Ep 71: The Role Of Valuation and Appraisal In Personal Injury Cases (Part 1 with Dr. Craig Galbraith)

Welcome to the Personal Injury Lawyer Podcast. I'm Clark speaks. This is the anatomy of a personal injury case. Today. I'm thrilled to have our guest, Dr Craig Galbraith, and Dr Galbraith tell us a little bit about what you do, just generally, what's your, what's your, your primary profession? Sure. I'm a professor at the Cameron School of Business at the University of North Carolina, Wilmington. I Wilmington. Teach in the management department and cover a variety of different things, from finance, entrepreneurial finance, to global strategy to and I actually do teach a course in valuation and appraisal. And what's your background? How do you what's your educational background? Sure. Well, I actually joined the army in 1970 and when I got out of the Army during the Vietnam War, I didn't go to Vietnam, but certainly Vietnam era decided to actually go into the area of philosophy. And so I went to San Diego State University and graduated with a degree, a bachelor degree, in economic philosophy. Then realized that, no, I really did have to pursue the real world. And so I ended up with an MBA in operations and production management. Got a master's degree in molecular biology from the University of Nebraska, and then finished up with my PhD, doctorate degree from Purdue University, Krannert, Graduate School of Management there in management and Mathematical economics. And so how did you get from the Midwest to North Carolina? Well, that's an interesting story. I was actually born and raised in San Diego

and grew up in the 1950s and 60s there, when it was actually about the same size as Wilmington, North Carolina, very, very similar. After I got my doctorate, I went back to the University of California at Irvine, did that for about eight years, and then one of my MBA students said, you know, asked me if I wanted to start a biotech company with them. So was a founder of a biotech company for a couple years, sold that to an Indian pharmaceutical company. Decided, you know, that being a professor wasn't that bad. You know, you didn't have to work 8090, hours a week. You didn't have to mortgage your house to pay the bills and that sort of thing. So ended up going back into academics, and went to Purdue University after that. And then the opportunity came up here at UNC W and came here, didn't know anything about Cape Fear. In fact, I thought Cape Fear was just a great name for a movie at that particular time. And came here, and I said, you know, this is a lot like San Diego when I was growing up, about the same size as a coastal community. It's got a lot of potential. There's even a Marine Base, 4050, miles north camp, Pendleton, of course, in California. And la June here. So came here, thought I'd stay for about three or four years, and ended up loving it, you know, I really enjoy it here, and so now I've been here since the mid 90s. So, so at the university, you're, are you do you research? Do you teach kids? Do you teach freshmen, graduate students? I Well, I'm a research professor, you know, I'm actually what's called a distinguished faculty member. We've got about six or seven of them at the whole campus, and it's kind of one step above a full professorship. And the expectation, however, is that you do not only teach, but you also do research, and you do good research. So I'd say about 50% of my time is responsible for doing research, writing articles, writing books, you know, that type of thing. And then the other 50% of my time is spent teaching primarily senior level undergraduates. And then MBAs, okay, and remind me what sorts of things you teach there. Well, I do teach a course in business valuation and appraisal and entrepreneurial finance. I teach a global strategy, particularly to the MBA students, and looking at, you know, what's happening in the world, looking at kind of world, economic type of issues, and then commercialization of technology and that sort of thing. But, you know, focus is really on kind of the mathematical side of things, the economic side of things, and so forth. Well, so, so that's what we want to talk to you a little bit about today is the evaluation piece of Sure. So the purpose of this podcast is that every day someone is hurt catastrophically somewhere in the world, you know, and when the medical people leave and family leave and they're sort of alone with their thoughts, a lot of people are really concerned about

what next. You know, what do I do now? And so our mission is to help them recover, physically, financially and emotionally. And so I think the where this conversation fits into the mix is

financially, in the sense that

a lot of these people may have legal claims, and those legal claims have to be built and developed by competent, complex personal injury lawyers and and what I want to talk to you about how where your work fits into sure into that puzzle you.

Okay, and so in addition to

research, and in addition to teaching these graduate students and and the publications that you do, there's also another component of your work, is that? Right? Yeah, I do a fair amount of consulting for attorneys in personal injury, wrongful death, medical malpractice, type of cases. Do you do? Do you do work in other areas? Do you do work in divorce practices? Yeah, I do about half the work I do is in divorce practices. It the underlying theory is always the same as, what is the value of something? You know, that's what we talk about in valuation, appraisal. There's value associated if somebody was, say, working, let's say and they had a catastrophic injury, they have a loss of income associated with that. So we're looking at at that aspect. But you also have the same sort of thing. You have business, you have pensions and divorce cases that have to be valued under North Carolina equitable distribution rules. And a lot of this boils down to

the what we refer to as time value of money. Is that it basically all boils down to the time value of money. When you think about what something is worth today, if you're talking about a business, if you're talking about your income, let's say

we've had things in the past. We've earned things in the past. The business has had a profit in the past. We've all earned income in the past, or whatever. But what you're trying to do, if you have an injury or trying to figure out the business value for a commercial activity, is what you do in the future. What you expect to have in the future. You expect to earn money in the future. You expect to have benefits associated with that salary in the future, if you're talking about an individual, and actually, many people that are injured may actually run a business, so you really combine the business valuation with the loss of income. Because certainly, if you have a catastrophic injury, you can have somebody that their business goes down and they're losing the value associated with that particular business. But what you're doing is you're looking at the future income associated with these different type of things, and then trying to figure out, what is that worth in today's money? What do I need today to equal basically what that expected income would be for the future? So I've said before, hey, $1 today is worth more than $1 a year from now, or five years from now, or 25 years from now. What is that true? And why is that? Well, you know, you tend to have a couple things going on. First of all, you have inflation. And so if you're working today, let's say, and you're earning $20 an hour, more than likely, you're going to have increases. The increases can come simply from the cost of living increases you might get from your employer. You might get promoted. There's a number of different things that can happen that your salary may actually go up in the future. When you're trying to figure out today what that is worth. The idea is you're trying to replicate today. If I were to go out and get a chunk of money today and I were to invest it, let's say, in bonds, and bonds pay a certain amount of interest. What I'm trying to do, and what we try to do, as an expert in this particular area, as a forensic economist, is try to figure out what you need today, that if you were to invest it in bonds, that you could replicate what you would get in the future from your salary, or if you're talking about a business value, you're trying to replicate what your profits might might be in the future. Now that's what we call the present value of money. So you're discounting these future what are called annuities, basically these payments you expect to get in the future to figure out what you need today as a lump sum, to be able to invest and basically create the same type of income that you would have gotten, but you can no longer get because of the injury. So yesterday I was talking to I was talking to one of my kids, my, you know, my first job. She's my daughter's 17 years old. She's working. She's been working for a little while. She's got a part time after school job. And so we were talking about it, and I had mentioned to her, I talked to her a little bit about my first after school job. And I was, I was, I was interested in, and I look back and I because I can't remember exactly how I think minimum wage was like a buck 88 you know, mid 80s, you know, late 80s was like $1.80 is that an example of, and then, and then minimum wage now, obviously, is, is more than that. So is that an example of why of inflation? I mean, you know, we're going through a fairly high level of inflation. It may seem high right now, but actually, as economists, we look at history, and we certainly had a lot higher inflation and interest rates. If you go back to the 1980s and 1990s

I mean, it's hard to believe we've had like, 0% interest, 1% interest. Inflation has been about 2% or 3%

when I bought my first house in 1981 interest rates were 18% at that particular time. It really is a different world. But again, we tend to think about our kind of recent experiences in the last couple years. Yes, we have had inflation interest.

Rates have gone up because the Federal Reserve tries to raise interest rates to control inflation. But you're absolutely right. You know that people's income goes up over time because of inflation, you know, and interest rates can go up as you know, you try to compensate for that type of thing. So, so when we're looking at a person's, let's, let's take a specific example for

for instance,

let's say there's a person who is working in a job where maybe he or she is a welder, a builder, a electrician, something like that, and they go to

to work every day, and they get a and they're compensated for their work, and they're and these are skill positions. So in general, these are people are pretty well paid, right?

Not everybody knows how to will. Not everybody knows how to do plumbing. Not everybody knows how to do electrical, especially commercial electrical, or building or whatever. And so the idea is, okay, if suddenly they are injured and can't work any longer, then part of what you're doing then is to calculate, okay, they would have gotten a check. We can always go back and go, Okay, what have they lost so far? And that's is that relatively easy to quantify? It's relatively easy to quantify, because, let's say you have an injury at a particular date. And I've been doing this now for about 40 years. My father was a forensic economist at San Diego, and so, you know, going back, oh my goodness, now about 40 years, you know, I've been working in the area of forensic economics, in terms of economic loss associated with injuries, and the level of sophistication has gone up. I mean, it's just like anything, you know, science or whatever we talk about law. I mean, the level of sophistication has gone up. People have published things that we can use now that weren't available, say, 4040, years ago. As an academic, I do have an opportunity of reading the academic stuff that things have been published. And that's very, very important to try to figure out things. But let's say you're injured at a at a particular time, and two years later, you might come to a forensic economist and say, okay, figure out the economic loss. You've got a past loss and you have a future loss. The past loss is in the past. We know how much money that person should have made if they were, say, as a welder, and they can no longer work as a welder,

or perhaps they're working as a welder, but because of an injury, they can only work part time. So you can look at their W twos, you can look at their paycheck and say, they should have made a certain amount of money. They only made a this amount of money. And then you can kind of figure that out. Well, that's past loss. You know? That's That's a easier job than trying to figure out the future loss, because in the future, you have to figure out, well, what would they have made for the next 20 years into what is called a work life. We all have a work life. We are a certain age. We have maybe a certain level of education, and typically, then, if you're 40 years old, you might have a 20 year work life where you'd work for another 20 years or so. If you're, you might have a 30 year work life, that sort of thing. Now, what? What sort of money would you make into the future? And if you're, it's a partial disability, not, say, not a full disability, a catastrophic one. We can't work at all. Then you have to look and see, what? Well, what could you do with that particular injury that's called mitigation, and people are responsible for mitigating, so they worked as a plumber, but let's say they've had an injury to their hand and they cannot work as a plumber. Well, they might be able to do something, so you have to look at what could they do versus what they would have done but for that particular injury. Thank you for joining us, and we'll see you next time. Bye.

Welcome to the Personal Injury Lawyer Podcast. I'm Clark speaks. This is the anatomy of a personal injury case. Today. I'm thrilled to have our guest, Dr Craig Galbraith, and Dr Galbraith tell us a little bit about what you do, just generally, what's your, what's your, your primary profession? Sure. I'm a professor at the Cameron School of Business at the University of North Carolina, Wilmington. I Wilmington. Teach in the management department and cover a variety of different things, from finance, entrepreneurial finance, to global strategy to and I actually do teach a course in valuation and appraisal. And what's your background? How do you what's your educational background? Sure. Well, I actually joined the army in 1970 and when I got out of the Army during the Vietnam War, I didn't go to Vietnam, but certainly Vietnam era decided to actually go into the area of philosophy. And so I went to San Diego State University and graduated with a degree, a bachelor degree, in economic philosophy. Then realized that, no, I really did have to pursue the real world. And so I ended up with an MBA in operations and production management. Got a master's degree in molecular biology from the University of Nebraska, and then finished up with my PhD, doctorate degree from Purdue University, Krannert, Graduate School of Management there in management and Mathematical economics. And so how did you get from the Midwest to North Carolina? Well, that's an interesting story. I was actually born and raised in San Diego

and grew up in the 1950s and 60s there, when it was actually about the same size as Wilmington, North Carolina, very, very similar. After I got my doctorate, I went back to the University of California at Irvine, did that for about eight years, and then one of my MBA students said, you know, asked me if I wanted to start a biotech company with them. So was a founder of a biotech company for a couple years, sold that to an Indian pharmaceutical company. Decided, you know, that being a professor wasn't that bad. You know, you didn't have to work 8090, hours a week. You didn't have to mortgage your house to pay the bills and that sort of thing. So ended up going back into academics, and went to Purdue University after that. And then the opportunity came up here at UNC W and came here, didn't know anything about Cape Fear. In fact, I thought Cape Fear was just a great name for a movie at that particular time. And came here, and I said, you know, this is a lot like San Diego when I was growing up, about the same size as a coastal community. It's got a lot of potential. There's even a Marine Base, 4050, miles north camp, Pendleton, of course, in California. And la June here. So came here, thought I'd stay for about three or four years, and ended up loving it, you know, I really enjoy it here, and so now I've been here since the mid 90s. So, so at the university, you're, are you do you research? Do you teach kids? Do you teach freshmen, graduate students? I Well, I'm a research professor, you know, I'm actually what's called a distinguished faculty member. We've got about six or seven of them at the whole campus, and it's kind of one step above a full professorship. And the expectation, however, is that you do not only teach, but you also do research, and you do good research. So I'd say about 50% of my time is responsible for doing research, writing articles, writing books, you know, that type of thing. And then the other 50% of my time is spent teaching primarily senior level undergraduates. And then MBAs, okay, and remind me what sorts of things you teach there. Well, I do teach a course in business valuation and appraisal and entrepreneurial finance. I teach a global strategy, particularly to the MBA students, and looking at, you know, what's happening in the world, looking at kind of world, economic type of issues, and then commercialization of technology and that sort of thing. But, you know, focus is really on kind of the mathematical side of things, the economic side of things, and so forth. Well, so, so that's what we want to talk to you a little bit about today is the evaluation piece of Sure. So the purpose of this podcast is that every day someone is hurt catastrophically somewhere in the world, you know, and when the medical people leave and family leave and they're sort of alone with their thoughts, a lot of people are really concerned about

what next. You know, what do I do now? And so our mission is to help them recover, physically, financially and emotionally. And so I think the where this conversation fits into the mix is

financially, in the sense that

a lot of these people may have legal claims, and those legal claims have to be built and developed by competent, complex personal injury lawyers and and what I want to talk to you about how where your work fits into sure into that puzzle you.

Okay, and so in addition to

research, and in addition to teaching these graduate students and and the publications that you do, there's also another component of your work, is that? Right? Yeah, I do a fair amount of consulting for attorneys in personal injury, wrongful death, medical malpractice, type of cases. Do you do? Do you do work in other areas? Do you do work in divorce practices? Yeah, I do about half the work I do is in divorce practices. It the underlying theory is always the same as, what is the value of something? You know, that's what we talk about in valuation, appraisal. There's value associated if somebody was, say, working, let's say and they had a catastrophic injury, they have a loss of income associated with that. So we're looking at at that aspect. But you also have the same sort of thing. You have business, you have pensions and divorce cases that have to be valued under North Carolina equitable distribution rules. And a lot of this boils down to

the what we refer to as time value of money. Is that it basically all boils down to the time value of money. When you think about what something is worth today, if you're talking about a business, if you're talking about your income, let's say

we've had things in the past. We've earned things in the past. The business has had a profit in the past. We've all earned income in the past, or whatever. But what you're trying to do, if you have an injury or trying to figure out the business value for a commercial activity, is what you do in the future. What you expect to have in the future. You expect to earn money in the future. You expect to have benefits associated with that salary in the future, if you're talking about an individual, and actually, many people that are injured may actually run a business, so you really combine the business valuation with the loss of income. Because certainly, if you have a catastrophic injury, you can have somebody that their business goes down and they're losing the value associated with that particular business. But what you're doing is you're looking at the future income associated with these different type of things, and then trying to figure out, what is that worth in today's money? What do I need today to equal basically what that expected income would be for the future? So I've said before, hey, $1 today is worth more than $1 a year from now, or five years from now, or 25 years from now. What is that true? And why is that? Well, you know, you tend to have a couple things going on. First of all, you have inflation. And so if you're working today, let's say, and you're earning $20 an hour, more than likely, you're going to have increases. The increases can come simply from the cost of living increases you might get from your employer. You might get promoted. There's a number of different things that can happen that your salary may actually go up in the future. When you're trying to figure out today what that is worth. The idea is you're trying to replicate today. If I were to go out and get a chunk of money today and I were to invest it, let's say, in bonds, and bonds pay a certain amount of interest. What I'm trying to do, and what we try to do, as an expert in this particular area, as a forensic economist, is try to figure out what you need today, that if you were to invest it in bonds, that you could replicate what you would get in the future from your salary, or if you're talking about a business value, you're trying to replicate what your profits might might be in the future. Now that's what we call the present value of money. So you're discounting these future what are called annuities, basically these payments you expect to get in the future to figure out what you need today as a lump sum, to be able to invest and basically create the same type of income that you would have gotten, but you can no longer get because of the injury. So yesterday I was talking to I was talking to one of my kids, my, you know, my first job. She's my daughter's 17 years old. She's working. She's been working for a little while. She's got a part time after school job. And so we were talking about it, and I had mentioned to her, I talked to her a little bit about my first after school job. And I was, I was, I was interested in, and I look back and I because I can't remember exactly how I think minimum wage was like a buck 88 you know, mid 80s, you know, late 80s was like $1.80 is that an example of, and then, and then minimum wage now, obviously, is, is more than that. So is that an example of why of inflation? I mean, you know, we're going through a fairly high level of inflation. It may seem high right now, but actually, as economists, we look at history, and we certainly had a lot higher inflation and interest rates. If you go back to the 1980s and 1990s

I mean, it's hard to believe we've had like, 0% interest, 1% interest. Inflation has been about 2% or 3%

when I bought my first house in 1981 interest rates were 18% at that particular time. It really is a different world. But again, we tend to think about our kind of recent experiences in the last couple years. Yes, we have had inflation interest.

Rates have gone up because the Federal Reserve tries to raise interest rates to control inflation. But you're absolutely right. You know that people's income goes up over time because of inflation, you know, and interest rates can go up as you know, you try to compensate for that type of thing. So, so when we're looking at a person's, let's, let's take a specific example for

for instance,

let's say there's a person who is working in a job where maybe he or she is a welder, a builder, a electrician, something like that, and they go to

to work every day, and they get a and they're compensated for their work, and they're and these are skill positions. So in general, these are people are pretty well paid, right?

Not everybody knows how to will. Not everybody knows how to do plumbing. Not everybody knows how to do electrical, especially commercial electrical, or building or whatever. And so the idea is, okay, if suddenly they are injured and can't work any longer, then part of what you're doing then is to calculate, okay, they would have gotten a check. We can always go back and go, Okay, what have they lost so far? And that's is that relatively easy to quantify? It's relatively easy to quantify, because, let's say you have an injury at a particular date. And I've been doing this now for about 40 years. My father was a forensic economist at San Diego, and so, you know, going back, oh my goodness, now about 40 years, you know, I've been working in the area of forensic economics, in terms of economic loss associated with injuries, and the level of sophistication has gone up. I mean, it's just like anything, you know, science or whatever we talk about law. I mean, the level of sophistication has gone up. People have published things that we can use now that weren't available, say, 4040, years ago. As an academic, I do have an opportunity of reading the academic stuff that things have been published. And that's very, very important to try to figure out things. But let's say you're injured at a at a particular time, and two years later, you might come to a forensic economist and say, okay, figure out the economic loss. You've got a past loss and you have a future loss. The past loss is in the past. We know how much money that person should have made if they were, say, as a welder, and they can no longer work as a welder,

or perhaps they're working as a welder, but because of an injury, they can only work part time. So you can look at their W twos, you can look at their paycheck and say, they should have made a certain amount of money. They only made a this amount of money. And then you can kind of figure that out. Well, that's past loss. You know? That's That's a easier job than trying to figure out the future loss, because in the future, you have to figure out, well, what would they have made for the next 20 years into what is called a work life. We all have a work life. We are a certain age. We have maybe a certain level of education, and typically, then, if you're 40 years old, you might have a 20 year work life where you'd work for another 20 years or so. If you're, you might have a 30 year work life, that sort of thing. Now, what? What sort of money would you make into the future? And if you're, it's a partial disability, not, say, not a full disability, a catastrophic one. We can't work at all. Then you have to look and see, what? Well, what could you do with that particular injury that's called mitigation, and people are responsible for mitigating, so they worked as a plumber, but let's say they've had an injury to their hand and they cannot work as a plumber. Well, they might be able to do something, so you have to look at what could they do versus what they would have done but for that particular injury. Thank you for joining us, and we'll see you next time. Bye.