Judge rules Bitcoin mine violates zoning laws but allows appeal

JONESBOROUGH, Tenn. (WJHL) — Lawyers for a rural Bitcoin mine that Washington County is trying to shut down lost a major battle but won some time Monday morning in Washington County Chancery Court. After ruling that the mine violates the A-3 (agriculture business) zoning ordinance and would not normally be allowed to operate there, Chancellor John Rambo agreed to an appeal that could take months to decide.

Rambo’s ruling about the facility — which leases land and buys power from local utility BrightRidge in Limestone — was a win for the county in its efforts to stop the operation, which neighbors began raising noise complaints about in May 2021.

“The people in the Limestone area have been living with this unpermitted use … in their community for over 300 days, so we’re very grateful that this court was able to make itself available and put in the time and the thoughtful consideration to make the ruling based on Tennessee law,” County Attorney Allyson Wilkinson said after the hearing.

Craig Ponder, who pastors nearby New Salem Baptist Church and lives next door to the church, praised Rambo’s ruling.

“I’m proud of the county’s taking a stand for us,” Ponder said. “That’s exciting for us who live down here and have to put up with this 24-7.”

Neighbors said they were blindsided by the Bitcoin mine. In February 2020, the county commission approved a rezoning for BrightRidge, which said it would install a blockchain data center but never mentioned a separate, for-profit operator.

Neighbors and commissioners alike have said they were under the impression that a BrightRidge facility was going there. The rezoning request also mentioned fans that create “small noise” that wouldn’t disturb nearby residents.

Contrary to arguments by Red Dog attorney Chris Owens and BrightRidge attorney Steve Darden, Rambo found that the mine’s function — verifying Bitcoin transactions by using blockchain technology — does not fit the definition of a public utility. Rambo said that would have required the facility to provide a utility-type public service, not just to use a utility’s already existing services.

“Instead of providing facilities that facilitate the transmission of data … they are a user,” Rambo said, siding with arguments primarily made by Wilkinson’s co-counsel Jeff Ward. “They are using electricity, they are using internet like the general public and they are doing that for their business purposes.”

Andy Griffith and the town operator versus the used car lot

Rambo’s decision followed arguments by Steve Darden for BrightRidge and Chris Owens for Red Dog, countered primarily by Ward.

Darden and Owens claimed that because blockchain data centers that verify Bitcoin transactions are processing data in ways that benefit members of the public who use Bitcoin, they are a public service. In turn, they said, that should qualify them as an allowed use under the “public utility” definition from the zoning ordinance.

Owens offered an Andy Griffith analogy.

“Andy would pick up the phone and he would say, ‘Sarah, get Barney,'” Owens said. “And then Sarah, an employee with the phone company would be sitting at a switchboard and she would take a plug and stick it into a hole and make the connection.

“That is exactly what the Bitcoin miner is within the Bitcoin telecommunications transaction. They’re that switchboard. They’re the ones that have to solve the problem to see if the communication goes any further. Because if they don’t solve the problem it doesn’t (go any further).”

Ward provided his own analogy. He said Red Dog isn’t providing a telecommunications service to the public at all. He said Washington Countians “could have traded Bitcoin before the Red Dog facility came in, they could trade with the Red Dog facility gone,” Ward said.

“All the Red Dog facility does is allow Red Dog to try to cash in on those transactions.”

Since Red Dog isn’t providing something that didn’t already exist, Ward said, to claim it’s providing a public service would be a bit like a used car business leasing part of a BrightRidge parking lot and claiming it was providing a public service.

“The used car dealership starts selling cars from it, for profit, and then the used car dealership turns around and says, ‘oh, we’re a public utility because we’re authorized by BrightRidge to do this, because we’ve got a lease and we provide transportation services.'”

If Rambo was considering the zoning resolution’s intent — allowing public utilities and uses “authorized” by public utilities — “there’s no way that could be within the intent, to allow an entity … to do something through somebody else that it couldn’t do itself for profit-making purposes,” Ward said.

The decision put the parties on the edge of a trip down the hall to a nearby courtroom for a jury trial where Red Dog and BrightRidge could attempt an “affirmative defense” that could still avert a shutdown. Instead, waiting jurors filed out of the courthouse moments later after Rambo allowed the appeal.

Darden initially requested a so-called “interlocutory appeal.” The parties agreed on a different type of appeal that will settle permanently whether the use is a zoning violation.

The appeal process may take months. In the meantime, the “mine” will keep creating noise as fans cool hundreds of computers performing complex algorithms to verify Bitcoin cryptocurrency transactions and seek new Bitcoin — leaving neighbors likely still subject to it for some time to come.

Ponder said that made Monday’s decision a “good news, bad news” result, but he added that he wasn’t surprised.

“I recognize big business for what it is, and we were kind of anticipating an appeal process,” Ponder said. “The idea that it could be an extended period is a little discouraging.”

Wilkinson and Ward both said the ruling was a victory for the people who live near the facility despite the likelihood that a final outcome may be months away. And Wilkinson opened the door to a possible deal, but not at the current site.

“In fact Washington County has made available resolution without litigation for a considerable amount of time before filing the lawsuit in November,” Wilkinson said. “And so if there is any alternative that’s available now that the court has declared that Red Dog’s operation is inconsistent with the definition of a public utility in Washington County’s zoning resolution, the county will absolutely consider it.”

Delay could come with cost for Red Dog

Red Dog and/or BrightRidge must post a bond in order to secure the appeal. That’s because they’ve already been ruled against and the appeal process, if unsuccessful, will have delayed the execution of justice — in this case, the mine’s shutdown.

Wilkinson said the county will lean on that when the bond hearing date arrives. It wasn’t set Monday because Red Dog representatives said they needed to speak to their chief financial officer first. The company said in a countersuit against the county, which Rambo dismissed last month, that it would lose an estimated $36 million of net profits, amounting to 18 months’ operation, if it were shut down.

“If that’s the case then they would be unjustly enriched to continue operating, so the county will be very conservative in how it looks at that bond issue and the appeal,” Wilkinson said. If Red Dog is netting the equivalent of $36 million over 18 months, that works out to about $65,000 a day.

Ward directly mentioned the potential of relocation within the county in an interview after the hearing.

“That’s hard to determine without knowing exactly what kind of resolution BrightRidge and Red Dog might propose,” he said. “Certainly there are always options to consider, the facility being moved or some other action being taken.”

Preston Holley lives directly across the road from the mine and said he hopes the county will pursue every possible avenue if it’s going to have to wait through an appeal process.

“If this facility were located in a city the sound of it would be absorbed by the traffic, the businesses,” Holley said. “There are better places for a facility like this other than out here where it’s very quiet.”

Since the launch of the site’s operation, neighboring residents from as far as a mile away have filed numerous complaints of the mine’s computer systems constantly humming in a previously rural, quiet community.

Holley still chafes at the fact that neighbors and even the county’s planning office thought a BrightRidge operation was going on the property. Many neighbors had gotten the impression it would be used as a solar farm.

“It seems like they’re playing catch up and asking for forgiveness instead of permission,” he said. “This should have all been taken care of long before this place was built.”

Holley said shutdown should be “seriously considered” now that Rambo has ruled the use violates the ordinance.

 “I go to county commission meetings and people who ask for zoning requests make it very clear what they want to do. This never happened. And if they would have made it clear from the beginning this all could have been done legally and orderly and everybody could have made more informed decisions before this happened.”