Crypto mining company Jones Digital, Arkansas County seek federal judge’s OK for lawsuit

A resolution looks nearer in a dispute involving a cryptocurrency mining operation in Arkansas County after attorneys for Jones Digital LLC and the county met Friday with the federal judge mediating the dispute to propose a consent decree intended to resolve the issue.

In November, attorneys for Jones Digital LLC filed a lawsuit in federal court accusing Arkansas County officials of passing legislation to disrupt crypto mining operations by imposing retroactive conditions more stringent than earlier conditions the company had already agreed to. A July 2023 ordinance passed by the Arkansas County Quorum Court imposed, among other restrictions, maximum decibel limitations of 65 dBa from 8 a.m. to 10 p.m. and 55 dBa between 10 p.m. and 8 a.m.

In October, a second ordinance passed by the county lowered the decibel sound levels to 55 dBa during the daytime hours and 45 dBa at night, levels a complaint filed by Jones Digital in September 2023 said are impossible to comply with, saying that the general ambient sound level around the facility “routinely” exceeds 45 dBa due to a nearby highway and a nearby airport runway.

According to the complaint, Jones Digital submitted a certification of compliance with notification requirements set by the county as well as a sound study and site plans according to the limits set in the July ordinance. The complaint said that despite passage of Act 851 of 2023 by the Arkansas General Assembly — which it said was passed “to clarify the guidelines needed to protect data asset miners from discriminatory industry specific regulations and taxes” — the Arkansas County Quorum Court passed the October 2023 ordinance, “specifically targeting Jones Digital’s ongoing construction project and forthcoming business expectancy” by altering previously agreed-on conditions and imposing civil and criminal penalties for non-compliance.

Act 851 — passed less than two weeks after its introduction on March 30, 2023 as House Bill 1799 — has been back before the Legislature during the current session, as lawmakers express reservations over their approval of the law now that noisy crypto mining operations have sprung up around the state. The law specifically prohibits local governments from passing noise or zoning ordinances directly aimed at crypto mines.

Crypto mines have become a nuisance for some, as nearby residents have complained about the noise level from fans that cool the banks of computers running 24 hours a day. The computers use large amounts of energy as they “mine” by solving complex equations to unlock access to cryptocurrencies. Two bills, Senate Bills 78 and 79, drafted as amendments to Act 851 — the Arkansas Data Centers Act of 2023 — will be considered next week by the House. SB78, sponsored by Sen. Joshua Bryant, R-Rogers, and will require that crypto mining operations “apply noise-reduction techniques,” such as using liquid cooling or “fully enclosing the envelope.” Bryant co-sponsored the bill that became Act 851.

SB79, by Sen. Missy Irvin, R-Mountain View, would require crypto mining businesses to acquire a permit from the Oil and Gas Commission to operate, which Irvin said, “provides a state presence of regulatory oversight” to crypto mining operations.

In November, U.S. District Court Judge Lee Rudofsky issued a preliminary injunction to prevent Arkansas County officials from enforcing the county’s October 2023 ordinance. Although county officials said at the time that the October ordinance was adopted out of concern that excessive noise levels could affect migratory birds and waterfowl in the area, Rudofsky said at the hearing on Nov. 16, 2023, that evidence suggested the July ordinance would be sufficient to protect waterfowl and migratory birds. Regarding the more restrictive October amendment, the judge said it was “more likely than not,” that Jones Digital would prevail on the merits of the case as he enjoined Arkansas County officials from enforcement of the more restrictive October amendment.

On Friday, a hearing to consider a motion to intervene on the matter filed by four Arkansas County residents opposed to a consent decree negotiated between Jones Digital and Arkansas County and a motion to accept the consent decree were delayed by about a half hour as attorneys for all sides put the finishing touches on an agreement hammered out in an effort to end the litigation.

At the outset of the hearing, the residents opposed to the consent decree — Jerry Lee Bogard, Tami Hornbeck, Kenneth Graves and Theresa Dewberry Cupples — withdrew the motion after Jones Digital and Arkansas County accepted amended language to clarify that the decree would not be interpreted “to permit or constrain any non-parties from exercising or engaging in any activity protected by the Constitution or laws of the United States of America or State of Arkansas.”

“In consideration of that, the petitioners have agreed to withdraw their motion to intervene and their objections to the consent decree,” said Richard Mays, the attorney representing the group. “We also have agreed that the petitioners do not object to the consent decree as modified.”

After receiving no objections from Jones Digital and Arkansas County, Rudofsky took “cognizance” of the “once-putative intervenors’ non-objection the consent decree,” and excused Mays and his group, at which time he then began to outline some of his questions regarding the proposed consent decree. Rudofsky said his responsibilities in the proceedings were to review the decree for “fairness, reasonableness and adequacy,” and not to act as a “rubber stamp” for whatever agreement the two parties had come to.

“I need to make sure all of the terms are in furtherance of statutory objectives,” he said, “and I need to make sure the consent decree springs from and resolves a dispute within the court’s subject matter jurisdiction … I obviously can’t adopt a consent decree that violates the Constitution or that violates any applicable law.”

Alex Jones, one of several attorneys from the Little Rock Law Firm of Wright, Lindsey & Jennings representing Jones Digital, and Burt Newell of Hot Springs, representing Arkansas County, both agreed that the settlement was reached to spare their clients the expense of protracted litigation and to provide certainty moving forward.

“We believe the terms satisfy the statutory objectives of the operative law and we believe prolonged litigation about the items now in agreement serves no interest,” Jones said. “We have attempted to achieve a resolution that is permanent, or semi-permanent. We have no reason to believe that any defendants seek in any way to fail to adhere to these provisions and likewise, the plaintiff has no reason to prolong this action or to create some never-ending interminable discovery length. We want to resolve it and we believe so do the defendants.”

Under the terms of the consent decree, Jones Digital and Arkansas County agreed to the entry of a permanent injunction barring the county from the enactment, enforcement, or effectuation of “any law or practice that intentionally or effectively operates as a discriminatory industry-specific regulation or tax directed at Jones Digital,” with added language, “to the extent the discrimination is unlawful or retaliatory under state or federal constitutional or statutory law.”

The decree was also amended to clarify that any actions taken by Arkansas County that would affect Jones Digital’s business operations would apply only to “lawful” business operations after Rudofsky pointed out that a blanket prohibition could prevent the county from enforcing other business-oriented laws.

“Let’s say they have the authority to tax and let’s say Jones Digital doesn’t pay their tax and Arkansas County tries to enforce that tax,” Rudofsky said. “Does that inhibit, constrain or otherwise interfere with Jones Digital’s operations? I guess I’m trying to say I don’t know what the limiting principle there is.”

Upon Jones’ assertion that all of the limits to county authority contained in the decree dealt only with discriminatory actions intended to target Jones Digital, Rudofsky asked that it be clarified with added language spelling that out. The judge said his main concern over the language was that, “it’s crazy broad,” and could be interpreted to prevent county officials’ ability to oversee any aspect of the business operations.

“As this currently stands,” he said, “I don’t know that I can approve this.”

After both sides agreed on limiting language to place in the consent decree to ensure that the county would be constrained only from acting in a discriminatory fashion toward Jones Digital, Rudofsky asked the attorneys to submit an amended consent decree for his review. A joint motion for approval of the consent decree “as Amended” was filed Friday night containing the limiting language requested by Rudofsky. The judge said Friday afternoon that if the consent decree as amended meets his approval, he will likely issue a written order to that effect without scheduling another hearing.

He did not say when that order may be forthcoming.