Digital Extra: The Station Fire

At a bankruptcy hearing, the owners of The Station nightclub testify in court for the first time.

01:00 AM EST on Tuesday, December 13, 2005

BY PAUL GRIMALDI
Journal Staff Writer

PROVIDENCE -- The U.S. Bankruptcy Court hearing for The Station nightclub owners Jeffrey and Michael Derderian inched forward yesterday as the brothers faced more questions about their finances.

Stacy Bettez Ferrara, the bankruptcy court trustee, and other lawyers questioned the Derderians at length for more than three hours about how the two men are paying their legal fees and what they did with the proceeds of an insurance settlement and the sale of various properties.

"I'm looking for some type of accounting," Ferrara said, as she tried to sort through bank statements and law-firm invoices. "Is there any method to the madness?"

The bankruptcy hearing of creditors began last month. It is the first time since the Station fire on Feb. 20, 2003, that the brothers have testified in open court. The fire killed 100 people and injured twice as many.

In bankruptcy cases, creditors hearings give those who are owed money an opportunity to question the bankruptcy petitioner about the truth of the filings.

Ferrara, the trustee, reviewed detailed financial information filed by the brothers on behalf of themselves and their company, Derco LLC, in their Chapter 7 petition for protection from creditors. If approved, Chapter 7 bankruptcies generally wipe out all debts.

Ferrara and victims' lawyers Max Wistow and James Kelleher picked away at the records, trying to figure out what the brothers did with a $98,669 property-damage claim Essex Insurance Co. paid on the nightclub after the fire and what the brothers are paying lawyers since the fire.

The questioners also wanted to know what happened to the $135,000 that Jeffrey Derderian borrowed from David and Richard Lang, what happened to $60,000 Michael Derderian received from his second wife -- Kristina Link -- and how the brothers have spent $150,000 from the sale of a gas station owned by Derderian Realty LLC.

Wistow asserted that the insurance settlement belongs to Derco, and ultimately, the fire victims.

In separate testimony yesterday, the brothers said lawyers' fees are being paid in lump sums, with little detail about hourly rates or how much was being charged to Derco or the individual brothers.

Michael Derderian said some billing records were lost in a flood at a lawyer's office, but acknowledged that the brothers split $84,100 from the insurance settlement, with the remainder going to that lawyer.

Michael Derderian also acknowledged paying Boston criminal lawyer Richard Egbert thousands of dollars without getting detailed bills.

"How do you know he's earned the first payment?" Ferrara asked.

For his part, Jeffrey Derderian said he has paid lawyer Jeffrey Pine $150,000 for his work on the Station case.

Ferrara ended the day's proceedings with a request that the Derderians and their lawyers produce detailed lawyers' bills and additional bank statements.

The hearing before the creditors will continue Jan. 9 at 11 a.m.

In a related matter, a spokesman for Attorney General Patrick Lynch said yesterday the Derderians' criminal trial in the nightclub fire would begin after the conclusion of the separate trial of the other defendant in the case.

Yesterday, a judge set a May 1 start date for the trial of Daniel M. Biechele, the former tour manager for the rock band Great White, with the Derderians' trial to begin after its conclusion. Biechele and the Derderians are each charged with 200 counts of involuntary manslaughter in connection with the 2003 fire. They have pleaded not guilty.

Paul Grimaldi covers retailing and consumer behavior. E-mail him at pgrimald@projo.com