Digital Extra: The Station Fire

04:27 PM EST on Friday, February 27, 2004

By LYNN ARDITI
Journal staff writer

PROVIDENCE -- The owners of The Station nightclub cannot be held personally liable for a more-than-$1-million penalty against the company that owns the club for failure to carry workers' compensation insurance, a labor department hearing officer ruled today.

The ruling by the state Department of Labor and Training's chief legal counsel, Louis J. Vallone, casts new doubt on whether the state has any chance of collecting the $1.06-million penalty against the company owned by brothers Jeffrey and Michael Derderian.

The only asset of the Derderians' company, Derco LLC, was The Station, according to court documents. And the West Warwick nightclub burned to the ground on Feb. 20, 2003. The blaze killed 100 people, including four nightclub workers.

By law, all businesses in Rhode Island are required to carry workers' compensation insurance, which pays medical bills and benefits to injured workers and their families. The insurance also pays benefits to the families of workers killed on-the-job.

After the fire, state investigators discovered that The Station had had no workers' compensation coverage for nearly three years.

As a result, the state Department of Labor and Training imposed the $1.06-million penalty against Derco LLC, which amounted to $1,000 for each day that the nightclub was without coverage. It is the maximum allowed by state law and the largest ever imposed by the state in a workers' compensation case.

Lawyers representing the Derderians appealed. In July, Workers' Compensation Court Judge Bruce W. Morin upheld the penalty. Morin also ruled that labor officials could hold the Derderians personally liable for all or part of the penalty.

The Derderians' lawyers appealed again. In October, a three-judge appeals panel of the Workers' Compensation Court upheld the penalty against Derco LLC and remanded the matter of personal liability to the state Department of Labor and Training.

In his five-page written decision issued today, Vallone, the department's chief legal counsel and hearing officer on the case, said that since the Derderians are not legally corporate officers, they cannot be held personally liable for the $1.06-million penalty.

``The intent of the Rhode Island Limited Liability Company Act is clear and unambiguous -- to provide for the creation of business entities in which the members or managers are not liable for the company's obligations,'' Vallone wrote.

The law does allow for ``sanctions against specific corporate officers -- namely the president, vice president, secretary, and treasurer, rendering them severally and personally liablle with the corporation in certain instances,'' Vallone wrote.

However, "Members or managers of a Limited Liability Company are not included among them.''

Since the Derderians' status as managers of a limited liability company does not come under the meaning of the term "corporate officers" according to state law, Vallone wrote, then the department has no jurisdiction to impose a penalty against them "individually, or in their capacities as members of managers of Derco, LLC."

Lawyers for the Derderians have appealed the $1.06-million penalty against Derco LLC to the state Supreme Court. In November, the Supreme Court agreed to stay the penalty against Derco LLC pending its ruling on the appeal.

Even if the Supreme Court upholds the penalty against Derco LLC, the question remains as to whether the state would be able to collect it.

Jeffrey B. Pine, lawyer for Jeffrey Derderian, and Kathleen M. Hagerty, representing Michael Derderian, agreed today that Derco did not have assets to pay the penalty.

Both Hagerty and Pine said the Derderians eventually hope to compensate the fire victims and their families.