 3, 1987

William R. Smalley, Plaintiff
v.
Otis R. Bowen, Secretary of Health and Human Services, Defendant



The opinion of the court was delivered by: TEITELBAUM

 HUBERT I. TEITELBAUM, United States District Judge

 William R. Smalley brought this action for judicial review of the final decision of the Secretary denying his claim for disability benefits.

 Smalley first applied for disability benefits on July 23, 1984 alleging that he had been disabled since October 28, 1982 because of low back pain syndrome, myofarscial pain, somatic preoccupation and hypertension. This application was denied initially and on reconsideration. In a decision dated February 11, 1985 an Administrative Law Judge (ALJ) then ruled that Smalley could perform medium work and was not disabled. On June 10, 1985, the Appeals Council declined to review this decision.

 On June 13, 1985 Smalley filed a second application for disability insurance benefits alleging that he had been disabled since April 24, 1985 because of arthritis and bursitis in both his shoulders and hips. This second application was denied initially and on reconsideration. At a hearing on the second application, Smalley asked the ALJ to reopen the first ALJ's decision. The second ALJ reopened the first ALJ's decision and ruled that Smalley had been disabled since October 28, 1982, the disability onset date Smalley had alleged in his first application for benefits. The Appeals Council on its own motion then reviewed the second ALJ's decision, reinstated the first ALJ's decision and reversed the second ALJ's decision. For the period beginning on the second alleged disability onset, April 24, 1985, the Appeals Council concluded that Smalley could perform light work and therefore, was not disabled because he could return to his past relevant work.

 Smalley appeals from this adverse determination under 42 U.S.C. § 405(g). Cross-motions for summary judgment were filed by Smalley and the Secretary. For the reasons set forth herein, the Secretary's decision must be reversed in part and affirmed in part.

  The Social Security Act limits judicial review to a determination of whether the Secretary's factual determinations are supported by substantial evidence. 42 U.S.C. § 405(g); Richardson v. Perales, 402 U.S. 389, 28 L. Ed. 2d 842, 91 S. Ct. 1420 (1971). Smalley argues initially that the second ALJ's decision granting benefits, not the decision of the Appeals Council, must be reviewed by this Court to determine if it was based on substantial evidence. Smalley's argument is that the Social Security regulations provide that the Appeals Council may only review an ALJ's decision under certain circumstances, see 20 C.F.R. § 404.970, *fn1" and that in this case, the Appeals Council could only review the ALJ's decision to determine if it was based on substantial evidence. Consequently, Smalley asserts that this Court must review the second ALJ's decision to determine if it was based on substantial evidence. Smalley asserts that if the second ALJ's decision was based on substantial evidence, then this Court must overturn the decision of the Appeals Council.

 The Secretary, on the other hand, argues that the Appeals Council's decision is the final decision of the Secretary and it is this decision which must be reviewed to determine if it is based on substantial evidence. Based on the Secretary's argument, if the decision of the Appeals Council was based on substantial evidence, then the Appeals Council's determination that Smalley was not disabled since April 24, 1985 must be affirmed. Additionally, the Secretary's argument would necessarily require that the first ALJ's decision, which was reinstated by the Appeals Council, be reviewed to determine if it was based on substantial evidence.

 Whether it is the second ALJ's decision granting benefits or the Appeals Council's decision denying benefits that is subject to review by the Court, is a question of first impression in the Third Circuit. Other circuits that have dealt with this question have split. Four circuits have essentially held that a court must review the decision of the Appeals Council and defer to the Appeals Council's decision if it is supported by substantial evidence. Parris v. Heckler, 733 F.2d 324 (4th Cir. 1984); Baker v. Heckler, 730 F.2d 1147 (8th Cir. 1984); Lopez-Cordona v. Secretary of Health and Human Services, 747 F.2d 1081 (1st Cir. 1984); Fierro v. Bowen, 798 F.2d 1351 (10th Cir. 1986). Three circuits have held that the Appeals Council does not have unbridled discretion to review ALJ decisions and that if the ALJ decision was based on substantial evidence, the Appeals Council may not overturn it. Parker v. Heckler, 763 F.2d 1363 (11th Cir. 1985); Newsome v. Secretary of Health and Human Services, 753 F.2d 44 (6th Cir. 1985); Scott v. Heckler, 768 F.2d 172 (7th Cir. 1985). The better reasoned approach is to consider the Appeals Council's decision to be the final decision of the Secretary and to review this decision to determine if it is based on substantial evidence.

 The Social Security regulations provide that the Appeals Council may review an ALJ's decision in a number of circumstances. See e.g. 20 C.F.R. §§ 404.969, 404.970, 404.979, 404.987, 404.988. However, once the Appeals Council reviews an ALJ's decision and makes its own decision, this decision becomes binding on the parties. 20 C.F.R. § 404.981. The claimant may then appeal the Appeals Council's decision to a federal district court. Id. Since a federal district court may only review the final decision of the Secretary, 42 U.S.C. § 405(g), the effect of the Social Security regulations is to establish the Appeals Council's decision as the final decision of the Secretary. Since 42 U.S.C. § 405(g) further provides that any finding of the Secretary which is based on substantial evidence is conclusive, a federal district court is limited to reviewing the decision of the Appeals Council (the final decision of the Secretary) to determine whether it is based on substantial evidence.

 The decision of the Appeals Council was based on the medical-vocational regulations. These regulations provide for a five step sequential evaluation of disability claims. 20 C.F.R. § 404.1520. Essentially, if the Secretary determines that the claimant is not working, the claimant is severely impaired, and the medical factors listed in Appendix I of the Social Security regulations are present, the Secretary must make a finding of disability. If only the Appendix I medical factors are lacking, the Secretary must then determine that the claimant cannot return to past relevant work and cannot perform some other type of work in order to make a finding that the claimant is disabled.

 Undertaking this analysis, the Appeals Council found 1) Smalley had not engaged in substantial gainful activity since April 24, 1985; 2) Smalley had degenerative arthritis of the spine and bursitis of the shoulders; 3) Smalley did not have an impairment listed or medically equivalent to one listed in 20 C.F.R., Appendix I, Subpart P, Regulations No. 4; 4) Smalley was capable of returning to his past relevant work as a security guard (merchant patroller) because this work was considered light work and Smalley was capable of performing light work.

 The Appeals Council also reinstated the first ALJ's decision and findings. The first ALJ had found: 1) Smalley had not engaged in substantial gainful activity since October 28, 1982; 2) Smalley had severe chronic lumbosacral sprain; 3) Smalley did not have an impairment listed or medically equivalent to one listed in 20 C.F.R., Appendix I, Subpart P, Regulations No. 4; 4) Smalley was not capable of returning to his past relevant work as a fireman or security guard; 5) Smalley was capable of performing medium work and therefore based on his age, education and work experience, Rule 203.12, Table No. 3 of Appendix 2, Subpart P, Regulations No. 4 required a finding of "not disabled." *fn2"

 Since the Appeals Council made findings for the period after April 24, 1985 and reinstated the first ALJ's findings for the period October 28, 1982 to April 24, 1985, both the Appeals Council's decision and the first ALJ's decision must be ...


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