Drywave Technologies USA, Inc v. Message International, LTD et al

Filing 88

MEMORANDUM OPINION AND ORDER by Magistrate Judge Nina Y. Wang on 6/20/17 GRANTING 36 Motion to Intervene; GRANTING 77 Motion for Joinder; GRANTING 84 Motion for Extension of Time to Answer or Otherwise Respond. Drywave Technologies USA, In c answer due 7/17/2017; Steve Howe answer due 7/17/2017; Todd Howe answer due 7/17/2017; Nickolay Kukekov answer due 7/17/2017. A First Consolidated Counterclaims will be filed by DSPF, Moerk, Smee, and McGowan, reflecting the various claims sought t o be asserted as counterclaims and through intervention no later than June 23, 2017. Once a First Consolidated Counterclaims is filed, the Clerk of the Court is DIRECTED to ISSUE the summons filed as [#78, #79, #80, and #81]. DryRX, Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe are DIRECTED to FILE their waivers of service no later than June 30, 2017. (nmarb, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 16-cv-01775-MSK-NYW
DRYWAVE TECHNOLOGIES USA, INC.,
Plaintiff,
v.
MASSAGE INTERNATIONAL, LTD., 1
KENT MOERK,
RICHARD SMEE, and
JOSEPH MCGOWAN,
Defendants.

MEMORANDUM OPINION AND ORDER
Magistrate Judge Nina Y. Wang
This matter is before the court on three motions:
(1)

The Drywave Special Purpose Fund, LLC’s Unopposed Motion to Intervene

(“Motion to Intervene”) [#36, filed March 10, 2017];
(2)

Counterclaim Plaintiffs’ Unopposed Motion for Joinder filed by Counterclaim

Plaintiffs Massage International Limited, Kent Moerk, Richard Smee, and Joseph McGowan
(“Motion for Joinder”) [#77, filed May 25, 2017]; and

1

Defendant Massage International Limited was originally identified as Message International
Limited [#1 at ¶ 12], which this court construes as a typographical error that was corrected by the
Amended Complaint [#14]. Because the docket still reflects Message International Limited as a
party, by this Order, this court DIRECTS the Clerk of the Court to make the correction to the
spelling of Defendant Massage International Limited.

(3)

Counterclaim Defendants’ Unopposed Motion for Extension of Time to Answer

or Otherwise Respond to the Counterclaim Plaintiff’s Amended Counterclaims (“Motion for
Extension of Time”) [#84, filed May 31, 2017].
These motions were referred to this Magistrate Judge pursuant to 28 U.S.C. § 636(b), the
Order Referring Case dated October 4, 2016 [#21], and the Memoranda dated June 5, 2017 [#85;
#86; #87]. Having now reviewed the papers and the entire docket, the court ORDERS 2 that the
Motion to Intervene be GRANTED; Motion for Joinder be GRANTED; and the Motion for
Extension of Time be GRANTED, with specific instructions as follows.
BACKGROUND
Plaintiff Drywave Technologies USA, Inc. (“Drywave”), a Delaware corporation with its
principal place of business in Denver, Colorado, designs and manufactures various health and
well-being products, including but not limited to “Solajet” deep tissue massage beds. [#1 at ¶
16]. In or about August 2014, Drywave began taking investments from a fund named Drywave
Special Purpose Fund (“DSPF”), a Delaware limited liability company, with its principal place
of business in New York, New York, which was created, operated, and managed by Defendant
Joseph McGowan (“Defendant McGowan” or “Mr. McGowan”). 3 [#1 at ¶¶ 18-19; #36-1 at 16,
¶ 3]. While the parties contest the circumstances surrounding the initial investment and ultimate
2

This court construes the Motion to Intervene as non-dispositive because it does not affect the
claims of any existing party. Pub. Serv. Co. of Colorado v. Bd. of Cty. Com'r of San Miguel Cty.,
No. 04–CV–01828 REB CBS, 2005 WL 2293650, at *3 (D. Colo. Sept. 19, 2005) (concluding
that a motion to intervene is non–dispositive because it does not have res judicata effect on the
prospective intervenor’s future claims against the plaintiff or defendant). But see Galyas v.
Lockheed Martin Corp., No. 10–CV–03122–PAB–BNB, 2011 WL 3648577, at *1 (D. Colo.
June 14, 2011).

3

In the Complaint, this fund is called “Drywave Special Situation Fund,” [#1 at ¶ 18]. Based on
the description of the fund, however, it appears that the fund is actually named the Drywave
Special Purpose Fund. [#36-1 at 16, ¶ 3].
2

demise of the business relationships involved, there is no dispute that the contemplated business
relationship soured, leading Drywave to file its original Complaint in this action against
Defendants Massage International Limited (“MIL”), QJC LLC (“QJC”), Kent Moerk
(“Defendant Moerk” or “Mr. Moerk”), Richard Smee (“Defendant Smee” or “Mr. Smee”)), and
Mr. McGowan (collectively, “Defendants”) on July 12, 2016.

In that original Complaint,

Drywave alleged that all Defendants conspired to and tortiously interfered with prospective
business relations and Defendant Moerk violated his restrictive covenants related to
confidentiality, non-competition, and non-solicitation, arising from his employment with
Drywave. [#1]. Plaintiff sought preliminary and permanent injunctive relief and a declaratory
judgment as to Mr. Moerk’s legal obligations, as well as damages in the excess of five millions
dollars. [Id.].
Plaintiff also filed a Motion for Temporary Restraining Order. [#2]. In resolving the
Motion for Temporary Restraining Order, the presiding judge, the Honorable Marcia S. Krieger,
sua sponte, raised the issue of subject matter jurisdiction. [#13 at 3-4]. Specifically, Chief Judge
Krieger indicated that the Complaint failed to sufficiently plead the citizenship of several of the
Defendants, including the principal place of business for MIL; the citizenship of Defendant
McGowan; and the citizenship of Defendant QJC. [#13]. The court further found that a
temporary restraining order was not justified on the merits. [Id.].
Plaintiff then filed an Amended Complaint in which they addressed the potential
jurisdictional defects identified by the court. Drywave identified the principal place of business
for MIL as London, England [#14 at ¶ 12]; the citizenship of Defendant McGowan as Oregon

3

[id. at ¶ 14]; and the sole member of QJC Capital as Defendant McGowan, with the citizenship
of Oregon [id. at ¶ 15]. 4 In the Amended Complaint, Drywave asserted as follows:
(1) a claim for tortious interference with prospective business advantage and
conspiracy to tortiously interfere with prospective business advantage against all
Defendants (“Claim I”);
(2) a “claim” for preliminary and permanent injunction against all Defendants
enjoining Defendants from disparaging Drywave, soliciting or attempting to
solicit current or former Drywave employees to work for MIL or any other
business owner and/or operative by Defendants, individually or collective, and
creating or distributing false communications to Drywave’s business relations
(“Claim II”);
(3) a claim for a declaratory judgment against Defendant Moerk, establishing that
the employment agreement entered between Drywave and Defendant Moerk is a
valid and binding contract, the restrictive covenants contained therein are valid
and binding, Drywave is being injured by Defendant Moerk’s violation of the
confidentiality, non-competition, and non-solicitation provisions (“Claim III”);
(4) a claim for breach of contract against Defendant Moerk (“Claim IV”);
(5) a claim for breach of fiduciary duty and conspiracy to breach fiduciary duty
against all Defendants (“Claim V”). [#14].
Defendant QJC filed a Motion to Dismiss the claims asserted against it, and the court
granted the Motion and dismissed QJC from the action on April 18, 2017. [#38, #48].
Potential Intervenor DSPF identifies itself as the entity that generated investments for
Drywave, and purportedly holds approximately $1.5 million in convertible notes issued by
Drywave. [#36-1 at 16, ¶ 3]. DSPF is a Delaware limited liability company, with its principal
place of business in New York, New York. [Id.]. It filed the instant Unopposed Motion to
Intervene on March 10, 2017, seeking to intervene to join Defendants Moerk, Smee, and
McGowan (but not MIL) in asserting counterclaims against the original Plaintiff, Drywave, a
4

Since that time, Defendant McGowan is now a citizen and resident of Florida. [#36-1 at 16, ¶
4].
4

third entity, DryRX LLC (“DryRX”), a Nevada limited liability company with its principal place
of business in Fort Collins, Colorado, 5 and the principals of Drywave, Stephen Howe (“Mr. S.
Howe”), Dr. Nicholas Kukekov (“Dr. Kukekov”), and Todd Howe (“Mr. T. Howe”) and to assert
three claims in its own right against Drywave. See generally [#36-1]. DSPF seeks to assert the
following claims:
(1) fraudulent misrepresentation (along with Defendants Moerk and Smee)
against Drywave, Mr. S. Howe, and Dr. Kukekov;
(2) negligent misrepresentation (along with Defendants Moerk and Smee) against
Drywave, Mr. S. Howe, and Dr. Kukekov;
(3) Colorado securities fraud against Drywave, Mr. S. Howe, and Dr. Kukekov;
(4) federal securities fraud against Drywave, Mr. S. Howe, and Dr. Kukekov;
(5) breach of promissory notes and standstill agreement against Drywave;
(6) fraudulent transfer against Drywave, DryRX, Mr. S. Howe, Dr. Kukekov, and
Mr. T. Howe;
(7) conspiracy (along with Smee and Moerk) against Drywave, DryRX, Mr. S.
Howe, Dr. Kukekov, and Mr. T. Howe. 6 [Id.].
The substance of the proposed claims relate not only to the ultimate demise of the
business venture between the parties, but the entire span of events from the initial contact by Dr.
Kukekov to Defendant McGowan in spring 2014 to the present. See generally [id.].
Defendants MIL, Moerk, Smee, and McGowan filed an Answer and Counterclaims to the
Amended Complaint on April 10, 2017. [#42]. MIL did not file any Counterclaims. That
5

There is some ambiguity as to whether DryRX continues to exist, as DSPF alleges that its
“registration status” has been revoked by Nevada [id.], but the Parties have represented that
DryRX is willing to waive service. [#77].
6

The proposed Answer and Counterclaims attached by DSPF also includes claims not involving
DSPF. [#36-1].
5

Answer and Counterclaims also did not include the claims of DSPF, because it had not been
granted leave to intervene, but did include the same claims brought by existing Defendants:
(1) a count of fraudulent misrepresentation brought by Defendant Moerk and
Smee against Drywave, S. Howe, and Kukekov;
(2) a count of negligent misrepresentation by Defendants Moerk and Smee against
Drywave, S. Howe, and Kukekov;
(3) a count of breach of contract by Defendant Smee against Drywave;
(4) a count of breach of contract by Defendant Moerk against Drywave;
(5) a count of abuse of process by Defendants Smee, Moerk and McGowan
against Drywave, Dr. Kukekov, and Mr. S. Howe;
(6) a count of fraudulent transfer by Defendants Moerk and Smee 7 against
Drywave, Mr. S. Howe, Dr. Kukekov, DryRX, and Mr. T. Howe; and
(7) a count of conspiracy against Drywave, Mr. S. Howe, Dr. Kukekov, DryRX
and Mr. T. Howe. [#42].
Defendants Moerk, Smee, and McGowan then sought to have summons issued as to the
newly added counterclaim defendants of DryRX, Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe
with the Answer and Counterclaims. [#42, #44, #45, #46]. The form of the summons, however,
was non-compliant.

[#47, #55].

The second attempt by Defendants Moerk, Smee, and

McGowan was equally unavailing [#56, #57, #58, #59] and this court then ordered them to file a
motion to join the non-parties named as counterclaim defendants (Mr. S. Howe, Dr. Kukekov,
DryRX, and Mr. T. Howe) under Rules 13(h) and 19 or 20 under the Federal Rules of Civil
Procedure. [#71].

7

While DSPF’s proposed Answer and Counterclaims in Intervention do not identify Defendants
Moerk and Smee as co-claimants, it also asserts a counterclaim for fraudulent transfer, the bases
of the two claims appear substantially similar. Compare [#36-1] with [#75].
6

Defendants MIL, Moerk, Smee, and McGowan then filed a First Amended Answer and
Counterclaim on May 22, 2017, asserting the same seven causes of action but eliminating QJC
pursuant to the court’s order, and amending some factual allegations associated with the abuse of
process claim. [#75, #74-1]. Defendants Moerk, Smee, and McGowan proceeded to follow the
court’s instructions in filing an unopposed motion to join DryRX, Mr. S. Howe, Dr. Kukekov,
and Mr. T. Howe as counterclaim defendants on May 25, 2017, and included four new summons
requests on the form identified by the court’s Order. [#77, #78, #79, #80, and #81].
The Parties also then filed an Unopposed Motion for Extension of Time to File an
Answer or Otherwise Respond to Counterclaim Plaintiff’s Amended Counterclaims [#84].
These three motions were referred to this Magistrate Judge pursuant to 28 U.S.C. § 636(b) on
June 5, 2017.
ANALYSIS
In this matter, DSPF seeks to intervene as a counterclaim-plaintiff and also seeks to assert
claims, solely on behalf of itself, against Drywave. [#36-1]. Thus, although not filed in this
order, the court first considers whether the counterclaims brought by Messrs. Moerk, Smee, and
McGowan against Drywave are properly in this action and whether DryRX, Mr. S. Howe, Dr.
Kukekov and Mr. T. Howe should be joined as counterclaim-defendants. Next, this court
considers whether DSPF can properly intervene in any asserted counterclaims. Finally, this
court analyzes whether the court should exercise supplemental jurisdiction over the three claims,
i.e., Colorado securities fraud, federal securities fraud, and breach of promissory notes and
standstill agreement, brought solely by DSPF against Drywave, Mr. S. Howe, and/or Dr.
Kukekov.

7

I.

Counterclaims
Counterclaims can be either mandatory or permissive. A compulsory counterclaim is one

that arises out of the transaction or occurrence that is the subject matter of the opposing party’s
claim and does not require adding another party over whom the court cannot secure jurisdiction.
Fed. R. Civ. P. 13(a). “The court have given the terms ‘transaction’ and ‘occurrence’ contained
in Rule 13(a) flexible and realistic constructions in order to effect ‘judicial economy,’ i.e., trial in
one action of all related controversies between the parties and, of course, the avoidance of the
multiplicity of suits.” Pipeliners Local Union No. 798, Tulsa, Okl. v. Ellerd, 503 F.2d 1193,
1198 (10th Cir. 1974). In determining whether counterclaims are compulsory, courts generally
consider whether:

(1) the issues of fact and law raised by the principal claim and the

counterclaim are largely the same; (2) res judicata would bar a subsequent suit on defendant’s
claim; (3) the same evidence supports or refutes the principal claim and the counterclaim; and,
(4) there is a logical relationship between the claim and counterclaim. F.D.I.C. v. Hulsey, 22
F.3d 1472, 1487 (10th Cir. 1994).
A permissive counterclaim is a counterclaim asserted against an opposing party that is
not compulsory.

Fed. R. Civ. P. 13(b).

The Advisory Committee Notes to the 2007

Amendments to Rule 13(b) state “[b]oth as a matter of intended meaning and current practice, a
party may state as a permissive counterclaim a claim that does grow out of the same transaction
or occurrence as an opposing party’s claim even though one of the exceptions in Rule 13(a)
means the claim is not a compulsory counterclaim.” Fed. R. Civ. P. 13(b) advisory committee’s
note to 2007 amendment. But the language of the Advisory Committee’s Notes of “growing out
of the same transaction or occurrence,” does not appear to be limiting.

8

Rather, unlike a

compulsory counterclaim, a permissive counterclaim need not arise out of the same transaction
or occurrence. 20 AM. JUR. 2D Counterclaim, Recoupment, Etc. § 4; 35A C.J.S. Federal Civil
Procedure § 364. Rule 19 and 20 govern the addition of a person as a party to a counterclaim or
crossclaim. Fed. R. Civ. P. 13(h).
Upon initial analysis, it appears that the counterclaims fall into two categories. The
counterclaims for breach of contract by Defendant Smee against Drywave and Defendant Moerk
against Drywave are clearly compulsory, as they relate to the same contracts that Drywave seeks
to enforce against Smee and Moerk.

It is less clear that the remaining counterclaims are

compulsory, as they do not appear to arise from the same transaction or occurrence but rather
from a series of transactions and occurrences spanning two years that occurred between various
parties and principals of those parties. Nevertheless, Defendants Moerk, Smee, and McGowan
may assert permissive counterclaims against Drywave as the original opposing party. Fed. R.
Civ. P. 13(b). Defendants Moerk, Smee, and McGowan also seek to join DryRX, Mr. S. Howe,
Dr. Kukekov, and Mr. T. Howe as counterclaim defendants. All the counterclaims proposed
against DryRX, Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe are also asserted against Drywave
and, thus, it appears that, at a minimum, permissive joinder as counterclaim defendants is
appropriate because a “right to relief is asserted against them jointly, severally, or in the
alternative with respect to or arising out of the same transaction, occurrence, or series of
transactions or occurrences, and any questions of law or fact common to all the counterclaim
defendants will arise in the action.” Fed. R. Civ. P. 20.
Before this court can exercise supplemental jurisdiction over the counterclaims, however,
it must confirm that it has subject matter jurisdiction. Compulsory counterclaims that are so

9

related to the other claims in the action that they form the same case and controversy under
Article III of the Constitution are within the court’s supplemental jurisdiction and do not require
an independent basis for subject matter jurisdiction. See Price v. Wolford, 608 F.3d 698, 702-03
(10th Cir. 2010). See also Unique Concepts, Inc. v. Manuel, 930 F.2d 573, 547 (7th Cir. 1991)
(“A federal court has supplemental jurisdiction over compulsory counterclaims”); Walker v. THI
of New Mexico at Hobbs Ctr., 803 F. Supp. 2d 1287, 1299 (D.N.M. 2011). This court concludes
that for the breach of contract claims brought by Defendants Moerk and Smee respectively, no
independent basis for subject matter jurisdiction need to be pled.
For the permissive counterclaims, i.e., fraudulent misrepresentation, negligent
misrepresentation, abuse of process, fraudulent transfer, and conspiracy, the court considers both
sections of 28 U.S.C. § 1367, because this court’s jurisdiction is premised on diversity
jurisdiction, see [#1 at 2, ¶ 7].

Section (a) provides that “the district courts shall have

supplemental jurisdiction over all other claims that are so related to claims in the action within
such original jurisdiction that they form part of the same case or controversy under Article III of
the United States Constitution.” 28 U.S.C. § 1367(a). Section (b) provides exceptions to
supplemental jurisdiction:
In any civil action of which the district courts have original jurisdiction founded
solely on section 1332 of this title, the district courts shall not have supplemental
jurisdiction under subsection (a) over claims by plaintiffs against persons made
parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or
over claims by persons proposed to be joined as plaintiffs under Rule 19 of such
rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when
exercising supplemental jurisdiction over such claims would be inconsistent with
the jurisdictional requirements of section 1332.
Id. But the exceptions set forth in section (b) do not apply, because the claims are asserted by
existing Defendants as counterclaims. See Price, 608 F.3d at 703 (citing 13D Charles Alan
10

Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure § 3567.2, at 375-76
(Ҥ1367(b) plays no role in claims, such as counterclaims and crossclaims, asserted by
defendants or third-party defendants. . . . Moreover, it is clear that a defendant or third-party
defendant does not become a ‘plaintiff for purposes of § 1367(b) by asserting a claim.’”). 8
Thus, it appears joinder of these parties as counterclaim-defendants is proper and,
accordingly, this court GRANTS the Motion for Joinder [#77] and will direct the Clerk of the
Court to issue the appropriate summons to DryRX, Mr. S. Howe, Dr. Kukekov, and Mr. T.
Howe.
II.

Intervention
The court now turns to determining whether DSPF’s intervention as a counterclaim-

plaintiff in this action should be permitted. In the proposed Answer and Counterclaims
associated with the Motion to Intervene, DSPF seeks to bring claims for:
(1) fraudulent misrepresentation (along with Defendants Moerk and Smee)
against Drywave, Mr. S. Howe, and Dr. Kukekov;
(2) negligent misrepresentation (along with Defendants Moerk and Smee) against
Drywave, Mr. S. Howe, and Dr. Kukekov;

8

And to the extent that this court misapprehends the interplay of the Rules and Defendants
Moerk, Smee, and McGowan are required to establish that that the court has separate subject
matter jurisdiction over their counterclaims, it appears that complete diversity exists between
Messrs. Moerk, Smee, and McGowan and Drywave, DryRX, Mr. S. Howe, Dr. Kukekov, and
Mr. T. Howe and the amount in controversy exceeds $75,000. Though Moerk, Smee, and
McGowan do not precisely plead an amount in controversy [#75], nor do they address the
amount in controversy in their Motion for Joinder [#77], they allege that neither Smee nor Moerk
were paid under their respective agreements, which would have amounted to more than $75,000.
[#75 at 26 ¶ 50, 28 at ¶ 64, 29 at ¶ 73, 40 at ¶¶ 129-135]. In addition, in the Scheduling Order,
actual damages suffered by “Defendants/Counterclaim Plaintiffs/Plaintiffs in Intervention” were
estimated at as at least $1.5 million.” [#51 at 6]. The court further notes that DryRX, Mr. S.
Howe, Dr. Kukekov, and Mr. T. Howe have all agreed to waive service, so the counterclaims
present no issue with respect to personal jurisdiction over the prospective parties. [#77].
11

(3) Colorado securities fraud against Drywave, Mr. S. Howe, and Dr. Kukekov;
(4) federal securities fraud against Drywave, Mr. S. Howe, and Dr. Kukekov;
(5) breach of promissory notes and standstill agreement against Drywave;
(6) fraudulent transfer (along with Smee and Moerk) against Drywave, DryRX,
Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe;
(7) conspiracy (along with Smee and Moerk) against Drywave, DryRX, Mr. S.
Howe, Dr. Kukekov, and Mr. T. Howe. 9 [#36-1].
A.

Rule 24

Rule 24 of the Federal Rules of Civil Procedure governs intervention. Fed. R. Civ. P. 24.
Intervention may be as a matter of right or discretion. Id. A court must permit intervention as a
matter of right to a party that “claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action may as a practical matter
impair or impede the movant’s ability to protect its interests, unless existing parties adequately
represent that interest.” Fed. R. Civ. P. 24(a)(2). Whether DSPF has an interest sufficient to
warrant intervention as a matter of right is a highly fact specific determination.

Coal. of

Arizona/New Mexico Ctys. for Stable Econ. Growth v. Dep't of Interior, 100 F.3d 837, 841 (10th
Cir. 1996). A court may also allow permissive intervention if the party “has a claim or defense
that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1)(B).
The Court of Appeals for the Tenth Circuit (“Tenth Circuit”) has previously noted that it
follows a “liberal line,” with respect to intervention, and employs an “interest test as primarily a
practical guide to disposing of lawsuits by involving as many apparently concerned persons as is
compatible with efficiency and due process.” Utahns for Better Transp. v. U.S. Dep’t of Transp.,
9

The proposed Answer and Counterclaims attached by DSPF also includes claims not involving
DSPF. [#36-1].
12

295 F.3d 1111, 1115 (10th Cir. 2002) (internal quotations and citations omitted). To the extent
that DSPF shares the same claims against the same parties as Defendants Moerk, Smee, and
McGowan, i.e., claims for fraudulent misrepresentation, negligent misrepresentation, fraudulent
transfer, and conspiracy, based on the same operative facts, intervention as a matter of right
appears to be appropriate.
The more nuanced question is whether, once permitted to intervene to assert
counterclaims along with existing Defendants against an existing Plaintiff, should DSPF be
permitted to assert its own distinct claims against Drywave, Mr. S. Howe, and Dr. Kukekov in
this action. It appears that the law is unsettled in this scenario. Charles A. Wright, et al., § 1921
Assertion of Additional Claims by Intervenor, 7C FED. PRAC. & PROC. CIV. § 1921 (3d ed. 2017).
Section 1367(b) provides that a district court does not have supplemental jurisdiction over claims
when a party seeks to intervene as a plaintiff under Rule 24, and when exercising supplemental
jurisdiction over such claims would be inconsistent with the jurisdictional requirements of
section 1332. 28 U.S.C. § 1367(b). But as discussed above, DSPF seeks to intervene as a
defendant, and nothing in the record suggests that DSPF, as an entity associated with existing
Defendants Moerk and McGowan, is improperly aligned as a plaintiff with Drywave, when it
appears clear that it has substantially adverse interest to Drywave. See Price, 608 F.3d at 70405. Even if separate subject matter was required to be established, it appears that DSPF is
completely diverse from Drywave, Mr. S. Howe, and Dr. Kukekov and the amount in
controversy is over $75,000, and one claim for violation of the federal Securities and Exchange
Act presents a federal question.

13

Pursuant to 28 U.S.C. § 1367(c), a district court can decline to exercise supplemental
jurisdiction over a claim if it “substantially predominates over the claim or claims over which the
district court has original jurisdiction,” or “in exceptional circumstances.” 28 U.S.C. § 1367(c).
Based on the record before it presently, this court does not believe that declining supplemental
jurisdiction over the claims asserted solely by DSPF against Drywave, Mr. S. Howe, and Dr.
Kukekov is warranted. Nevertheless, this court notes that Rule 21 permits a court to sever any
claim against any party. To the extent that discovery proceeds and the facts warrant it, the
presiding judge, the Honorable Marcia S. Krieger, may find that it is not within the parties or the
court’s best interests to proceed with this myriad of claims in a single action. And it also goes
without saying that to the extent that Chief Judge Krieger disagrees with this court’s subject
matter jurisdiction analysis, and finds subject matter lacking, dismissal of some of the
counterclaims may be appropriate.
Accordingly, this court hereby GRANTS the Motion to Intervene.
III.

Motion for Extension of Time
Drywave, DryRx, Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe moved for an extension

of time, up to and including July 17, 2017, to file an answer or otherwise respond to the
Amended Counterclaims. [#84]. Given the number of claims and parties involved, before the
court can effectively administer and try this case, however, a set of pleadings reflecting all
claims should be properly filed.

In terms of organizing, it appears to this court that the

counterclaims should be separately docketed from an Answer to the First Amended Complaint,
and named distinctively, for instance, “First Consolidated Counterclaims by DSPF, Moerk,
Smee, and McGowan.” Then any answer to the First Consolidated Counterclaims should be

14

docketed as responding to the separately filed counterclaims, e.g., “Answer to First Consolidated
Counterclaims by Drywave, Mr. S. Howe, Dr. Kukekov, DryRX, and Mr. T. Howe.” 10 Moving
forward, the Parties should refrain from using denominators, such as “Counterclaim-Plaintiffs,”
and use the respective Parties’ names.
Therefore, the Motion for Extension is GRANTED as follows:
(1)

No later than June 23, 2017, a First Consolidated Counterclaims will be filed by

DSPF, Moerk, Smee, and McGowan, reflecting the various claims sought to be asserted as
counterclaims and through intervention;
(2)

No later than July 17, 2017, the responding parties will ANSWER or

OTHERWISE RESPOND to the First Consolidated Counterclaims.
CONCLUSION
For the foregoing reasons, IT IS ORDERED that:
(1)

The Drywave Special Purpose Fund, LLC’s Unopposed Motion to Intervene

[#36] is GRANTED;
(2)

Counterclaim Plaintiffs’ Unopposed Motion for Joinder filed by Counterclaim

Plaintiffs Massage International Limited, Kent Moerk, Richard Smee, and Joseph McGowan
[#77] is GRANTED;
(3)

No later than June 23, 2017, a First Consolidated Counterclaims will be filed by

DSPF, Moerk, Smee, and McGowan, reflecting the various claims sought to be asserted as
counterclaims and through intervention;

10

In suggesting this format, the court does not intend to preclude the responding parties from
filing a dispositive motion if appropriate.
15

(4)

Once a First Consolidated Counterclaims is filed, the Clerk of the Court is

DIRECTED to ISSUE the summons filed as [#78, #79, #80, and #81];
(5)

Counterclaim Defendants’ Unopposed Motion for Extension of Time to Answer

or Otherwise Respond to the Counterclaim Plaintiff’s Amended Counterclaims [#84] is
GRANTED;
(6)

DryRX, Mr. S. Howe, Dr. Kukekov, and Mr. T. Howe are DIRECTED to FILE

their waivers of service no later than June 30, 2017; and
(7)

No later than July 17, 2017, the responding parties Drywave, DryRX, Mr. S.

Howe, Dr. Kukekov, and Mr. T. Howe will ANSWER or OTHERWISE RESPOND to the
First Consolidated Counterclaims.

DATED: June 20, 2017

BY THE COURT:

s/ Nina Y. Wang
Nina Y. Wang
United States Magistrate Judge

16