JONESBOROUGH, Tenn. (WJHL) — A bitcoin miner cannot countersue Washington County for $41 million in damages if the county wins an ongoing lawsuit to shut it down, a judge ruled Tuesday.
Red Dog Technologies had countersued, saying that if the county won its case to stop the cryptocurrency operation for violating zoning rules, the county should be held accountable for Red Dog’s investment in the mine and for its lost profits.
Chancellor John Rambo confirmed the county’s assertion that, as a government entity, it is immune from any monetary damages in this matter.
Red Dog, which operates a bitcoin mine in rural Limestone, is not the original defendant but is at the center of a lawsuit Rambo will hear in mid-March. The original defendant is electricity supplier BrightRidge, on whose property Red Dog operates and from which the Bailey Bridge Road substation purchases the massive amounts of electricity needed to run it.
The county sued BrightRidge in November 2021 after unsuccessful efforts to get it to shut down the mine. In May 2021, the mine is the subject of complaints from neighbors about the noise it produces, including in the middle of the night.
BrightRidge was sued rather than Red Dog because it was BrightRidge that applied for and received a rezoning to A-3 (agricultural business) designation in February 2020 for a blockchain data center. While utility operations are an approved use in District A-3, the county says a private cryptocurrency mining operation is not and therefore violates the zoning ordinance.
Tuesday’s hearing focused on a more specific issue – whether the county did not qualify for standard government immunity. The county claims it did, and that its rezoning approval and subsequent interactions with BrightRidge were based on its assumption that BrightRidge would manage the data center.
Christopher Owens, Red Dog’s attorney, argued that the county should be considered to have entered into a ‘quasi-contractual’ agreement with Red Dog due to the zoning grant and what he said was his stake throughout the process.
“What the county did was actively participate in giving this rezoning for this as a permitted use, they’ve been an active participant for 19 months, and now after Red Dog spent millions of dollars, they’ve decided to change my mind and now say for the first time that this is not an authorized use,” Owens said.
Owens said that even if the parties did not have a contract, Red Dog’s claim for damages would have to be allowed under a doctrine he called “prejudicial dependency.” This happens when one party – in this case Red Dog – had sufficient reason to rely on some type of promise. In this case, it would be the promise of being able to operate on the rezoned land.
Owens relied on a 1997 case filed by Engenius Entertainment against Memphis and Shelby County. A judge concluded that these governments had essentially made a promise to the company regarding a huge theme park that Engenius had obtained the rights to build in the Pyramid Center.
Like Engenius, Owens claimed, Red Dog had come to rely on local government and now that implied promise could be broken.
“They did exactly what they set out to do, and now they’ve changed their minds,” Owens said of County.
In its countersuit, Red Dog claims that these profits average $2 million per month and that it expects 18 months to find a new site and move computer servers and other equipment that “mine” Bitcoin. . This represents $36 million of the $41 million claim, with $5 million of investment making up the remainder.
But Jeff Ward, litigator for the county, said there was “not a single case that stands with the proposition that you can pursue a harmful dependency claim against a government entity,” Ward said. “It’s against government tort law” (a law that gives governments some immunity from prosecution).
Ward also noted that the county “cannot revoke a permit because a permit was never granted.” The Red Dog operation started without first obtaining a permit from the county zoning office.
“They’ve been operating this whole time without a license and Mr. Owens has talked and talked and talked about the millions of dollars they’ve put into this facility,” Ward said. “He didn’t say a word about the millions of dollars they made mining this during the period without a license to mine it.
“Some of these things are going to be the questions the court is going to hear at the trial of this case, but for today’s purposes we are focusing on ‘can they sue for damages’.”
After a break, Rambo came down to the county side and he made the difference between the Memphis case and this one.
“There is no allegation that the county promised to induce them to engage in commercial activity, as in the case of Engenius Entertainment, where government entities solicited proposals through a process RFP, have selected Engenius to do business with with a Promise of Contract, all as part of their RFP process,” Rambo said.
For this reason, he said, “immunity for pecuniary damages has not been waived for the claims brought by the defendants and, therefore, the counterclaim for damages, pecuniary damages, is rejected”.
What happens afterwards?
The actual trial will begin with a specific question for Rambo to decide: does Red Dog’s operation violate the county’s zoning resolution. Both BrightRidge and Red Dog argued that it was not, and that Rambo’s agreement with it would likely render any other female attorney moot.
Likely to that end, Washington County has requested a “partial summary judgment” on the matter, which will be heard on March 14. If Rambo agrees with the county on this, a jury trial will follow starting March 15.
At this point, BrightRidge and Red Dog’s written argument suggests they will attack the county based on a claim that county officials knew even before the February 2020 rezoning approval that a private company, and not BrightRidge, would operate the blockchain data center.
“If it’s illegal use, the court has to decide,” Rambo said. “And if the court were to determine that it is a use contrary to the zoning classification of the property on which it sits, if there are exceptional circumstances that exist to invoke the doctrine of equitable estoppel against the county to allow use to continue.”
In other words, a judge could still determine that despite a violation, the most “equitable” remedy due to other circumstances proven at trial would be to “prevent” (prevent) Washington County from apply the resolution and shut down the bitcoin mine.
The County, BrightRidge, Red Dog and neighbors who say the mine continues to be a nuisance in their quiet country setting should know the answer to those questions before Easter.