Rhode Island Wants Nightclub Owners Held Personally Liable for Failure to Carry Workers’ Comp

The owners of The Station nightclub of Warwick should be held personally liable for failing to have workers’ compensation insurance for their employees, the state of Rhode Island argued this week in Workers’ Compensation Court in Providence.

Jeffrey and Michael Derderian’s company, Derco LLC, has been fined more than $1 million for failing to carry the required insurance. Four employees were among the 100 who died as a result of the Feb. 20, 2003, fire.

The state also wants to penalize the brothers personally, and argued in court that a new amendment to a state law regarding workers’ compensation insurance affirms that managers of limited liability companies can be held personally responsible.

“This amendment is a clarification, not an alteration of existing law,” said Bernard Healy, an attorney for the Labor Department, in court papers.

He said the amendment, which took effect July 2 and is not retroactive, strengthens the department’s argument.

The new law adds language to include managers of limited liability companies among those who can be held liable for the fine, penalty or imprisonment for failure to carry the insurance.

Six months ago, a Department of Labor hearing officer ruled that the brothers cannot be personally penalized because their “status as managers of a limited liability company does not come within the meaning of the term ‘corporate officers’ as set forth” under state law.

Thomas Dickinson, an attorney for the Derderians, said that because the new law isn’t retroactive, the Derderians are exempt from the amendment.

“The individual liability is absolutely clear cut that it doesn’t exist,” said Jeff Pine, an attorney for Jeffrey Derderian.

He said it “would be erroneous for a court to impose any liability because the statute … didn’t allow for it.”

The defense also questioned whether the court has jurisdiction to hear the Labor Department’s appeal.

A ruling is expected next week.

The more than $1 million fine was the maximum possible and the largest workers’ compensation penalty ever imposed by the state. If there had been workers’ compensation insurance, the families of the dead employees would have been eligible for $15,000 for burial and other expenses plus a portion of the deceased’s lost wages.

The penalty against Derco is under appeal in the Supreme Court.

The brothers also each face 200 counts of involuntary manslaughter stemming from the fire, which was sparked by the pyrotechnics of 1980s rock band Great White. The band’s former tour manager also faces criminal charges.

Additionally, the Derderians are named in several lawsuits filed by victims’ families and survivors.

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