ORDER REVERSING AND REMANDING DEFENDANT'S DECISION TO DENY BENEFITS

DAVID W. CHRISTEL, Magistrate Judge.

Plaintiff Robin A. Clark filed this action, pursuant to 42 U.S.C. § 405(g), for judicial review of Defendant's denial of Plaintiff's application for disability insurance benefits ("DIB"). Pursuant to 28 U.S.C. § 636(c), Federal Rule of Civil Procedure 73 and Local Rule MJR 13, the parties have consented to have this matter heard by the undersigned Magistrate Judge. See Dkt. 7.

The Court concludes the Administrative Law Judge ("ALJ") erred when he failed to find Plaintiff's mental impairments severe at Step Two. The ALJ also erred when he failed to properly weigh the Department of Veterans Affairs ("VA") disability rating (hereinafter "VA disability rating") regarding Plaintiff's Post Traumatic Stress Disorder ("PTSD"). Had the ALJ properly considered Plaintiff's mental impairments and properly weighed the VA disability rating, the residual functional capacity ("RFC") may have included additional limitations. The ALJ's error is therefore harmful, and this matter is reversed and remanded pursuant to sentence four of 42 U.S.C. § 405(g) to the Acting Commissioner of Social Security ("Commissioner") for further proceedings consistent with this Order.

FACTUAL AND PROCEDURAL HISTORY

On July 9, 2012, Plaintiff filed an application for DIB, alleging disability beginning April 24, 2010. See Dkt. 10, Administrative Record ("AR") 38. The application was denied upon initial administrative review and on reconsideration. See AR 38. A hearing was held before ALJ Gene Duncan on February 25, 2014. See AR 38. In a decision dated March 26, 2014, the ALJ determined Plaintiff to be not disabled. See AR 38-50. Plaintiff's request for review of the ALJ's decision was denied by the Appeals Council, making the ALJ's decision the final decision of the Commissioner. See AR 1; 20 C.F.R. § 404.981, § 416.1481.

Plaintiff maintains the ALJ erred by: (1) failing to properly consider the medical evidence, including failing to find Plaintiff's mental impairments severe at Step Two; (2) failing to properly consider the lay witness testimony; (3) improperly considering Plaintiff's credibility; (4) improperly considering the VA disability rating (5) failing to properly formulate Plaintiff's RFC; and (6) improperly finding Plaintiff capable of performing jobs that exist in the national economy. Dkt. 14, pp. 1-2, 6-7, 11.

STANDARD OF REVIEW

Pursuant to 42 U.S.C. § 405(g), this Court may set aside the Commissioner's denial of social security benefits if the ALJ's findings are based on legal error or not supported by substantial evidence in the record as a whole. Bayliss v. Barnhart, 427 F.3d 1211, 1214 n.1 (9th Cir. 2005) (citing Tidwell v. Apfel, 161 F.3d 599, 601 (9th Cir. 1999)).

DISCUSSION

I. Whether the ALJ erred by finding Plaintiff's mental impairments did not constitute severe impairments at Step Two.

A. Step Two Findings

In her opening brief, Plaintiff includes a summary of the medical opinion evidence and asserts the evidence "contradicts the ALJ's finding that [Plaintiff] has no severe mental impairment." Dkt. 14, pp. 7-14.

Step Two of the administration's evaluation process requires the ALJ to determine whether the claimant "has a medically severe impairment or combination of impairments." Smolen v. Chater, 80 F.3d 1273, 1290 (9th Cir. 1996) (citation omitted); 20 C.F.R. §§ 404.1520(a)(4)(ii), 416.920(a)(4)(ii) (1996). An impairment is "not severe" if it does not "significantly limit" the ability to conduct basic work activities. 20 C.F.R. §§ 404.1521(a), 416.921(a). "Basic work activities are `abilities and aptitudes necessary to do most jobs, including, for example, walking, standing, sitting, lifting, pushing, pulling, reaching, carrying or handling.'" Smolen, 80 F.3d at 1290 (quoting 20 C.F.R. §140.1521(b)). "An impairment or combination of impairments can be found `not severe' only if the evidence establishes a slight abnormality having `no more than a minimal effect on an individual[`]s ability to work.'" Id. (quoting Yuckert v. Bowen, 841 F.2d 303, 306 (9th Cir. 1988) (adopting Social Security Ruling "SSR" 85-28)).

The Step Two inquiry is merely a threshold determination as to whether a claimant has raised a "prima facie case of a disability." Hoopai v. Astrue, 499 F.3d 1071, 1076 (9th Cir. 2007); see also Smolen, 80 F.3d at 1290 (noting the Step Two determination is a de minimis screening device used to dispose of groundless claims). An impairment or combination of impairments may be found "not severe only if the evidence establishes a slight abnormality that has no more than a minimal effect on an individual's ability to work." Smolen, 80 F.3d at 1290.

At Step Two, the ALJ determined Plaintiff's "medically determinable mental impairments of depression and anxiety, considered singly and in combination, do not cause more than minimal limitation in the claimant's ability to perform basic mental work activities and are therefore nonsevere." AR 41. In making his determination, the ALJ correctly included an analysis of the degree of functional limitation for four functional areas. Keyser v. Comm'r Soc. Sec. Admin., 648 F.3d 721, 725 (9th Cir. 2011) (requiring an ALJ to examine a plaintiff's mental impairments at Step Two by discussing limitations related to activities of daily living, social functioning, concentration, and decompensation of extended duration). The ALJ "considered the four broad functional areas set out in the disability regulations for evaluating mental disorders" and determined plaintiff had no episodes of decompensation, no limitations in her activities of daily living, and mild limitations in her social functioning and concentration, persistence or pace. AR 41-42. Thus, the ALJ determined "[b]ecause the claimant's medically determinable mental impairments cause no more than `mild' limitation in any of the first three functional areas and `no' episodes of decompensation which have been of extended duration in the fourth area, they are nonsevere." AR 41-42. Plaintiff argues the ALJ erred in failing to find her mental impairments severe at Step Two because he failed to consider the medical opinions regarding her mental impairments from treating, consulting, and examining doctors. The Court agrees.

The record, including the VA disability analysis, demonstrates Plaintiff experienced mental impairments related to PTSD stemming from Military Sexual Trauma ("MST"), depression, and anxiety. Yet, the ALJ provides no analysis of the findings and opinions of several VA mental health providers and doctors as well as the consulting, nonexamining, and testifying doctors when determining Plaintiff's mental impairments were not severe impairments. For instance, on May 6, 2009, a Registered Nurse ("RN") conducted a Mental Health Triage Evaluation and a VA licensed social worker completed an outpatient assessment related to Plaintiff's PTSD and MST. AR 742-43, 734-39. The RN noted Plaintiff had "recurrent nightmares, nightsweats, intrusive thoughts, difficulty trusting men, avoidance of thought/feelings, difficulty sleeping, irritability, and hypervigilence [sic]" related to MST. AR 734. Following her mental health screening, Plaintiff began outpatient treatment with VA clinical psychologists and social workers related to her mental impairments. See, e.g., AR 729-34, 725-26, 716-17, 688-700, 683-84, 663-64, 550-55. During these appointments, Plaintiff reported experiencing hypervigilance related to PTSD and MST, anxiety, depression, and decreased sleep related to PTSD and MST. See id. In April 2010, Marilyn G. Duff, MSC, LICSW observed Plaintiff had the following "issues and problems as significant barriers to the [Plaintiff] achieving the highest possible level of functioning": (1) PTSD issues, including hyperarousal related to hypervigilance and avoidance and emotional numbing symptoms; and (2) other anxiety issues, including generalized or chronic anxiety. AR 694.

On August 2, 2010, April A. Gerlock, Ph.D., ARNP, a VA psychiatric nurse practitioner, examined Plaintiff for an initial medication evaluation for mental health treatment and diagnostic interview. See AR 686-89. Dr. Gerlock observed Plaintiff "presents with PTSD symptoms and suffers from the full range of symptoms" associated with PTSD. AR 688. Dr. Gerlock treated Plaintiff on several more occasions for PTSD, anxiety, depression, and sleep disturbance. See, e.g., 674-75; 659-60; 642-43. On August 20, 2013, psychologist Brett A. Parmenter, Ph.D., ABPP conducted a neuropsychological testing on Plaintiff to evaluate cognitive functioning and later followed up with Plaintiff regarding her testing in September 2013. AR 550-61. Dr. Parmenter opined one test he administered to Plaintiff "was noteworthy for significant anxiety" and observed she "has been diagnosed with PTSD and depression." AR 555. Dr. Parmenter also opined once Plaintiff's psychiatric and other symptoms abate "she will experience improvement in her cognitive complaints." AR 555.

On September 22, 2012, Alicia Grattan, M.D. conducted a comprehensive psychiatric evaluation on Plaintiff. See AR 402-06. She diagnosed Plaintiff with PTSD and opined Plaintiff's prognosis is "guarded". AR 405. Dr. Grattan also observed Plaintiff had functional limitations related to her PTSD, including "difficulty interacting with co-workers and the public" and "the claimant would not deal well with the usual stress encountered in a competitive work environment." AR 406. Nonexamining psychologist Michael Brown, Ph.D. opined Plaintiff "will have occasional lapses in concentration and interruptions from her psychiatric symptoms" and she "should work away from the general public and will do best with independent work" AR 118-19. Similarly, nonexamining psychologist John F. Robinson, Ph.D. opined Plaintiff is limited to "simple and superficial social cooperation with ... coworkers and the public" and "will have occasional lapses in concentration and interruptions from her psychiatric symptoms." AR 133-34. At the hearing, Dr. Toews testified Plaintiff would not do well with the public and could have superficial interaction with coworkers and supervisors. AR 70-75.

Notwithstanding this extensive longitudinal treatment history, the ALJ found Plaintiff suffered from no more than mild functional limitations as a result of her mental impairments. See AR 40-41. The ALJ discussed Plaintiff's activities of daily living, social functioning, and concentration, persistence and pace at Step Two. But, there is no indication the ALJ analyzed the findings and opinions of several VA mental health providers and doctors as well as the consulting, nonexamining, and testifying doctors when determining Plaintiff's mental impairments were not severe impairments. See AR 41-42. As summarized above, the Court finds the evidence of record shows Plaintiff's mental impairments were present during the disability period and caused more than a minimal effect on her functional limitations. Accordingly, the Court finds Plaintiff mental impairments are severe and the ALJ erred by finding these impairments "non-severe" at Step Two.

B. Harmless Error Analysis

"[H]armless error principles apply in the Social Security context." Molina v. Astrue, 674 F.3d 1104, 1115 (9th Cir. 2012). An error is harmless, however, only if it is not prejudicial to the claimant or "inconsequential" to the ALJ's "ultimate nondisability determination." Stout v. Commissioner, Social Security Admin., 454 F.3d 1050, 1055 (9th Cir. 2006); see Molina, 674 F.3d at 1115. The determination as to whether an error is harmless requires a "case-specific application of judgment" by the reviewing court, based on an examination of the record made "`without regard to errors' that do not affect the parties' `substantial rights.'" Molina, 674 F.3d at 1118-1119 (quoting Shinseki v. Sanders, 556 U.S. 396, 407, 129 S.Ct. 1696, 173 L.Ed.2d 532 (2009) (quoting 28 U.S.C. § 2111)). If the ALJ accounts for all Plaintiff's limitations in assessing the residual functional assessment ("RFC"), the Step Two error is harmless. See Lewis v. Astrue, 498 F.3d 909, 911 (9th Cir. 2007).

Here, in determining Plaintiff's RFC, the ALJ analyzed Drs. Grattan's, Brown's, and Robinson's opined limitations related to Plaintiff's mental impairments and discounted those opinions as inconsistent with other medical opinions and Plaintiff's activities of daily living. See AR 47. The ALJ also discussed Dr. Toews's opinion and gave it some weight. See AR 48. The ALJ appears to have incorporated part of Dr. Toews's opined limitations in the RFC, finding Plaintiff requires "cursory superficial contact with the public. She should not work around crowds or a large number of people. She should work independently." AR 43.

However, the ALJ did not discuss the findings and medical records of the VA and limitations contained therein when assessing the RFC including her PTSD and MST, anxiety, and depression. See, e.g., AR 674-75; 659-60; 642-43, 550-55. As the ALJ provides no discussion of Plaintiff's VA records, the Court cannot determine if the ALJ properly considered these impairments and resulting limitations during the RFC assessment.

Moreover, the ALJ did not discuss Plaintiff's separate mental impairment diagnoses individually—other than mentioning Plaintiff alleges panic attacks and PTSD, see AR 43—even though Plaintiff was diagnosed with three separate mental impairments, including PTSD and MST, anxiety, and depression. See, e.g., AR 674-75; 659-60; 642-43; 550-55. Thus, the Court cannot determine which mental impairments were considered when the ALJ determined Plaintiff's RFC. See AR 43-49; see also Hill v. Astrue, 698 F.3d 1153, 1161 (9th Cir. 2012) (holding "[b]ecause the ALJ excluded panic disorder from [Plaintiff's] list of impairments and instead characterized her diagnosis as anxiety alone, the residual functional capacity determination was incomplete, flawed, and not supported by substantial evidence in the record."); Johnson v. Astrue, No. C10-1469-TSZ, 2011 WL 3881486, at *3 (W.D. Wash. July 29, 2011), report and recommendation adopted, No. C10-1469-TSZ, 2011 WL 3880904 (W.D. Wash. Sept. 2, 2011) (instructing the ALJ to clarify which mental impairments were considered in his analysis where the ALJ merely mentioned mental impairments in the plural and singular without discussing the plaintiff's diagnoses); Stone v. Astrue, No. C10-713-RSL-JPD, 2010 WL 5510092, at *6 (W.D. Wash. Nov. 26, 2010), report and recommendation adopted, No. C10-713-RSL, 2011 WL 31762 (W.D. Wash. Jan. 3, 2011) (finding the ALJ erred at Step Two by considering one diagnosed mental impairment but failing to discuss the other diagnosed mental impairment).

Had the ALJ properly considered Plaintiff's mental impairments at Step Two, the RFC assessment and hypothetical question posed to the vocational expert may have included additional limitations. As the ALJ's failure to properly consider Plaintiff's mental impairments at Step Two and throughout the remaining sequential evaluation process affects the ultimate disability decision, it is not harmless.

II. Whether the ALJ Properly Evaluated the VA's Disability Rating.

Plaintiff also challenges the ALJ's treatment of Plaintiff's VA disability rating. Dkt. 14, pp. 6-7. With respect to her mental impairments, the VA determined Plaintiff 50% disabled based upon her diagnosis of PTSD as of May 13, 2009. See AR 275, 765. The VA also determined Plaintiff 20% disabled based upon her right hand scarring and 10% disabled based upon her "right foot tenosynovitis with mild retrocalcaneal ligamentous calcification and spurring".1 AR 765.

Although a determination by the VA about whether a claimant is disabled is not binding on the SSA, an ALJ must consider that determination in reaching his or her decision. McCartey v. Massanari, 298 F.3d 1072, 1076 (9th Cir. 2002); 20 C.F.R. § 404.1504. Further, the ALJ "must ordinarily give great weight to a VA determination of disability." McCartey, 298 F.3d at 1076. This is because of "the marked similarity" between the two federal disability programs. See id. (describing similarities in the programs). However, "[b]ecause the VA and SSA criteria for determining disability are not identical," the ALJ "may give less weight to a VA disability rating if he gives persuasive, specific, valid reasons for doing so that are supported by the record." Id. (citing Chambliss v. Massanari, 269 F.3d 520, 522 (5th Cir. 2001).

Here, the ALJ noted the VA "granted the claimant a disability rating of 50 percent due to PTSD and disability rating of 10 percent due to right foot injury" and gave the opinion "little weight" because:

AR 47. Plaintiff argues the ALJ failed to satisfy the legal standard to give little weight to the VA disability rating. The Court agrees.

First, the ALJ rejected the VA disability rating because VA disability determinations are different than social security disability determinations. Defendant concedes "the ALJ's first reason was admittedly insufficient". Dkt. 15, p. 15. Indeed, as noted above, the Ninth Circuit has specifically determined the ALJ must give great weight to VA disability determinations because of "the marked similarity" between the determinations. McCartey, 298 F.3d at 1076. Thus, the first reason for discounting the VA disability rating is legally insufficient and fails to provide the persuasive, specific, or valid reasons necessary to give little weight to the VA disability rating.

Second, the ALJ rejected the VA disability rating as inconsistent with medical opinion evidence, specifically the ALJ's determination that Plaintiff's PTSD is not severe. See AR 47. Here, the ALJ did not cite to any medical evidence and only made a general reference to "reasons discussed above". See id. However, as noted above in Section I, supra, the ALJ erred in failing to find Plaintiff's mental impairments not severe at Step Two. Thus, the ALJ's reliance on his earlier discussion of Plaintiff's mental impairments also falls short of the persuasive, specific, or valid reasons required to reject the VA disability rating. In addition, the ALJ failed to discuss entirely the VA's disability rating regarding Plaintiff's physical impairments. Thus, for this second reason, the ALJ failed to provide persuasive, specific, or valid reasons to give little weight to the VA disability rating.

Accordingly, upon remand, the ALJ shall reevaluate the VA disability rating and provide the rating great weight unless he provides persuasive, specific, or valid reasons for giving little weight to the rating. See McCartey, 298 F.3d at 1076.

III. Whether the ALJ Erred by Improperly Evaluating the Medical Opinion Evidence, Lay Witness Statement, Plaintiff's Testimony and Statements, and Failing to Properly consider Plaintiff's RFC.

The ALJ's error at Step Two requires remand to the administration to properly consider Plaintiff's severe impairments and to reconsider each of the remaining steps in the administrative process incorporating the additional severe impairments and the work limitations possibly caused by Plaintiff's mental impairments. As the ALJ's error at Step Two impacts all aspects of the ALJ's decision, the ALJ is instructed to re-evaluate this entire matter on remand. Thus, it is unnecessary to address the other issues raised in Plaintiff's appeal.

IV. Whether the case should be remanded for an award of benefits.

Plaintiff argues in a conclusory manner this matter should be remanded with a direction to award benefits. See Dkt. 14, p. 19. The Court concludes it would be inappropriate to do so because outstanding issues must be resolved by the Commissioner. See Smolen, 80 F.3d at 1292.

CONCLUSION

Based on the foregoing reasons, the Court hereby finds the ALJ improperly concluded Plaintiff was not disabled. Accordingly, Defendant's decision to deny benefits is reversed and this matter is remanded for further administrative proceedings in accordance with the findings contained herein.