                              In the
 United States Court of Appeals
                For the Seventh Circuit
                          ____________

No. 04-3747
MARIA CONRAD,
                                              Plaintiff-Appellant,
                                 v.

JO ANNE B. BARNHART,
                                              Defendant-Appellee.
                          ____________
            Appeal from the United States District Court
     for the Southern District of Indiana, Indianapolis Division.
        No. 1:02-CV-1478—Tim A. Baker, Magistrate Judge.
                          ____________
    ARGUED MAY 31, 2005—DECIDED JANUARY 19, 2006
                    ____________


  Before EASTERBROOK, ROVNER, and WOOD, Circuit Judges.
  ROVNER, Circuit Judge. Maria Conrad applied to the
Social Security Administration (SSA) for Disability Insur-
ance Benefits (DIB) and Supplemental Security Income
(SSI) on February 25, 2000, alleging disability since
February 14, 2000, due to obesity, migraine headaches,
borderline intellectual functioning with a reading disorder,
pulmonary problems, degenerative changes in the knees,
and major depression with psychotic symptoms. An admin-
istrative law judge (ALJ) denied her benefits on February,
22, 2002. On appeal, a district court judge reversed and
remanded the ALJ’s decision. Conrad subsequently filed a
Motion for Award of Attorney’s Fees under the Equal Access
2                                               No. 04-3747

to Justice Act (EAJA). The district court judge rejected her
claim, and she appealed that decision to this court.
  The EAJA provides that a district court may award
attorney’s fees where (1) the claimant is a “prevailing
party;” (2) the government was not substantially justified in
its position; (3) no “special circumstances” make an award
unjust; and (4) the fee application is timely and supported
by an itemized statement. Golembiewski v. Barnhart, 382
F.3d 721, 723-24 (7th Cir. 2004); 28 U.S.C. § 2412(d)(1)(A),
(B). In this appeal, the only item of contention is whether
the government’s litigation position defending the ALJ’s
initial denial of benefits was substantially justified.
   A brief review of the underlying decision is necessary,
focusing on the aspect of the decision that formed the
basis for the initial successful appeal by Conrad. In denying
benefits to Conrad, the ALJ proceeded through the sequen-
tial evaluation process. The ALJ found that Conrad satis-
fied steps one and two. She had not engaged in substantial
gainful activity since her onset date, and there was objec-
tive medical evidence of an impairment or combination of
impairments that significantly interfered with her ability to
perform basic work activities. Specifically, the ALJ found
that her “severe” impairments included obesity and border-
line intelligence with a reading disorder. The ALJ was
unpersuaded that the medical tests and record supported
her complaints of a “myriad of conditions and symptoms”
including those regarding her sleep efficiency, pulmonary
function, knee and spine degeneration, and depression with
psychotic symptoms, and determined that those impair-
ments were non-severe.
  The ALJ then determined that Conrad did not meet
the requirements of step three, in that her impairments did
not meet or equal in severity any impairment in the
Listings of Impairments found in Appendix 1, Subpart P,
Regulations No. 4. Accordingly, the ALJ proceeded to
No. 04-3747                                               3

consider at step four whether Conrad could return to her
past relevant work as an electric assembler, welder, and
laundry worker. The ALJ concluded that Conrad retained
the residual functional capacity (RFC) to perform unskilled,
simple sedentary exertional work. In so concluding, the ALJ
explicitly rejected the assessments of state agency experts
who concluded that Conrad was capable of medium work,
because those physicians did not have the benefit of all of
the evidence that was before the ALJ. The ALJ similarly
rejected the assessment of “some examiners” who would
have limited Conrad to “sheltered” work. Although referring
to examiners in the plural, the ALJ cited to only one
examiner, Dr. Grandison, for that restriction to sheltered
work. The ALJ held that the limitation to “sheltered” work
was belied by her work history. Because Conrad’s past work
as an electrical assembler was unskilled, simple sedentary
work which was not sheltered but did not require literacy,
the ALJ concluded that she could perform that work.
  On appeal to the district court, Conrad identified two
errors by the ALJ. First, Conrad argued that the ALJ erred
in discounting Dr. Adamson’s reports concerning Conrad’s
frequent migraines based on the ALJ’s belief that the
reports reflected Conrad’s subjective complaints. The
district court rejected this argument, and therefore it was
not a basis for the EAJA fee request. The second error
alleged by Conrad was in the ALJ’s failure to address Dr.
Kissel’s vocational assessment. Specifically, Conrad argued
that the ALJ erred in failing to address the statement by
Dr. Kissel that “[i]f Maria does want to proceed with work
possibilities, she will need vocational support, part-time
employment to start, and avoiding of any work situation
that might further compromise her physical and emotional
health functioning.” According to Conrad, that constituted
a medical source opinion that the ALJ was obligated to
address under Social Security Ruling 96-8p.
  The government responded that the ALJ in fact consid-
ered Dr. Kissel’s recommendation when rejecting the
4                                                No. 04-3747

“sheltered” work restriction. The district court acknowl-
edged that the ALJ explicitly considered Dr. Kissel’s re-
port at earlier stages of the sequential evaluation, but
held that there was no reference to Dr. Kissel’s findings at
step four. Although the court accepted that the ALJ’s
limitation of Conrad to unskilled work was consistent
with Dr. Kissel’s recommendation, the court held that the
ALJ failed to address the further limitation to part-time
work. The government contended that the part-time
limitation appeared to reflect Conrad’s preferences rather
than Dr. Kissel’s assessment of her functional capabilities,
and therefore was properly not mentioned by the ALJ. The
district court, however, held that the ALJ did not character-
ize the report in that manner, and that principles of
administrative law required the ALJ to articulate the
grounds for her decision and the court must confine its
review to the reasons supplied by the ALJ.
The district court agreed with Conrad that the ALJ erred in
failing to explicitly consider Dr. Kissel’s vocational limita-
tions, and reversed and remanded the claim on that basis
for further consideration. As the prevailing party on that
issue, Conrad sought fees under EAJA. The government
argued that fees were not proper because it succeeded in
defending the ALJ’s decision with respect to Dr. Adamson,
and its position with respect to Dr. Kissel’s assessment was
substantially justified although ultimately unsuccessful.
  A position is substantially justified if it has a reason-
able basis in law and fact. The government has the bur-
den of establishing that its position was substantially
justified, and to do so must show: (1) a reasonable basis
in truth for the facts alleged; (2) a reasonable basis in
law for the theory propounded; and (3) a reasonable con-
nection between the facts alleged and the theory pro-
pounded. Golembiewski, 382 F.3d at 724; United States v.
Hallmark Construction Co., 200 F.3d 1076, 1078-79 (7th
Cir. 2000); Sierra Club v. Secretary of Army, 820 F.2d 513,
No. 04-3747                                                    5

517 (1st Cir. 1987). EAJA fees may be awarded if the
government’s pre-litigation conduct, including the ALJ
decision itself, or its litigation position are not substantially
justified, but the district court is to make only one determi-
nation for the entire civil action. Golembiewski, 382 F.3d at
724.
  Although the government has the burden of establish-
ing that its position was substantially justified, the decision
of the district court on that issue is reviewed only for abuse
of discretion. Accordingly, our review on appeal is limited
by that standard of review, which is ultimately dispositive
in this case.
  The district court determined that the government’s
position regarding Dr. Kissel’s report was substantially
justified, and accordingly denied fees under EAJA. In so
holding, the court held that the ALJ need only suffi-
ciently articulate his assessment of the evidence, and
that the articulation requirement was a flexible one as to
which reasonable persons could disagree. The court
analogized the case to that of Stein v. Sullivan, 966 F.2d
317 (7th Cir. 1992), in which we upheld the denial of
benefits even though the ALJ failed to articulate his
reasons for discounting a physician’s opinion in denying
benefits. We held in Stein that the finding that the ALJ
failed to meet the articulation requirement did not mandate
a finding that the government’s position was not substan-
tially justified.
  Conrad argues that the district court erred in rejecting
fees on that basis, protesting that Stein does not adopt a per
se rule that precludes attorney’s fees whenever the alleged
error is the failure to articulate reasons for discounting a
doctor’s opinion. Any reliance on Stein as establishing such
a per se rule would be erroneous, but the district court does
not in fact rely on any such per se rule, instead merely
analogizing this situation with the one presented in Stein.
That is a proper use of our precedent.
6                                                No. 04-3747

  Conrad further asserts that Stein is inapplicable, because
the articulation error in this case was the failure to follow
SSR 96-8p, which was not at issue in Stein. SSR 96-8p
requires that medical source opinions must always be
considered and addressed by the ALJ in the RFC assess-
ment, and if it conflicts with the ALJ’s conclusions then the
ALJ must explain why it was not adopted. This assumes,
however, that Dr. Kissel’s statement as to part-time work
was a medical source opinion, which is defined as an
opinion as to what an individual can still do despite his or
her impairment.
  The government’s argument to the district court was
essentially that the ALJ considered Dr. Kissel’s opinion
as to what Conrad could do, adopting the limitation to un-
skilled work, but did not discuss the portion of Dr. Kis-
sel’s report that was not a medical opinion but rather
reflected Conrad’s preferences—the limitation to part-time
work. If the limitation to part-time work was not in fact
a medical opinion as to the limitations imposed by Conrad’s
impairments, but instead was a reflection of Conrad’s
preferences or the optimal conditions for her return to work,
then the government would have a reasonable basis in law
for the argument that the ALJ did not err in failing to
discuss it. The remaining question, then, is whether the
government possessed a reasonable basis in fact for that
argument.
  The report by Dr. Kissel provides that reasonable basis in
fact. In the opening paragraph explaining the purpose of
the referral, Dr. Kissel stated that the referral was for a
psychological evaluation to include study of cognitive
and school skills, brain function, learning profile, emotional
status, and “vocational preferences.” In the report, Dr.
Kissel included some headings reflecting “vocational consid-
erations,” and others indicating “vocational preferences,” at
least implying that a broader range of restrictions were
considered than required by her impairments. Moreover,
No. 04-3747                                                 7

the first time part-time work is mentioned, it appears
following the results of her intelligence and school skills
testing, and is phrased in the context of what would benefit
her rather than what is required:
    Generally these results are not overly encouraging
    relative to her readiness for employment at present
    in light of the extensive range of physical and emotional
    health challenges. She certainly could benefit from
    vocational guidance and support relative to conditions
    under which she believes she might be able to work
    even on a part-time basis, placement and on-the-job
    training, as well as follow-along work adjustment. She
    certainly will need work responsibilities that are
    straight-forward, concrete, hands-on, would allow her
    to proceed at her own pace, and would be at an un-
    skilled entry level.
Tr. at 277. Thus, at the first mention of the part-time work,
it is in the context of what would benefit her, in contrast to
the requirements of unskilled work that she would “cer-
tainly” need. That is consistent with the government’s
argument—although not articulated in enough detail to be
helpful—that the requirement of unskilled work was a
medical opinion considered and adopted by the ALJ, but
that the part-time limitation was a preference.
  Moreover, the sentence relied on by Conrad in obtain-
ing the remand mirrors that earlier language. It does not
appear under either of the “vocational” headings, instead
arising under the section considering her “emotional sta-
tus.” After discussing that Conrad should continue her
outpatient mental health services to address health issues
and skills training, the report states:
    Ms. Conrad might also benefit from discussion about
    resources via case management. There needs to be
    an honest discussion with her relative to her readiness
    and actual possibilities for work which she could
8                                               No. 04-3747

    predictably handle routinely. If Maria does want to
    proceed to work possibilities, she will need vocational
    support, part-time employment to start, and avoiding of
    any work situation that might further compromise her
    physical and emotional health functioning.
Tr. at 279. Similar to the earlier discussion, that statement
appears to address the environment that would optimize
her work possibilities, rather than those required by her
disability. In the “vocational” discussion following the
“emotional status” portion of the report, Dr. Kissel again
discusses the need for straightforward, well-defined work
with low stress. Only in the “vocational preferences” section
does he mention that “helpful information” should she
decide to proceed with identifying job possibilities could
include “an honest assessment of under what conditions she
might be able to work and for what length of time.” That is
the only reference to the amount of time she could work in
those vocational sections relating to her emotional status.
  Given the context in which the part-time limitation
appeared, the government had a reasonable basis in fact for
asserting that the record reflected consideration of
Dr. Kissel’s medical opinion. The ALJ adopted the require-
ment of unskilled work that Dr. Kissel declared to be a
necessity, and the statements regarding part-time work are
arguably preferences rather than a medical opinion as to
the limitations of her disability, and therefore the
ALJ would not have violated SSR 96-8p by failing to
address it. The district court could rationally find that the
government had a reasonable basis in law and fact for its
position. Accordingly, the district court did not abuse its
discretion in denying fees, and the decision of the district
court is AFFIRMED.
No. 04-3747                                          9

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit




               USCA-02-C-0072—1-19-06
