With assets estimated at less than $50,000 each, Jeffrey and Michael Derderian have sought Chapter 7 bankruptcy protection, freezing all civil claims against them.

01:12 AM EDT on Saturday, September 24, 2005

BY EDWARD FITZPATRICK and LYNN ARDITI
Journal Staff Writer

PROVIDENCE -- The owners of The Station nightclub filed for bankruptcy protection yesterday, halting, at least for now, all civil claims against them stemming from the 2003 blaze that killed 100 people.

Brothers Jeffrey A. and Michael A. Derderian and their company, DERCO LLC, filed for Chapter 7 bankruptcy protection from creditors in federal bankruptcy court in Providence.

Journal file photo

Brothers Michael, left, and Jeffrey Derderian estimate they have little assets and great debt.

The filing comes seven days before the Derderians were to stand trial on civil charges that they failed to pay more than $200,000 in workers' compensation insurance benefits to the families of four nightclub workers killed in the fire at their West Warwick club.

And it comes 25 days before a new federal bankruptcy law will take effect, making it tougher for people who owe money to seek protection from creditors.

The Derderians issued a statement, saying, "A recent review of our present financial condition has resulted in our actions today. Regrettably, we are no longer able to satisfy all of our present creditors or our potential future creditors."

A lawyer for the Derderians, Christopher M. Lefebvre, said the filing would halt the trial set for Friday in the state Workers' Compensation Court, and all civil claims filed against the Derderians in U.S. District Court.

But the filing will have no effect on the criminal case against the brothers, Lefebvre said. The Derderians and Daniel M. Biechele -- the former Great White tour manager who set off the pyrotechnics that ignited the highly flammable foam used as soundproofing in the club -- each face 200 counts of involuntary manslaughter. All have pleaded not guilty.

Samuel Gerdano, executive director of the nonprofit research group, the American Bankruptcy Institute, said, "When you're facing a blizzard of personal and business liability claims and there aren't sufficient assets or insurance to pay for them, bankruptcy is . . . one way to try to deal with it."

IF THE BANKRUPTCY COURT approves the Derderians' Chapter 7 filings, Gerdano said any civil judgments for compensation benefits or fines against the Derderians "will not be able to be executed."

But even if the bankruptcy court grants the Chapter 7 bankruptcy protection -- effectively wiping out their debts -- that will probably have little impact on the fire victims' attempt to recover money in lawsuits.

The civil suits name nearly 50 defendants besides the Derderians -- including foam manufacturers, a radio station and a beer company -- which have much deeper pockets.

And yesterday's bankruptcy filing estimates that the Derderians each have assets of less than $50,000 and debts of more than $100 million.

"The Derderians are broke," Lefebvre said. "That's no surprise."

Max Wistow, one of the lead lawyers representing fire victims in the civil suits, said, "It's fair to say that because of the limited resources of the Derderians to begin with and the huge potential liability involved, this filing should not represent any material change in what's available to compensate victims."

One of the foam manufacturers named in the suits, Foamex International Inc., filed for Chapter 11 bankruptcy protection this week, trying to buy time to restructure debts. And Foamex has asked to at least temporarily halt proceedings against it in the Station fire suits, said Mark Mandell, another lead lawyer for fire victims.

In their statement, the Derderians noted that DERCO had liability coverage, which had a limit of $1 million per occurrence and a medical-expense limit of $1,000 for each injured person. Also, the brothers said they planned to continue making payments to the families of the four employees killed in the fire.

"While we realize no amount of money could ever erase the injuries suffered or the heartache of the loss," the Derderians stated, "we hope that in some small way our insurance and our continued payments will benefit those affected."

The four workers killed in the blaze were bouncer Tracy F. King, 39; waitress Dina Ann DeMaio, 30; guitarist Steven R. Mancini, 30; and his wife, Andrea Louise Jacavone Mancini, 28. At the time of their deaths, King and DeMaio were supporting young children. The Derderians have been sending the employees' families monthly checks -- $125 for those without children and $500 for those with children -- since April, lawyers said.

Andrew Caslowitz, a lawyer who represents Tracy King's widow, Evelyn King, and their children, said: "It's nice that they're paying something, but right along we've always wanted to see what their ability to pay is." He said the Derderians owe the King family more than $100,000 in workers' compensation claims.

Caslowitz said, "I think they realized they weren't going to be able to avoid answering questions from us concerning the workers' comp issue" and their ability to pay their employees' claims. Now, he said, "they're going to have to answer questions in bankruptcy court."

With a new federal law to take effect Oct. 17, Rhode Island has seen a sharp increase in bankruptcy filings. When asked why the Derderians filed now, Lefebvre said, "There was no grand scheme in planning. The law changes are coming up, and you have the workers' compensation issues and civil suits. It was probably the right time to get it done."

Lefebvre said, "The bankruptcy process will allow for a unified forum to deal with the many issues, which will hopefully be good for creditors."

But Wistow said he wasn't sure that the Derderians would get the protection they're seeking in bankruptcy court. He said, "Whether this potential obligation is dischargeable needs to be taken a look at because there's an exception for willful and malicious acts."

The Derderians asked the bankruptcy court to give them until Oct. 21 to file a full list of creditors. A partial list in yesterday's filing named a half-dozen banks and lenders for each brother. A meeting with the bankruptcy court trustee is set for Nov. 2.

With reports by Staff Writer Tracy Breton. Staff Writer Lynn Arditi can be reached larditi [at] projo.com, and Staff Writer Edward Fitzpatrick can be reached at efitzpat [at] projo.com