Draft:Charles Bates (economist)

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Charles E Bates
NationalityAmerican
Academic career
InstitutionJohns Hopkins University
FieldEconometrics
Alma materUniversity of Rochester

Charles Bates is the Chairman and co-founder of Bates White, LLC, an economic consulting firm headquartered in Washington, DC. He is an expert in the application of statistics and computer modeling to large, complex litigation matters requiring novel quantitative solutions. He is also a leading expert on methods of asbestos liability forecasting. He is regularly retained on asbestos liability and other mass tort matters by debtors, insurance companies, and financial creditors’ committees in federal bankruptcy proceedings.[1]

Education and early career[edit]

Charles Bates earned a PhD in economics from the University of Rochester, where he became an econometrician specializing in estimation methods. He subsequently served on the faculty of Johns Hopkins University’s Department of Economics, where he taught courses in econometrics and trade theory for seven years.[2]

He left his academic career in 1991 to join KPMG, where he rose to the rank of Partner in Charge of Economic Analysis. While there, he developed appropriate methods for forecasting asbestos personal injury and property damage claims and their related expenditures.[2]

In 1999, Dr. Bates established Bates White, an economic consulting firm, with Halbert White.[3][4][5] While at Bates White, he has continued his lifelong research program to enhance methods of forecasting asbestos claims and debtors’ liability for those claims.[2]

Career[edit]

Dr. Bates' testimony has been cited in legal disputes involving precedent-setting case law, notably (1) appropriate inventory methods for tax court assessments, (2) valuation of mass tort bankruptcy litigation, and (3) valuations of mass tort cases involving sexual abuse.

Kroger Co., et al. v. Commissioner of Internal Revenue[edit]

The Kroger Co., et al. v. Commissioner of Internal Revenue was a Tax Court case in the 1990s. The Internal Revenue Service (IRS) contested Kroger's method of calculating inventory adjustments.[6] At issue was how a retail company should accrue its inventory shrinkage. The IRS said that a company needs to conduct a physical inventory—known as the cash accounting method. Kroger retained Dr. Bates, and he testified that an alternate method of calculating inventory shrinkage, the accrual system, is a more accurate method.[7]

The decision by Judge Halpern found that the company’s methods of estimating inventory shrinkage reflected income.[8] That is, the ruling permitted Kroger to estimate inventory shrinkage based on accrued income rather than physical inventory.[9] A parallel, concurrent decision was made in Wal-Mart v. Commissioner, for which Dr. Bates was retained by Wal-Mart to conduct a rebuttal analysis.[10]

The Wal-Mart and Kroger cases reveal the essential attributes of an allowable accrual for estimated shrinkage; a review of the attributes of the shrinkage accrual systems considered by the Tax Court have provided guidance for securing such an accrual in subsequent cases.[9]

In re Garlock Sealing Technologies, LLC[edit]

In re Garlock Sealing Technologies involved the 2010 entry into bankruptcy proceedings of Garlock Sealing Technologies, a manufacturer of asbestos gaskets, as a result of its large expenditures on asbestos personal injury cases. At the time of bankruptcy, plaintiffs asserted there were more than 4,000 current mesothelioma claims, as well as an unknown number of future mesothelioma claims from past exposure to Garlock gaskets.

As part of its bankruptcy proceedings, Garlock sought to quantify its liability for current and future mesothelioma-related cases. Garlock retained Dr. Bates to estimate Garlock’s pending and future asbestos personal injury claims. Dr. Bates’ testimony, as adopted by the court, was that Garlock's company history of settling cases did not reflect its liability, as that was inflated in part by plaintiffs’ strategic withholding of exposure information. Garlock presented a sample of 15 cases showing that attorneys for asbestos victims withheld evidence that their clients—who had all received settlement payments from Garlock and denied, under oath, exposure to products of other bankrupt companies that had set up trusts—had asserted claims against those other trusts on the same grounds.[11] In his ruling, Bankruptcy Judge George R. Hodges called this a “startling pattern of misrepresentation” by plaintiffs’ attorneys.[12][13]

The ruling further found that what a company owes is also not necessarily an extrapolation of what it has paid in the past because settlements are inflated by costs of litigation. In his decision, Judge Hodges cited Dr. Bates’ testimony and methods, saying it was “proper to use Garlock’s method of deciding the degree of the company’s legal liability by looking at the merits of the claims and rejects claimants’ method of using Garlock’s historical settlements to extrapolate how much it would cost to settle present and future claims.”[12][14] It was the first time in more than 80 asbestos bankruptcy trials that the court did not accept plaintiffs’ estimates of future claims.[14]

This decision set a precedent for Rule 2019 filings disclosure. Judge Hodges’ decision noted, “The Bates White incidence model was demonstrated to be an acceptable method of predicting future incidence of mesothelioma…. In fact, the Bates White model is more inclusive than other models because it includes both occupational and non-occupational exposure.”[12]

FAIR Act—testimony before Congress, 2005–06[edit]

The Fairness in Asbestos Injury Resolution (FAIR) Act of 2005, introduced by Pennsylvania Senator Arlen Specter, was proposed to establish the Office of Asbestos Disease Compensation in the Department of Labor. The goal of the FAIR Act was to create a $140 billion national trust, funded by businesses and insurers,[15] to pay anyone suffering from conditions related to asbestos exposure on a no-fault basis and in a non-adversarial manner.[16] In short, it would create a privately financed national fund to compensate asbestos claimants, removing asbestos claims from the courts.[17][18]

Dr. Bates testified before Senate Judiciary Committee, showing that the trust fund was significantly underfunded to meet that goal and would “establish an entitlement for compensation to large numbers of lung and other cancer patients who currently do not have a valid tort claim.”[19] In other words, the Act would allow claims that would not succeed in the tort system, which could reach more than $300 billion, or $160 billion more than the proposed funding amount.[19] The Wall Street Journal cited Dr. Bates’ work in its opinion opposing the bill.[18]

In re Boy Scouts of America and Delaware BSA, LLC[edit]

After spending more than $150 million on settlements and associated legal fees to address claims of sexual abuse, the Boy Scouts of America (BSA) filed for bankruptcy in 2020 with a plan to establish a trust to compensate men who were allegedly abused as Scouts by Scoutmasters or other leaders in the organization.[20] In re Boy Scouts of America was the largest sexual abuse bankruptcy case in American history, with more than 82,000 unique proofs of claim. Dr. Bates was retained as the evaluation expert for the debtor.

Dr. Bates used a frequency severity methodology to determine an aggregate value for the direct abuse claims, an accepted model and valuation methodology within the valuation community.[21] After analyzing historical abuse claims, he turned to the proofs of claim filed in this case and arrived at an aggregate valuation.[21] Dr. Bates’ valuation analysis and testimony outlined the reasonableness of the proposed trust distribution procedures. In adopting Dr. Bates’ opinion, Judge Laurie S. Silverstein noted that his analysis was “thorough and credible.”[21]

Publications[edit]

  • Bates, Charles E.; White, Halbert (1985). "An Asymptotic Theory of Consistent Estimation for Parametric Models". Econometric Theory (1). doi:10.1017/S0266466600011117.
  • Bates, Charles; White, Halbert (1985). "A Unified Theory of Consistent Estimation for Parametric Models". Econometric Theory. 2 (1).
  • Bates, Charles E. (1987). "Instrumental Variables". In Eatwell, John; Milgate, Murray; Newman, Peter (eds.). The New Palgrave: A Dictionary of Economics. Macmillan.
  • Bates, Charles E.; White, Halbert (1988). "Efficient Instrumental Variables Estimation of Systems of Implicit Heterogeneous Nonlinear Dynamic Models with Nonspherical Errors". In Barnett, W.A.; Berndt, E.R.; White, H. (eds.). International Symposia in Economic Theory and Econometrics. Vol. 3. Cambridge University Press.
  • Bates, Charles E.; White, Halbert (1993). "Determination of Estimators with Minimum Asymptotic Covariance Matrices". Econometric Theory. 4 (9).
  • Bates, Charles E.; Mullin, Charles H. (2006). "Having Your Tort and Eating It Too?". Mealey's Asbestos Bankruptcy Report. 4 (6).
  • Bates, Charles E.; Mullin, Charles H. (2007). "The Bankruptcy Wave of 2000—Companies Sunk By An Ocean Of Recruited Asbestos Claims". Mealey's Litigation Report: Asbestos. 24 (21).
  • Bates, Charles E.; Mullin, Charles H. (2007). "Show Me the Money". Mealey's Litigation Report: Asbestos. 24 (22).
  • Bates, Charles E.; Mullin, Charles H. (2008). "State of the Asbestos Litigation Environment—October 2008". Mealey's Litigation Report: Asbestos. 19 (23).
  • Bates, Charles E.; Mullin, Charles H.; Marquardt, A. Rachel (2009). "The Naming Game". Mealey's Litigation Report: Asbestos. 15 (24).
  • Bates, Charles E.; Mullin, Charles H.; Scarcella, Marc C. (2010). "The Claiming Game". Mealey's Litigation Report: Asbestos. 1 (25).

References[edit]

  1. ^ "Charles Bates, PhD". Bates White.
  2. ^ a b c "Testimony of Charles Bates, PhD" (PDF).
  3. ^ "Halbert L. White, University of California, San Diego, Professor and Founder of Bates White Economic Consulting, Dies at Age 61" (Press release). Bates White – via PR Newswire.
  4. ^ "UC San Diego economist Halbert White, 61, dies after four-year cancer bout". La Jolla Light. 3 April 2012.
  5. ^ "A Celebration of the Life of Halbert L. White Jr".
  6. ^ "Kroger Claims $39 Million In Estimated Inventory Losses". Tax Notes. February 25, 1994.
  7. ^ "Inventory shrinkage definition". Accounting Tools. December 7, 2023.
  8. ^ "Inventory shrinkage accrual method". The Free Library. March 1, 1997.
  9. ^ a b "Inventory Shrinkage". Practical Tax Strategies. 3 (59). September 1997.
  10. ^ Wal-Mart Stores, Inc., et al. v. Commissioner of Internal Revenue, 27022-93 (January 2, 1997).
  11. ^ Nocera, Joe (January 14, 2014). "The Asbestos Scam, Part 2". New York Times.
  12. ^ a b c In re Garlock Sealing Techs, LLC..
  13. ^ Searcy, Dionne (January 13, 2014). "Judge Claims 'Pattern of Misrepresentation' in Asbestos Bankruptcy". Wall Street Journal.
  14. ^ a b "EnPro's Garlock Wins Trial on Asbestos Liability". Bloomberg News.
  15. ^ Brickman, Lester (2005). "An Analysis of the Financial Impact of S. 852: The Fairness in Asbestos Injury Resolution Act of 2005". Cardozo Law Review. Vol. 2, no. 27.
  16. ^ "FAIR Act".
  17. ^ Hanlon, Patrick M.; Smetak, Anne (2006). "Asbestos Changes". New York University Annual Survey of American Law (62): 580.
  18. ^ a b "Asbestos Showdown". Wall Street Journal. February 14, 2006.
  19. ^ a b "Testimony" (PDF).
  20. ^ "The Boy Scouts are out of bankruptcy and will pay $2.4 billion to sex abuse survivors". NPR.
  21. ^ a b c "In re Boy Scouts of Am".
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