                              In the

United States Court of Appeals
                For the Seventh Circuit

No. 08-2150

D EBI V ILLANO,
                                                Plaintiff-Appellant,
                                  v.

M ICHAEL J. A STRUE,
Commissioner of Social Security,
                                               Defendant-Appellee.


               Appeal from the United States District Court
        for the Northern District of Indiana, Hammond Division.
                 No. 2:07 CV 187—William C. Lee, Judge.



     A RGUED N OVEMBER 18, 2008—D ECIDED JANUARY 26, 2009
                 P UBLISHED F EBRUARY 11, 2009 




    Before F LAUM, S YKES, and T INDER, Circuit Judges.
  P ER C URIAM. Debi Villano applied for disability insur-
ance benefits and supplemental security income benefits,




  This decision was originally released as an unpublished
order. Upon request, the panel has determined that this
decision should now issue as a published opinion.
2                                               No. 08-2150

claiming that she was disabled primarily because she
had arthritis in her knees and was obese. The Social
Security Administration denied her claims at all stages
of review, and the district court upheld the decision of the
administrative law judge (“ALJ”). On appeal, Villano
argues that the ALJ erred by failing to explain his
finding that Villano was not entirely credible, by failing to
discuss Villano’s depression and the effect of her obesity
on her arthritis in computing her residual functioning
capacity, and by determining that Villano acquired from
a previous job the transferable skill of “judgment.” Because
we agree that the ALJ’s decision contains several signifi-
cant errors, we vacate the judgment and remand to the
agency.


                      I. Background
  Villano is a high-school educated woman, born in 1957,
who was previously employed as a stocker, a van driver, a
convenience store clerk, and a bell ringer for the Salvation
Army. The record shows evidence of several medical
conditions: morbid obesity, arthritis, depression, high
blood pressure, early chronic obstructive pulmonary
disease, hypertension, diabetes mellitus, neuropathy,
endema, and posttraumatic stress disorder.
  Villano’s doctors have consistently diagnosed her with
morbid obesity and arthritis in her knees. She is approxi-
mately 5'7", and her weight has fluctuated between 291 and
344 pounds. She began experiencing degenerative changes
in her right knee as early as 1999, and subsequent x-rays
showed “degenerative arthritis.” This condition has been
No. 08-2150                                               3

confirmed repeatedly by Dr. James Serwatka, Ms. Villano’s
treating physician, as well as by two agency nontreating
physicians and another physician who Villano saw at the
agency’s request. Between 2003 and 2006, Villano regularly
saw doctors for knee pain, which was resolved or reduced
by medication, including Naprosyn, Vioxx, and Ibuprofen.
In 2004 the agency doctors opined that Villano could stand
or walk for two hours and sit for six during an eight-hour
workday. Dr. Serwatka’s responses in a 2006 Residual
Functioning Capacity (“RFC”) Questionnaire were less
hopeful: he opined that she could sit for only two hours
and stand for two, though he apparently based his re-
sponses on the functional limitations that she had de-
scribed to him. He estimated that Villano might miss work
twice a month and thought that it would be difficult for her
to hold a competitive physical job, though his ultimate
prognosis was “fair/good.”
  Villano’s psychiatric record appears to have worsened
over time. In September 2003 a physician diagnosed her
with mood swings and anxiety “without any significant
depressive symptoms.” When a psychiatrist saw Villano
in July 2004 at the Administration’s request, she diag-
nosed Villano with posttraumatic stress disorder and
moderate-to-severe stressors and recommended counsel-
ing. Around the same time, an agency doctor filled out
a Psychiatric Review Technique Form (which was ap-
parently signed off by another agency doctor), diagnosing
Villano with nonsevere posttraumatic stress disorder.
He opined that her social functioning and ability to
maintain concentration, persistence, or pace were mildly
limited, but that her daily-living activities were not
4                                              No. 08-2150

functionally limited. Dr. Serwatka diagnosed Villano
with depression in December 2004, October 2005, and
May 2006. In the 2006 RFC Questionnaire, however, he
opined that her symptoms were not severe enough to
interfere with attention or concentration.
  After the Social Security Administration denied her
claims initially, an ALJ held a hearing in August 2006.
There, Villano testified that in a typical day, she walks
her daughter’s dogs, cleans her room, does laundry,
washes the dishes, visits her grandchildren, and makes
lunch, taking breaks to sit and rest between most activi-
ties. When asked about her limitations, she estimated that
she could sit continuously for a half hour to an hour, but
added that she alternates between sitting and standing
because excessive sitting causes pain and stiffness in her
knees and hips. She said that she has depression and that
she cries for about two hours at a time three days a week,
but she no longer sees a psychiatrist because she cannot
afford it.
  A vocational expert (“VE”) also testified at the hearing.
She opined that Villano could not perform her previous
jobs (as a van driver/chauffeur and a stocker). She
testified, however, that an individual with the restric-
tions that the ALJ assigned to Villano could be a produc-
tion worker (992 jobs), an interviewer (132 jobs), or an
information clerk (425 jobs). She said that a person with
all the limitations Villano claimed, though, would not be
able to perform any job. In her report the VE also stated
that Villano had acquired the skill of “judgment” from her
work as a van driver/chauffeur.
No. 08-2150                                                 5

  The ALJ performed the five-step analysis, finding
that Villano had not worked since September 2003
(step one); she had severe impairments, including
arthritis and obesity (step two); her impairments did not
meet or equal a listed impairment (step three); she had
the residual functioning capacity to sit for six hours and
stand for two but could not work around unprotected
heights, hazardous machinery, or pulmonary irritants,
and was unable to perform her past work (step four); and
she could perform other jobs existing in significant num-
bers and thus was not disabled (step five). The Appeals
Council declined review, and the district court upheld
the ALJ’s decision.


                        II. Analysis
   When the Appeals Council denies review, as here, the
ALJ’s decision constitutes the Commissioner’s final
decision. Schmidt v. Astrue, 496 F.3d 833, 841 (7th Cir.
2007). We defer to the ALJ’s factual determinations if
they are supported by substantial evidence. 42 U.S.C.
§ 405(g); Craft v. Astrue, 539 F.3d 668, 673 (7th Cir. 2008).
The ALJ is not required to discuss every piece of evi-
dence, but must build a logical bridge from evidence to
conclusion. Steele v. Barnhart, 290 F.3d 936, 941 (7th Cir.
2002); see Indoranto v. Barnhart, 374 F.3d 470, 474 (7th Cir.
2004); Zurawski v. Halter, 245 F.3d 881, 888 (7th Cir. 2001).
If the Commissioner’s decision lacks adequate discussion
of the issues, it will be remanded. See Briscoe ex rel. Taylor
v. Barnhart, 425 F.3d 345, 351 (7th Cir. 2005); Lopez ex rel.
Lopez v. Barnhart, 336 F.3d 535, 539 (7th Cir. 2003);
Steele, 290 F.3d at 940.
6                                                 No. 08-2150

A. Credibility
  Villano first argues that the ALJ failed to analyze the
factors that Social Security Ruling 96-7p required him to
consider in determining credibility, failed to consider
how her obesity supports her limited ability to sit, and
improperly drew inferences based on a lack of objective
medical evidence. The ALJ’s cursory explanation was
that Villano’s “statements concerning the intensity, persis-
tence and limiting effects of these symptoms are not
entirely credible.” He reasoned that she could sit for
six hours a day because no medical evidence showed
she could not.
  In determining credibility an ALJ must consider
several factors, including the claimant’s daily activities,
her level of pain or symptoms, aggravating factors, med-
ication, treatment, and limitations, see 20 C.F.R.
§ 404.1529(c); S.S.R. 96-7p, and justify the finding with
specific reasons, see Steele, 290 F.3d at 941-42. Additionally,
under S.S.R. 02-1p the ALJ must specifically address
the effect of obesity on a claimant’s limitations because,
for example, a person who is obese and arthritic may
experience greater limitations than a person who is only
arthritic. Barrett v. Barnhart, 355 F.3d 1065, 1068 (7th Cir.
2004). Failing to acknowledge this effect may impact the
ALJ’s credibility determination. See Gentle v. Barnhart, 430
F.3d 865, 868 (7th Cir. 2005). Furthermore, the ALJ may
not discredit a claimant’s testimony about her pain
and limitations solely because there is no objective med-
ical evidence supporting it. S.S.R. 96-7p; 20 C.F.R.
§ 404.1529(c)(2); see Johnson v. Barnhart, 449 F.3d 804, 806
No. 08-2150                                                 7

(7th Cir. 2006); Clifford v. Apfel, 227 F.3d 863, 871-72 (7th
Cir. 2000).
  The ALJ failed to build a logical bridge between the
evidence and his conclusion that Villano’s testimony
was not credible. First, the ALJ did not analyze the
factors required under S.S.R. 96-7p: Although he briefly
described Villano’s testimony about her daily activities,
he did not, for example, explain whether Villano’s daily
activities were consistent or inconsistent with the pain
and limitations she claimed. Nor did the ALJ analyze
what effect Villano’s obesity had on her arthritis under
S.S.R. 02-1p. Though a failure to consider the effect of
obesity is subject to harmless-error analysis, see Prochaska
v. Barnhart, 454 F.3d 731, 736-37 (7th Cir. 2006); Skarbek v.
Barnhart, 390 F.3d 500, 504 (7th Cir. 2004), the Commis-
sioner has not persuaded us that the error is harmless,
given the other flaws with the RFC analysis and the
analysis of Villano’s ability to perform other jobs. The
ALJ said he disbelieved Villano’s testimony about her
inability to sit (albeit in the course of his RFC analysis)
because no medical evidence supported such a limita-
tion, but as we have noted, a lack of medical evidence
alone is an insufficient reason to discredit testimony. See
S.S.R. 96-7p; Clifford, 227 F.3d at 871-72. Also, the ALJ
did not mention Villano’s testimony about the frequent
crying spells she said she suffered as a result of her depres-
sion, and he should have at least explained whether
and why he found that testimony credible or not credible,
given her diagnoses of depression and related psycho-
logical problems.
8                                               No. 08-2150

B. Residual Functioning Capacity
  Villano also argues that the ALJ violated Social Security
Ruling 96-8p by failing to properly analyze her combina-
tion of impairments in computing her RFC. In his RFC
discussion, the ALJ noted Villano’s obesity and arthritis,
and agreed that her ability to stand and walk was limited,
discounting the agency doctors’ opinion that she could
perform light work. But he concluded that no medical
evidence showed she could not sit for six hours and
thus adopted the agency doctors’ six-hour limit on sitting
rather than the much shorter limit Villano proposed.
Villano faults the ALJ for failing to discuss how her
obesity affects her impairments as required by S.S.R. 02-1p,
failing to find a limitation on sitting ability, and for
failing to discuss her depression.
  In determining an individual’s RFC, the ALJ must
evaluate all limitations that arise from medically deter-
minable impairments, even those that are not severe,
and may not dismiss a line of evidence contrary to the
ruling. S.S.R. 96-8p; Golembiewski v. Barnhart, 322 F.3d 912,
917 (7th Cir. 2003). The ALJ’s cursory analysis does not
give us confidence that he had appropriate reasons for
rejecting the limitations Villano alleged. As noted above,
the ALJ failed to analyze the combined effect of Villano’s
obesity and her other impairments, drew improper infer-
ences about Villano’s ability to sit based solely on a lack
of objective medical evidence, and failed to discuss
Villano’s depression. The Commissioner argues that
Villano’s testimony supported the ALJ’s conclusion that
she could perform a full range of sedentary work because
No. 08-2150                                                 9

she did housework, shopped, drove short distances,
walked her dogs, and played with her grandchildren.
But limited daily activities such as Villano’s do not contra-
dict a claim of disabling pain, see Zurawski, 245 F.3d at 887;
Clifford, 227 F.3d at 872, and Villano also testified that
she frequently took breaks and switched between sitting
and standing, which further supports her claim.


C. Transferable Skills
  Villano argues that the ALJ made errors in his deter-
mination at step five that she could perform a significant
number of jobs. In making that determination, the ALJ
relied on the VE’s testimony that Villano had acquired
from past work the transferable skill of “judgment” and
found that although she could not perform the full range
of sedentary work, she could perform the jobs that the
VE identified and thus was not disabled. Villano con-
tends that the ALJ erred in finding that she had acquired
the transferable skill of “judgment” and by overstating
the number of jobs available to her by a factor of ten.
  In determining whether the claimant can perform jobs
that exist in significant numbers at step five of the
analysis, the ALJ must decide whether the claimant
acquired any skills from her past work experience, and if
so, whether they would transfer to new jobs. See S.S.R. 82-
41; Key v. Sullivan, 925 F.2d 1056, 1062 (7th Cir. 1991). This
circuit has not addressed whether “judgment” is a skill, but
at least two other circuits have determined that it is not,
explaining that a skill as defined in S.S.R. 82-41 and 20
C.F.R. § 404.1565(a) is a particular learned ability, and
10                                              No. 08-2150

“judgment” is too vague to constitute such a skill. See
Draegert v. Barnhart, 311 F.3d 468, 475-76 (2d Cir. 2002);
Ellington v. Sec’y of Health & Human Servs., 738 F.2d 159,
159-61 (6th Cir. 1984). Thus, the ALJ erred in concluding
that Villano had a generalized skill of “judgment” that was
somehow transferable to new jobs in a different field. The
ALJ also mistakenly concluded that Villano could
perform 15,400 jobs when the VE had identified only
1,549 jobs. In light of the other problems we have identi-
fied, we are not convinced that these errors are harmless.
  Finally, Villano disagrees with the district court’s
conclusion that the ALJ’s decision could be upheld under
the Medical-Vocational Guidelines (“Grid”) despite
these errors. The court reasoned that transferability of
skills was immaterial, citing a provision of the Grid
that would direct a finding of “not disabled” if it applied
to Villano. See 20 C.F.R. Pt. 404, Subpt. P, App. 2, Rules
201.18 to 201.22. The Grid directs findings of “disabled”
or “not disabled” based on common combinations of
characteristics, but it does not account for nonexertional
limitations, such as Villano’s pain and her restriction
from exposure to pulmonary irritants and hazardous
machinery. See 20 C.F.R. § 404.1569a(c); Haynes v. Barnhart,
416 F.3d 621, 628-29 (7th Cir. 2005). When a claimant has
nonexertional limitations that might significantly reduce
the range of work she can perform, the ALJ may not rely
on the Grid to find a claimant not disabled but must
instead consult a VE to determine whether the claimant
can perform a significant number of jobs. 20 C.F.R.
§ 404.1569a(d); see Haynes, 416 F.3d at 628-29; Zurawski, 245
F.3d at 889. Here, it appears that the ALJ followed the
No. 08-2150                                              11

appropriate procedure, but as we have explained, he
made legal and factual errors in reaching his conclusion.
  Accordingly, we V ACATE the judgment of the district
court and R EMAND the case to the agency for further
consideration. On remand, the ALJ should give reasoned
assessments of Villano’s credibility, RFC, transferable
skills, and ability to perform a significant number of jobs.




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