Opinion
2:23-CV-00220-LPR
11-17-2023
JONES DIGITAL, LLC, et al Plaintiffs v. ARKANSAS COUNTY, ARKANSAS, et al Defendants
On Behalf of the Plaintiffs: STEPHEN GILES GREGORY JONES ALEXANDER JONES WILLIAM OGLES Wright, Lindsey & Jennings. On Behalf of the Defendants: C. BURT NEWELL Attorney at Law
On Behalf of the Plaintiffs: STEPHEN GILES GREGORY JONES ALEXANDER JONES WILLIAM OGLES Wright, Lindsey & Jennings.
On Behalf of the Defendants: C. BURT NEWELL Attorney at Law
TRANSCRIPT OF JUDGE'S RULING MOTION FOR PRELIMINARY INJUNCTION BEFORE THE HONORABLE LEE P. RUDOFSKY UNITED STATES DISTRICT JUDGE
Valarie D. Flora, FCRR United States Court Judge.
Proceedings reported by machine stenography and displayed in realtime; transcript prepared utilizing computer-aided transcription.
THE COURT: Everybody please be seated.
This may be a little bit meandering, but please bear with me. I want to make sure I give you all a decision tonight, so I am going to do this on the bench. But I don't have a script here in front of me, so, like I said, just give me a little bit of the -- sort of the benefit of the doubt here.
Before I start talking in earnest or at least in substance, let me make sure I have all of the statutes and ordinances in front of me so I can make sense of this, or at least as much sense as possible.
Okay. Let me not bury the lead. I am going to grant at least in very large part the motion for preliminary injunctive relief. Let me explain how I get there and let me explain why I say in very large part as opposed to totally.
So number one, we all know the Dataphase factors apply: Likelihood of success on the merits, irreparable harm, balance of harms, and public interest. We all understand that irreparable harm is sort of the irreducible minimum. There must be irreparable harm if I'm to grant a preliminary injunctive relief. Additionally, we all know that likelihood of success on the merits is often referred to as the most important factor.
I will add here, because this is an ordinance -- and I know it's not a state law, but it's an ordinance and so it's a duly enacted ordinance from a local government. I am treating this as a situation where likelihood of success on the merits means proving that the ordinance is more likely than not unlawful, not just as there are serious or substantial question. The plaintiffs bear the burden for purposes of this factor of proving that it is more likely than not that the ordinance is unlawful. As I'll get to, they have done so in this case.
Let me start with irreparable harm. Here, to my mind, the only irreparable harm is the potential loss of goodwill if operations are not allowed to start in the near future. And, quite frankly, whether we're talking about next week, two weeks from now, three weeks from now, four weeks from now is sort of irrelevant because all of that is going to be long before a trial. The real question is, will there be irreparable harm before the trial. I believe there would be.
I credit Mr. Chen's testimony. I thought it was believable, credible, and honest. I acknowledge that Mr. Chen's cousin works for the company -- for the company they have a contract with. I also acknowledge that he has friends at the company and that he's done work with the company before. Having said that, there are lots of friends I have that I work with, and if I was not to do what I'm supposed to do, they might be my friend and -but this is obviously before I was on the bench -- they might be my friend, but they were not going to keep coming to me for business. So the mere fact that they're friends or they're relatives to me doesn't mean that there is not a serious threat of the loss of goodwill. And so I think that, if operations were put off indefinitely, there is a really serious chance, a likely chance that the relationship that Mr. Chen -- or that the plaintiff company has with the customer we've all talked about in sealed session could sour and could cause significant problems for Mr. Chen's business in the future.
I don't know if anything I just said needs to be sealed. If it does, plaintiffs, I just ask you, after I'm done with all of this, to just tell me something needs to be sealed and we can talk about it.
I think goodwill on its own here constitutes irreparable harm. The case that plaintiffs cited to me I believe was Rogers, but that case -- I'm well aware that I have the discretion to say that, given the circumstances, goodwill alone is not enough. I saw that part of Rogers, but I think here it is enough and so I am going to conclude that plaintiffs have carried their burden on the irreparable harm portion of the Dataphase factors.
Moving on to the -- moving on to the likelihood of success on the merits. Let me -- I guess. You know what? Let me step back for a second to the irreparable harm.
I just want to make clear for the record I am making the following factual findings which support the sort of law that I just discussed with you. Number one, I believe that, currently, the plaintiff has a customer that it has agreed to provide services for now or in the very near future. Number two, I believe that the customer will be understanding and is understanding of a short delay. Number three, I believe the customer will not be understanding of a lengthy delay of the type necessary to get to trial in this matter. Number four, for reasons I just discussed, I believe there would be a breakdown in the relationship and it would be a loss of goodwill that plaintiff could not get back -- plaintiff, being the entity, could not get back if plaintiff was to have to wait for trial to be able to start its operations here.
Okay. Now, really moving on to likelihood of success on the merits. Number one, I think this is essentially a pure question of law. The ordinance is what the ordinance is, both the October one and the July one. I'll be frank, I don't think there actually is a July ordinance in existence right now, but nonetheless, the July ordinance was passed, the state law that we're all dealing with came into effectiveness after the July ordinance was passed, then the October ordinance was passed. The October ordinance is not some type of retroactive amendment. I mean, it does amend the July ordinance, but it's an ordinance in and of itself.
Having said that, to be perfectly fair, I don't think anything turns on whether or not it's an amendment or an ordinance or anything like that because I don't think anything turns on the timing involved here, but, nonetheless, I said what I said.
I also don't think and so I'm not going to make factual findings about -- I don't think that it's relevant what the county or defendant or other defendants' lawyer said about the statutes or about the ordinance. I don't think that changes things even a -- even a slight bit.
As to the -- and I'm not going to go through and make factual findings about what the ordinance does. As I've said, the ordnance is what the ordinance is. They speak for themselves.
I will say on the fact of whether or not there was a concession that we just heard about how the July and October ordinances should be read in terms of what noise level means and whether we're talking about ambient noise plus the operative noise or just the operation noise itself, I don't think the concession was exactly as clear as it could have been. It was pretty darn clear, but I think there's a little bit of wiggle room, and so I don't think it defeats either irreparable harm or any other one of the Dataphase factors.
In terms of whether or not there is express preemption here -- and by that I mean whether or not the October ordinance is expressly preempted by the -- by the state statute at issue, I am going to find that there is express preemption. I am going to find that for two separate reasons. So number one, 14-1-604 says, a digital asset mining business may operate in this state if the digital asset mining business complies with: One, state law concerning business guidelines and tax policies; two, any ordinance concerning operations and safety, although ordinance is limited as it's in the definition section to, an ordinance, resolution, or other appropriate legislative enactment of a legislative body that prohibits an individual from operating a business from a residence -that's the important part -- or requires an individual to obtain approval before operating a business from a residence. That's also the important part. That's why subsection 2 ends up not applying to this ordinance. Three, any rule or rate for utility service provided by or on behalf of a public entity. And, four, state and federal employment laws.
Figuring out what "may operate" means is very, very difficult. And, quite frankly, ultimately, I conclude that it is ambiguous. "May operate" could mean that, if it does all four of these things -- if the business does all four of these things, that that's it, and no one can shut it down and no one can fine it in a way that would shut it down, period, no matter what else it does.
That has some harsh results and maybe some absurd results. It could also -- the "may operate" language could also be interpreted as, may operate but still being subject to other laws and ordinances. That has a significant problem, which is, it makes the four things -the four subsections superfluous. That's problematic.
And so, ultimately, I think "may operate" is ambiguous, but I think the ambiguity can be resolved and suggestive that may operate -- strongly suggestive that "may operate" has a third meaning, which is sort of halfway between the first two. And the reason it can be resolved is because of the express intent provision in 14-1-602. And the general -- it says -- again, this was passed. This is not just legislative history. This was actually passed and adopted into law. The General Assembly intends to, among other things, clarify the guidelines needed to protect data asset miners from discriminatory industry-specific regulations and taxes.
And so with that backdrop, that -- I guess I'll call it a very long prefatory clause explaining or helping me understand how to interpret "may operate," I am going to interpret "may operate" as saying, if you do the four things listed under (a)1, 2, 3, and 4, you as a company may operate subject to generally applicable laws of either the state or localities; however, you are not subject to additional -- additional laws or ordinances that are and have the intent to be discriminatory industry-specific regulations and taxes. So if there's an ordinance that is specifically discriminating against a data mining business and stopping it or chilling it from operating, that I think is expressly preempted by the law.
I do believe that's what's going on here. I believe that the noise regulations and the other requirements in the October ordinance are not generally applicable laws. They are at the very least industry specific. They are in effect, if not intent, discriminatory against the industry and, quite frankly, maybe just this business in the industry. But either way, I think that preempts them under 14-1-604(a).
I also think that 14-1-605(a)(4) applies and expressly preempts in an additional way this ordinance. The hard part here is figuring out whether the ordinance is a rezoning, but I accept plaintiffs' argument. I think it's the better of the arguments that this is a rezoning and it's a rezoning with the intent or effect of discriminating against a digital asset mining business.
Here, I think the word "rezoning" has to be taken broadly given the express intent in the beginning section that I read before because, otherwise, you could essentially do zoning and rezoning without calling it zoning and rezoning. Here, the ordinance placed requirements -- specifically the noise requirement -placed requirements on a particular parcel of land or particular business operation on a particular parcel of land or area of land and it -- I think it both formally and practically changes how you can use the property.
I accept the expert evidence that, if the ambient sound is included -- and that may well be. We'll see the reading that somebody gives the statute -- it would be impossible for plaintiffs to meet that October noise level ordinance given the ambient noise that has already been measured there. So I do think it's a rezone and I think it's clearly a rezone with the intent or effect of discriminating against a digital asset business.
As far as I can tell, Arkansas County does not have any noise requirements for any other business or maybe even -- maybe anybody, whether it's business or residential or anything, and there is only a noise ordinance with respect to digital asset mining. And so I think it is discriminatory. I don't think we have heard a good reason for it.
You know, it would be one thing if the evidence was that all digital asset mining is at 200 decibels or a 150 decibels, which is bigger than any other business, but I don't think we've heard any of that. So I'm not sure -other than having the intent and effect of discriminating, I'm not sure what the point would be.
For those two reasons, I think that the plaintiffs have a likelihood of success on the merits on their argument that the state law preempts the October ordinance.
In terms of the balance of harms. We heard a representation from the plaintiffs that the plaintiff intends to and will comply with the July ordinance whether it's actually on the books or not. Given that concession, I am going to find the balance of harms factor cuts in favor of the plaintiffs. They're going to comply with what the July ordinance was, quite frankly, following the sort of statewide-county template. I have not heard a single person the stand suggest that that ordinance is not enough or there's some actual evidence that that ordinance is not enough to protect Arkansas County's interests here in terms of noise generally but also protection of waterfowl and migratory birds and livestock and things and things of that nature. In fact, I've heard the opposite. I heard that there is no evidence that people know of that the July ordinance is not enough.
Having said that, I want to make clear that, given that this is part of my order, judicial estoppel applies. And in my view, plaintiffs are estopped from not acceding to and doing what the July ordinance requires.
In terms of the public interest factor, I think the public interest -- I think the public interest factor is a wash. I think there are -- there are interests on both sides here, including the people of Arkansas County have an interest in their ordinance being followed. The people of the State have an interest in their law being followed. And I don't think one interest outweighs the other here. I think that factor, you know, comes out 50/50, maybe a slight lean one or the other. But given the preponderance of the other three factors and the weight of the other three factors, I don't think I need to make a very 100 percent definitive ruling on who wins on that one. It's basically a tie.
Given all of that, I am going to, as I said, grant the request for a preliminary injunction. I am going to preliminarily enjoin all defendants from enforcing Ordinance Number 2023-11 enacted October 10, 2023, as a violation of Act 851 of 2023.
What I am not going to do is order anything further like a restraint against retaliation or anything like that. I don't think you all have proved to me that that's necessary. Quite frankly, I think it's a side issue. I don't even know that that's really an issue in the case. I don't know there's a First Amendment retaliation issue or some kind of retaliation issue being complained about, and so I don't know why I would order the retaliation part of this.
I see you all have a -- I guess your B is the preliminary injunction versus the temporary restraining order. I don't think we need to resolve that. Everybody is on notice. This is a -- this is a preliminary injunction. It applies throughout the remainder of the litigation.
Let me put you on hold for a moment.
Just so you all understand, the federal rules require for a preliminary injunction to be effective that it be in writing. What is going to happen is, as soon as the court reporter possibly can without having a heart attack or not sleeping, she is going to get me the portion of this hearing that has this order in it and I am going to file it and it will be the written record. I hope that's going to happen tomorrow, but I can't promise anyone that. I do think it's fair to assume that it will happen by Monday.
Plaintiffs, any request for clarification? Anything you'd like to say for the record?
MR. A. JONES: For clarification, Your Honor. Judicial estoppel question on the July ordinance. To be clear, that is all requirements of the July ordinance.
THE COURT: Yes. That's what I believe you conceded to.
MR. A. JONES: Thank you, Your Honor.
THE COURT: Anything else, plaintiffs?
MR. A. JONES: You know, if there is some attempted enforcement, which I doubt there will be, we would request the Court's leave between now and Monday whenever we get the written order. So could I reach out to the court?
THE COURT: If there is attempted enforcement between then and now?
MR. A. JONES: Yes, Your Honor.
THE COURT: You can, but to be honest, there's really nothing I can do about it because it has to be a written order and it can't just be -- at least in my view of the reading the rules, it can't just be a pro forma order. I can't just enter a paragraph. In my view, that's not what the rules require. So I think the best I can do is get it to you as soon as I can.
MR. A. JONES: Thank you, Your Honor.
THE COURT: Anything else?
MR. A. JONES: No, Your Honor.
THE COURT: Defendants, either request for clarification or something you'd like to say for the record?
MR. NEWELL: Perhaps. I need to speak just real quickly with my client.
THE COURT: Okay.
MR. NEWELL: The question or concern is with -with the county judge elected official, there's likely to be questions of him about what -- you know, what went on here. And some of it was under seal. So would you please direct my clients on what that means?
THE COURT: What under seal means?
MR. NEWELL: What it means for them going back to their constituents. To me, it means
THE COURT: Anything that is -- anything that is under seal cannot be talked about. If it's talked about in open session, it can be talked about. To the extent it's talked about in open session, it can be talked about. But if it is under seal, including, for example, the name of the customer, if it is under seal, it may not be discussed. If it is discussed, there will be enormous, severe penalties. I don't fool around with that stuff.
MR. NEWELL: Thank you.
THE COURT: Anything else?
MR. NEWELL: No, Your Honor.
MR. A. JONES: I have one more.
THE COURT: I thought you might.
MR. A. JONES: I would like to just make for the record note that we would request that the order extend as provided under 65(d)(2) to all persons identified there, including under (d)(2)(C) persons in active concert or participation.
THE COURT: Hold on. Now you're stretching me. Hold on.
MR. A. JONES: Sorry, Your Honor.
THE COURT: That's okay. I just got to get the right book. Let's see.
MR. OGLES: The 2023 edition. We're looking at page 242.
THE COURT: 65 what? Where are you?
MR. A. JONES: Subsection (d)(2)(C), Your Honor.
THE COURT: (d)(2)(C). I will say, for the record, this order binds -- I made the order to the defendants, but this order binds the defendants. It also binds defendants' officers, agents, service -- servants, employees, and attorneys. And it also binds any other persons who are in active concert or participation with any of those people that I've just mentioned. So none of them can enforce the ordinance. Quite frankly, nobody can enforce the October ordinance.
Plaintiffs, does that satisfy your request?
MR. A. JONES: Yes, Your Honor.
THE COURT: Anything else?
MR. A. JONES: No, Your Honor.
THE COURT: Okay. Defendants, last chance. Anything else?
MR. NEWELL: No, thank you.
THE COURT: I want to thank you all very, very much for both the factual submissions and the factual presentations, both in writing and orally today, as well as the legal ones. I know I had a lot of questions for you all. I know some of them were very direct. It's just part of my process. It helps me try to figure out where the strong and weak points are in everybody's argument. What you all have done has been majorly helpful to me, whether or not you prevailed or not. I appreciate it very much and I think you all did a great job today for your client. We are adjourned.
I'm sorry. One more thing. We are not adjourned.
There is no need in this situation for security or bond for the reasons that the plaintiffs explained in their briefing.
Now we are really adjourned.
(Proceedings adjourned at 7:54 p.m.)
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REPORTER'S CERTIFICATE
I, Valarie D. Flora, fcrr, rpr, certify that the foregoing is a correct transcript of proceedings in the above-entitled matter.