Judge's order expected soon in battle over bitcoin mining fine

Feb. 13—NIAGARA FALLS — A State Supreme Court justice is expected to issue an order sometime today confirming a fine of more than half a million dollars against a cryptocurrency mining company in the Falls.

The order is also expected to direct U.S. Data Technologies Group Ltd. and U.S. Data Mining Group Inc, doing business as U.S. Bitcoin, to stop operating while lawyers for the Falls seek a preliminary injunction to force their cryptocurrency mining facility on Buffalo Avenue to comply with a new zoning ordinance governing high-energy use industries.

State Supreme Court Justice Edward Pace had given lawyers in the case until Wednesday to draft an order implementing his Jan. 25 ruling that found that U.S. Bitcoin was deliberately operating its cryptocurrency mining facility in the Falls in violation of the city’s zoning code.

Pace had also ruled that if U.S. Bitcoin continued to operate their facility, he would impose fines of $10,000 a day through Feb. 1 and then increase the fines to $25,000 a day until the cryptocurrency mining stopped. The justice imposed the fines, dating back to Dec. 9, when Supreme Court Justice Frank Sedita III first issued a temporary restraining order (TRO) that directed U.S. Bitcoin to stop operating while the suit seeking the preliminary injunction worked its way through the courts.

“If, by January 31, (the cryptocurrency mining operation) has not shut down, then a check should be delivered to the city of Niagara Falls on February 1 for $540,000,” Pace said in his ruling from the bench.

However, Pace also directed lawyers representing the city to draft an order for him to sign that would enforce his ruling. In such cases, the attorneys who draft an order routinely share it with opposing counsel.

In this case, the attorney representing U.S. Bitcoin, John Bartolomei, has reportedly raised objections “to every proposed draft order.”

The Gazette has learned that by Pace’s Wednesday deadline, lawyers for the city has submitted up to four potential orders for the justice to sign. Bartolomei reportedly submitted a draft of a proposed order as well.

Pace was expected to review the draft orders on Thursday and finalize on order today.

While the battle over the draft orders plays out, no check for the accrued fines has been received by the city and a check by a Gazette reporter, on Monday afternoon, showed that the U.S. Bitcoin facility was continuing to operate. That operation would mean that fines against the company are continuing to accrue.

Bartolomei, who vigorously protested Pace’s findings and ruling, has indicated that he would appeal the decision to the State Supreme Court Appellate Division Fourth Department in Rochester. However, to date, no appeal has been filed and Pace’s decision remains in place.

Attorneys for the Falls had asked Sedita, who recently transferred some of his caseload to Pace, to find U.S. Bitcoin in contempt of court for violating his TRO that directed them to shut down their Buffalo Avenue facility, which the city charges is creating “a public nuisance” and engaging in “ongoing violations” of the city’s Zoning Code.

Sedita issued the restraining order on Dec. 1. It directed U.S. Bitcoin to cease “engag(ing) in “any and all forms of cryptocurrency mining” pending the outcome of a hearing on the city’s request for a preliminary injunction that seeks to shutdown three cryptocurrency mining facilities currently operating in the city “unless and until” they comply with a recently enacted series of amendments to the city’s Zoning Code that govern the location and operation of high-energy use industries such as data centers and crypto-mining facilities.

City lawyers have noted that one of the crypto-mining facilities immediately shut down its operations when the Falls filed its motion for the preliminary injunction. That facility has since begun the process of applying for permits to re-open.

A second facility has been shuttered since the summer because of a fire in a substation on its property.