Digital Extra: The Station Fire

A state hearing officer rules that the brothers don't have to pay the penalty because they aren't officers of the company that owns The Station nightclub.

01:00 AM EST on Saturday, February 28, 2004

BY LYNN ARDITI
Journal Staff Writer

The owners of The Station nightclub cannot be held personally liable for a more than $1-million penalty against their company for failure to carry workers' compensation insurance, a state hearing officer ruled yesterday.

The ruling, by the 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, is The Station, according to court documents. And the West Warwick nightclub burned to the ground 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 carried no workers' compensation coverage for nearly three years. The labor department imposed a $1.06-million penalty against Derco.

The penalty, $1,000 for each day the nightclub was without coverage, 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 $1.06-million 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 $1.06-million penalty against Derco LLC and remanded the matter of personal liability to the state Department of Labor and Training.

Yesterday, in a five-page written decision, 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 in the decision.

The law allows for "sanctions against specific corporate officers -- namely the president, vice president, secretary, and treasurer, rendering them severally and personally liable with the corporation in certain instances," Vallone continued. However, "Members or managers of a Limited Liability Company are not included among them."

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.

"Derco clearly does not have the million dollars in assets that's been levied against them," said Jeffrey B. Pine, lawyer for Jeffrey Derderian.

Kathleen M. Hagerty, a lawyer representing Michael Derderian, yesterday agreed, saying, "Derco LLC was The Station, and there were no other business entities that were run under that as Derco. No other assets. That was it."

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

"It's not that we ever denied reponsiblity, it's that the [$1.06-million] penalty was disproportionate and in our view unconstitutional," Pine said. "The bottom line is they want to do what's right in compensating the families."

"Despite this decision," Hagerty said, "it's certainly their intent in the future to compensate the families" for benefits they would have received if The Station had been covered by workers' compensation insurance.

Lynn Arditi, a Journal staff writer, can be reached at larditi [at] projo.com

DIGITAL EXTRA: Read the full text of the Department of Labor and Training's ruling on the workers' compensation penalty against the Derderians' company, at:

http://projo.com/extra/2003/stationfire/pdf/wcompruling.pdf