Lawyers for the owners of The Station yesterday appeared before a
three-judge appeals panel of the state Workers' Compensation Court to
argue why the nightclub should not have to pay a $1.06-million penalty
for lack of workers' compensation insurance.
The penalty, which amounted to $1,000 per day for each day the nightclub
was without coverage, is the maximum allowed by state law and the
largest ever imposed in a workers' compensation case.
Lawyers for Station owners Michael and Jeffrey Derderian argued
yesterday that the $1.06-million penalty is excessive, and thus violates
their clients' constitutional rights. They also said that the company
that owned the nightclub, Derco LLC, legally insulates the Derderians
from being held personally liable for any of the money.
The three-judge appeals panel -- comprising Chief Judge Robert Arrigan,
Associate Judge Janette Bertness and Associate Judge Dianne Conner --
listened to testimony from lawyers for both sides of the case but asked
no questions.
The judges are expected to issue a written decision in about 30 days.
The appeals board hearing was the second step in an appeals process that
could go all the way to the state Supreme Court.
The hearing follows a July ruling by Workers' Compensation Court Judge
Bruce Q. Morin that upheld the labor department's $1.06-million penalty
against Derco LLC, the company that owned The Station. Morin also said
labor officials could hold the Derderians personally liable for all or
part of the $1.06 million.
Morin denied a request by the Derderians' lawyers for a stay of the
$1.06-million penalty, thereby opening the way for labor officials to
try to collect the penalty.
Yet the labor department has so far made no effort to collect the money.
Bernard Healy, the labor department's associate attorney, said the
agency will wait until the state Supreme Court rules on the matter
before attempting to collect.
The Derderians' lawyers had tried to appeal Morin's ruling directly to
the state Supreme Court, but were told that first they had to seek a
decision from the Workers' Compensation Appellate Division.
Yesterday, Jeffrey B. Pine, who represents Jeffrey Derderian, and his
cocounsel, Kathleen M. Hagerty, who represents Michael Derderian, took
turns presenting portions of their arguments before the three judges.
Hagerty called the $1.06-million "grossly disproportionate" when
compared with other lack-of-insurance cases. And Pine argued that the
Derderians cannot be held personally liable for any civil penalties
because state law recognizes limited liability companies as shielding
their members and managers from such liability.
The labor department's Healy retorted: "A limited liability company does
not shield its members from criminal acts."
Speaking to reporters outside the court yesterday, Pine said the amount
of the penalty, not the penalty itself, was what his clients were
fighting.
"They've always been willing to pay a fine," Pine said. "But
unfortunately, it was so over the top we had no choice but to appeal."
Pine said the Derderians would like any penalty money to go to the
victims of The Station fire, a sentiment expressed previously by labor
department officials.
Lynn Arditi, a Journal staff writer, can be reached by e-mail at
larditi@projo.com
