- 21 -
neys' fees and costs actually incurred in the Farmers lawsuit).13
Sometime after the damages hearing, DCI and/or the Diamonds
retained James Donnelly (Mr. Donnelly), a certified public
accountant, to analyze how the proceeds of the Farmers lawsuit
should be allocated between DCI and ETS. Mr. Donnelly made seven
alternative analyses. In making those various analyses, he had
access to, and relied on, inter alia, the following that he
received from Mr. Diamond: (1) A copy of the District Court's
opinion and (2) copies of certain evidence presented at the
damages hearing, including copies of Analysis 1 and portions of
the transcript containing Mr. Wharton's testimony, historical
financial records of DCI and ETS, and Federal income tax returns
filed by DCI and by the Diamonds. Mr. Donnelly recommended, and
the board of directors of DCI and the Diamonds in their capacity
as owners of ETS approved, the use of one of those analyses
(selected allocation analysis).
Under the selected allocation analysis, Mr. Donnelly recom-
mended that $446,981 of the lost profits damages be allocated to
ETS. That amount, which was approximately 29.86 percent of those
damages (selected allocation ratio), represented Mr. Donnelly's
estimate of the profits that ETS would have earned during each of
13 Although the attorneys' fees and costs actually incurred in
the Farmers lawsuit were $692,203, the District Court awarded the
plaintiffs $220,360 in attorneys' fees and costs, and FIG paid
the plaintiffs $226,212 in attorneys' fees and costs. See supra
note 10.
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