Lawsuit requesting Bitcoin mine shutdown to resume Dec. 8 – Mine operator added as defendant

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JONESBOROUGH, Tenn. (WJHL) – A lawsuit requesting the shutdown of a Bitcoin mine in rural Washington County may hinge on when county officials knew that the operation next to a utility substation would be owned and run by a private company and not power distributor BrightRidge.

On Wednesday, Chancellor John Rambo set another hearing for Dec. 8 and granted the company, Red Dog Technologies, the right to join as a defendant in Washington County’s suit against BrightRidge. The suit, filed Nov. 15, claims that a privately operated cryptocurrency mine is an “unpermitted use” in the A-3 (agricultural business) zone.

The county granted BrightRidge’s rezoning request for land it owns next to its substation at 1444 Bailey Bridge Road in the New Salem community of Limestone in February 2020. BrightRidge said the intended use was a “blockchain data center,” which, among other things, cryptocurrency mines are.

‘Ms. Wilkinson has misstated a fact in saying that Red Dog was unknown to the county until the noise started. That’s just plain wrong.’

BrightRidge attorney steve darden

The county’s lawsuit claims it didn’t learn that BrightRidge wouldn’t be the direct operator of the facility until after neighboring residents voiced complaints about noise in May 2021.

At that point, the suit alleges the county learned “through an undisclosed relationship with unidentified contracting parties, BrightRidge had agreed and consented to Red Dog Technologies, LLC’s use of the property to operate a Bitcoin blockchain verification facility.”

Chancellor John Rambo listens to arguments in the BrightRidge-Washington County lawsuit Wednesday.

BrightRidge’s attorney, Steve Darden, argued Wednesday that “it’s abundantly clear that Red Dog should be in this matter.”

Red Dog Technologies, which wrote in a Monday court filing that it expects a net profit of at least $36 million over the next 18 months from the mine, will have attorneys present Dec. 8 when Rambo takes the case back up.

Washington County sued Nov. 15 for a restraining order that would prevent Red Dog from continuing operation, but that suit names only BrightRidge as the defendant.

BrightRidge owns the property next to its substation on Bailey Bridge Road and secured the property’s rezoning in February 2020 to A-3 “agricultural business” for a “blockchain data center.” The Washington County Planning Commission and later the full county commission both unanimously approved the request.

The county’s lawsuit alleges that BrightRidge didn’t disclose that a private company would operate the data center, and that while utilities are a permitted use under A-3, a private company mining cryptocurrency is not.

But in a counterclaim, Red Dog claims that the county was aware on Feb. 14, 2020 — before the rezoning passed the commission — “that the property would be rezoned for the operation of a block chain verification data center and that the block chain verification data center would be owned and operated by GRIID or a related entity, and not by BrightRidge;”

Feb. 14, 2020 is the date BrightRidge formally responded to a request for proposals by GRIID (Red Dog’s predecessor company) and bid to host a facility that would use up to 25 megawatts of power.

In addition to its claimed net profit of about $2 million a month, Red Dog is BrightRidge’s largest single electricity customer.

Red Dog’s counterclaim, filed Monday in addition to its motion to intervene, makes several claims and requests.

First, it claims its use of the property should be allowed, saying it “is not expressly excluded under an otherwise expansive and discretionary zoning definition.”

It asks for Rambo to make the opposite “declaratory judgment” to the one requested by the county: that the property’s current use is permitted.

But the claim also details a timeline of events and participants in the approval, ramp up of operations and eventual action against the mine.

It argues that the county knew a private company would be operating the data center, let it be constructed and put into operation at great expense to Red Dog, and waited months before doing an about face and demanding a shutdown.

Allyson Wilkinson argues on behalf of Washington County Wednesday in Chancery Court

Because of that cost and what Red Dog claims is the prospect of $36 million in lost profits over 18 months should the mine have to be shut down, the counterclaim asks for $41 million in damages from Washington County if a shutdown is ordered.

After Rambo determined he’d accept Red Dog’s motion for intervention, Wilkinson accepted the delay while continuing to insist that Rambo could legitimately “enjoin” BrightRidge and have that extend to Red Dog without them being there.

“At the same time, we’ve waited for months and months, and we’ve tried to take a very conservative view,” Wilkinson said. “And so if the court is of the opinion that Red Dog is an indispensable party and that it’s in the best interests of justice and the people of Washington County, the county of course would wait for them to be present.”

What did the county know and when did they know it? The ‘estoppel’ issue

Then the chancellor and both attorneys turned to the matter of whether the county had foreknowledge of Red Dog’s planned use of the property — and whether that should make a difference if they did.

Red Dog’s counterclaim and BrightRidge’s answer to the suit both suggest foreknowledge should make a big difference.

BrightRidge’s answer to the county’s lawsuit, filed Monday, asks that Rambo use the principle of “estoppel” to prevent the county government from changing its initial rulings that the data center was permitted.

That judicial device allows a court to prevent (estop) someone from asserting something contrary to a previous action or statement.

The answer asks Rambo to “estop” the county “from denying zoning compliance … from declaring Defendant’s use of the property as unpermitted and … from seeking an injunction regarding same.”

Rambo said the use of estoppel and other “equitable defenses” in cases of governmental action “are much more limited than individuals … but there are those circumstances. It has to be an extraordinary circumstance.”

“The facts that they are asserting, if true, lead the court to believe that’s the road that they may be going down,” Rambo said.

“It appears that they’re saying that the county may not just be an innocent bystander in all this and all of a sudden they were surprised with what was going on down there,” he added.

Indeed, Darden claimed as much in his arguments Wednesday.

“This case is replete with questions of fact and law, and Ms. Wilkinson has misstated a fact in saying that Red Dog was unknown to the county until the noise started,” Darden said. “That’s just plain wrong.”

Steve Darden argues on behalf of BrightRidge Wednesday

“So I think we need to have all the proper parties before the court before anything takes place.”

Rambo said he needed time and more people in the room.

“I don’t know that,” he said of Darden’s assertion. “I have to have a trial to determine that but it seems that those type of issues are integrated and factual witnesses from Red Dog are part of that factual determination.”

One important date in the dispute is July 7, 2020. The lawsuit claims that at a planning commission meeting on that date, BrightRidge’s May 7, 2020 zoning compliance permit was considered and that it depicted “a data center for BrightRidge.”

In its answer to that paragraph of the suit, BrightRidge says the July 7 meeting was more comprehensive than just a review of a document.

Not only did the commission hear public comment from a BrightRidge representative at the meeting, but “a representative of GRIID Infrastructure LLC/Red Dog specifically addressed the use for the site as a block chain verification center.”

The answer’s next paragraph “denies that the relationship (with Red Dog) was undisclosed…” to the county.

Red Dog’s counterclaim takes the claim of county knowledge back even further in time, and includes a lengthy description of events it says point to the county having sufficient knowledge.

Filed by Christopher Owens, who like Darden works for Hunter, Smith & Davis, the counterclaim argues that the same day of BrightRidge’s response to the GRIID RFP, Washington County knew BrightRidge would not be the data center’s operator.

The counterclaim makes no more specific reference to how the county would know that, but County Mayor Joe Grandy serves on BrightRidge’s board of directors.

If Grandy did know, that would conflict with what he told County Commissioner Kent Harris when pressed on his knowledge at the commission’s Aug. 23 meeting.

Harris asked Grandy whether he knew BrightRidge was planning for a joint project with a Bitcoin mine operator — and if he did, why he didn’t mention it to commissioners.

“I had the same information you all did,” Grandy said, adding when pressed by Harris that as a board member he was given no information about a Bitcoin mine project. “I had no reason to dig any further so I’ll take the same responsibility.”

Red Dog’s counterclaim then moves to June 30, 2020, citing a pre-construction meeting at the county’s zoning and planning office. That meeting, the claim says, included the County, BrightRidge, county zoning and planning staff and Red Dog and involved finalization of site plans ahead of a July 7, 2020 planning commission meeting.

The claim then says at the July 7 meeting, Red Dog’s Ed Medford was in attendance and “spoke on behalf of Red Dog.”

It says engineer Tom Patton and Medford presented the site plan “on behalf of Red Dog” and “addressed the Planning Commission and the others present as to the block chain verification data center operations.”

Construction on the center began July 8, the counterclaim says, and after BrightRidge and Red Dog entered a lease Sept. 28, 2020, “Red Dog was fully operational as a block chain verification data center in November 2020.

The filing says by November 2020, Red Dog had spent $5,000,000 on construction and site improvement “and an additional $14,000,000 in further operational investment.”

It said Red Dog then operated in good faith, including investing more than $600,000 in noise mitigation since summer 2021.

During that time, the counterclaim says, “the County never advised Red Dog that it considered the block chain verification center a non-permitted use of the property…”

That didn’t occur until late September.

But Wilkinson told Rambo she believes the facts are clear and that BrightRidge is “trying to pass the baton” to Red Dog, something she says Tennessee courts have “expressly rejected.”

“This is BrightRidge’s data center, BrightRidge requested a rezoning, BrightRidge was under the obligation to work with all of the permits and Tennessee code with respect to doing this project and that’s what we’re here for,” Wilkinson said.

Rambo said he definitely wasn’t ready to make a decision without hearing more facts and without Red Dog’s counsel present.

“The request is a significant request, to shut down a business,” Rambo said. “I’m reluctant to do that until I give all sides an opportunity to be heard.”

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