                    UNITED STATES COURT OF APPEALS
Filed 12/10/96
                           FOR THE TENTH CIRCUIT



    THERESA M. LARSON,

              Plaintiff-Appellant,

    v.                                                 No. 95-2194
                                                (D.C. No. CIV-93-853-MV)
    SHIRLEY S. CHATER, Commissioner                     (D. N.M.)
    of Social Security *,

              Defendant-Appellee.




                           ORDER AND JUDGMENT **




Before BRISCOE and MURPHY, Circuit Judges, and VAN BEBBER, *** District
Judge.




*
      Effective March 31, 1995, the functions of the Secretary of Health and
Human Services in social security cases were transferred to the Commissioner of
Social Security. P.L. No. 103-296. Although the Commissioner was the properly
named defendant when the notice of appeal in this case was filed, in the text we
continue to refer to the Secretary because she was the appropriate party at the
time of the underlying agency decision.
**
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
***
      Honorable G. Thomas Van Bebber, Chief Judge, United States District
Court for the District of Kansas, sitting by designation.
      After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The case is

therefore ordered submitted without oral argument.

      Claimant Theresa Larson appeals from the district court’s judgment

affirming the decision of the Secretary of Health and Human Services denying her

applications for disability and supplemental income benefits under the Social

Security Act. After her applications were denied administratively both initially

and upon reconsideration, claimant requested a hearing before an administrative

law judge (ALJ). The hearing was held on January 27, 1992. The ALJ concluded

that claimant was not disabled under the Social Security Act. On May 13, 1993,

the Appeals Council denied claimant’s request for review, making the ALJ’s

decision final for purposes of appeal. See Williams v. Bowen, 844 F.2d 748, 749

(10th Cir. 1988)(citing 20 C.F.R. §§ 404.981, 416.1481).

      Our jurisdiction over this appeals arises from 42 U.S.C. § 405(g). “We

review the Secretary’s decision to determine whether her factual findings are

supported by substantial evidence in the record viewed as a whole and whether

she applied the correct legal standards.” Castellano v. Secretary of Health &

Human Servs., 26 F.3d 1027, 1028 (10th Cir. 1994).

      The Secretary uses a progressive five-step process to determine the

existence of a disability. See, e.g., 20 C.F.R. §§ 404.1520, 416.920; Williams,

844 F.2d at 750-52 (discussing five steps in detail). At the first step, the ALJ

evaluates whether the claimant is currently engaged in substantial gainful activity.


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20 C.F.R. §§ 404.1520(b), 416.920(b). Here the ALJ found that Larson was not.

At the second step, the ALJ determines whether the claimant has a severe

impairment. 20 C.F.R. §§ 404.1520(c), 416.920(c). The ALJ found Larson had

such an impairment. Although neither party raises the issue, we note that the ALJ

failed to employ the mandatory procedure for evaluating mental impairments in

20 C.F.R. §§ 404.1520a and 416.920a, even though Larson allegedly had a mental

impairment. At step three, the Secretary determines whether the impairment

meets or equals a listed impairment. 20 C.F.R. §§ 404.1520(d), 416.920(d). The

ALJ concluded that Larson’s impairment did not meet this step. At step four, the

Secretary evaluates whether the impairment prevents the claimant from doing past

relevant work. 20 C.F.R. §§ 404.1520(e), 416.920(e). The ALJ determined that

Larson’s impairment met this step. Finally, at step five, the secretary bears the

burden to show that the claimant has the residual functional capacity to perform

other work. 20 C.F.R. §§ 404.1520(f), 416.920(f). Here, the ALJ found Larson

could perform other work and therefore was not disabled.

      Larson argues that the ALJ failed to use the proper legal analysis at step

three in reaching the conclusion that “Ms. Larson’s impairment(s), singly or in

combination, has not been severe enough to meet or equal an impairment listed in

Appendix 1 under the evaluative standards of 20 C.F.R. 404.1525, 404.1526,

416.925, 416.926.” Appellant's App. at 67. In support of this conclusion, the

ALJ discussed Larson’s medical history, work history, functional abilities, and the

severity of her impairments at length and concluded her deficiencies resulted in

only slight restrictions in daily living and social functioning. The ALJ evaluated


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the credibility of Larson’s nonmedical testimony in this step-three analysis by

stating: "Thus, based on the preponderance of evidence before me, I find that Ms.

Larson's testimony is not wholly credible." Appellant's App. at 75. The

determination of medical equivalency at step three must be based solely on

medical evidence, 20 C.F.R. §§ 404.1526(b), 416.926(b). Therefore, the ALJ’s

consideration of Larson’s credibility was in error. Moreover, the step three

analysis requires a comparison of medical evidence regarding symptoms, signs,

and laboratory findings with the listed impairment sought to be established or the

listed impairment most similar to the claimant’s. 20 C.F.R. §§ 404.1526(a),

416.926(a). The ALJ engaged in no such comparison in this case and failed to

even identify the listed impairment to which Larson’s impairment was most

similar. We conclude the Secretary applied incorrect legal standards and reverse

the ALJ’s determination on step three.

      Nevertheless, we will address a second error alleged by Larson on appeal as

it may arise again on remand. Although the ALJ’s opinion is not completely

clear, it appears that the ALJ also evaluated Larson’s credibility in reference to

step five. The ALJ noted in a finding: “Ms. Larson’s testimony of subjective

complaints and functional limitations was not supported by the evidence as a

whole in the disabling degree alleged and therefore lacked credibility.” Appellant

App. at 77.

      Larson argues the ALJ’s determination of her credibility is inadequate as a

matter of law. We agree. The claimant’s nonmedical testimony regarding

functional limitations may be crucial evidence at step five in determining


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claimant’s ability to engage in other work. See Huston v. Bowen, 838 F.2d 1125,

1131-32 (10th Cir. 1988). Where the credibility of the claimant is a crucial factor

in determining whether the claimant is disabled, the ALJ cannot summarily

conclude the claimant is not credible without more detailed analysis. Kepler v.

Chater, 68 F.3d 387, 391 (10th Cir. 1995). “Findings as to credibility should be

closely and affirmatively tied to substantial evidence and not just conclusions in

the guise of findings.” Huston, 838 F.2d at 1133. “‘Failure to indicate the

credibility choices made and the basis for those choices in resolving the crucial

subsidiary fact or the truthfulness of subjective symptoms and complaints requires

reversal and remand.’” Kepler, 68 F.3d at 391 (quoting Hollis v. Brown, 837 F.2d

1378, 1385 (5th Cir. 1988)).

      Our conclusion that the ALJ’s findings lack the required specificity and

link to evidence in the record is supported by a recent Social Security Ruling.

Ruling 96-7p, 61 Fed. Reg. 34483 (91996), 1996 WL 374186, states that the

ALJ’s reasons underlying a potentially crucial credibility determination “must be

grounded in the evidence and articulated in the determination or decision.” 1996

WL 374186, at *4. Conclusory statements are insufficient. Id. “The

determination or decision must contain specific reasons for the finding on

credibility, supported by the evidence in the case record, and must be sufficiently

specific to make clear to the individual and to any subsequent reviewers the

weight the adjudicator gave to the individual’s statements and the reasons for that

weight.” Id.

      Because the ALJ’s decision employs the wrong legal standard to analyze


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Larson’s disability at step three, we reverse. We need not reach the balance of

Larson’s arguments on appeal. The judgment of the United States District Court

for the District of New Mexico is REVERSED, and the case is REMANDED to

the district court with instructions to remand the case to the Commissioner for

further proceedings to evaluate Larson’s alleged disability in light of this order.



                                                     Entered for the Court



                                                     G. Thomas Van Bebber
                                                     District Judge




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