Opinion

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v. Case No. 8:25-cv-116-KKM-SPF

DARRYL J. MADISON et al.,

Defendants.

___________________________________

ORDER

The United States alleges that defendant tax preparers unlawfully

claimed deductions and credits on behalf of their customers to maximize

refunds and, in turn, defendants’ fees. See Compl. (Doc. 1). Under the Internal

Revenue Code (IRC), the government seeks an order permanently enjoining

defendants from preparing tax returns for others (Counts I–III) and requiring

defendants to disgorge ill-gotten gains received from preparing false tax

returns (Count IV). Id. ¶¶ 1–2, 258. The defendants demand a jury trial on the

disgorgement claim in Count IV, see Brown Ans. (Doc. 26); Madison Am. Ans.

(Doc. 42), and the government moves to strike that demand, MTS Brown Jury

Demand (Doc. 31); MTS Madison Jury Demand (Doc. 51). The government also

moves to strike defendants Darryl Madison and Madison & Son Enterprises’

(d/b/a Madison Tax Services) “unclean hands” and “set off” affirmative

defenses. MTS Aff. Defs. (Doc. 50). I grant the government’s motions.

I. BACKGROUND

Defendant Darryl Madison owns and operates Madison Tax Services, a

tax preparation services company located in Florida. Compl. ¶¶ 6, 16, 21. The

government alleges that Madison and Madison Tax Services have prepared

inaccurate and unlawful tax returns on behalf of paying customers for over ten

years. See, e.g. id. at ¶¶ 23–27, 30, 54. For example, between 2013 and 2017,

the Internal Revenue Service (IRS) sent Madison several letters notifying him

of errors with returns he filed on behalf of his customers. Id. ¶ 23 The IRS also

received customer “complaints alleg[ing] that Madison falsified claims on tax

returns, understated customer taxable income, and failed to provide

taxpayer[s] with support when taxpayers were audited by the IRS.” Id. ¶¶ 24–

25. Based on those complaints, the IRS assessed penalties against Madison for

“willful or reckless conduct in preparing tax returns.” Id. ¶ 26; see 26 U.S.C.

§ 6694(b). Madison never paid the penalties. Id. ¶ 27.

The government levels similar allegations against defendants Malik

Eugene, Yvette Madison, and Marlesa Brown, each of whom worked as tax

return preparers for Madison Tax Services. See Compl. ¶¶ 7–10, 37–51; see 26

U.S.C. § 7701(a)(36) (defining “[t]ax return preparer”). Looking to the returns

filed under each defendant’s unique Preparer Tax Identification Number

(PTIN) and by Madison Tax Services’ Electronic Filing Identification Number

(EFIN), the government alleges that the defendants prepared or filed “an

unusually high number of returns claiming refunds.” Id. ¶¶ 31, 36, 41, 46.

More specifically, the government says the defendants overstated their

customers’ itemized deductions and reported “fictitious” business and energy

expenses to minimize total taxable income. Id. ¶¶ 70–76, 79–82, 91–96.

Ultimately, the government says that the defendants systematically “prepare

false returns that claim tax refunds for customers who would otherwise not be

entitled to them or inflate tax refunds for customers who would otherwise only

be entitled to lower refunds,” and then “deduct their return preparation fees

directly from customers’ refunds.” Id. ¶¶ 49–50.

The defendants’ actions have “result[ed] in the loss of federal tax

revenue” as well increased costs to the government “of examining tax returns

the Defendants prepare and collecting the understated liabilities from their

customers.” Id. ¶¶ 229–231. To address that alleged harm, the government

seeks a permanent injunction prohibiting the defendants from preparing and

filing others’ tax returns under the IRC, 26 U.S.C. § 7407 (Count I), § 7408

(Count II), and § 7402 (Count III). Compl. ¶¶ 237–251. The government also

requests “an order requiring the defendants to disgorge to the United States

the receipts (in the form of fees earned by engaging in false or fraudulent

conduct) for preparing federal tax returns that make false or fraudulent

claims” under 26 U.S.C. § 7402(a) (Count IV). Id. ¶¶ 254–257.

Answering separately, defendants Brown, Eugene, and Yvette Madison

demand a trial by jury as to the claim for disgorgement in Count IV, contending

that under Securities and Exchange Commission v. Jarkesy, 603 U.S. 109

(2024), “a claim for disgorgement is . . . analogous to common law fraud and is

punitive in nature.” Brown Ans. (Doc. 26) at 1 n.1, 15. In an amended answer,

Darryl Madison and Madison & Sons make the same demand. See Madison

Am. Ans. (Doc. 42) at 17–18 (“[N]oting the irony that by seeking disgorgement

rather than the statutory penalties expressly designed by Congress to

compensate the government for the alleged conduct the of the Defendants,

Plaintiff would be permitted to avoid a jury trial in this action, in the name of

equity.”). The government moves to strike all the defendants’ demands for a

jury trial, claiming the Seventh Amendment does not extend to non-punitive,

equitable relief. See MTS Brown Jury Demand; MTS Madison Jury Demand.

Darryl Madison and Madison Tax Services (the Madison Defendants)

also plead three affirmative defenses, only two of which the government

contests.1 As relevant here, the Madison defendants first seek a setoff against

1 The government does not move to strike the Madison Defendants’ third and fourth

affirmative defenses for failure to state a claim upon which relief may be granted, as

to Count II and Count IV of the complaint. See Madison Am. Ans. at 16–17. Those

defenses are improper, however, because “[a] defense which points out a defect in the

any disgorgement claim of damages that they can prove related to the

government’s “wrongful liquidation of Darryl Madison’s securities account,

deprivation of their rights to due process, damage to their business resulting

from [the government’s] gratuitous publication of false, misleading and or

incorrect information on their website, outside the course of this judicial

proceeding, and not in connection with the collection of taxes, the use of press

releases and search engine optimization services to publish such false

information across the internet and any related conduct.” Madison Am. Ans.

at 13 (First Affirmative Defense). Second, and based largely on the foregoing

allegations, the Madison Defendants claim that the equitable doctrine of

unclean hands bars the government’s disgorgement remedy. Id. at 14–16

(Second Affirmative Defense). The government moves to strike both

affirmative defenses.

II. LEGAL STANDARDS

A. Seventh Amendment

“The right of trial by jury as declared by the Seventh Amendment to the

Constitution—or as provided by a federal statute—is preserved to the parties

inviolate.” FED. R. CIV. P. 38(a). Accordingly, “[t]he trial on all issues so

demanded must be by jury unless . . . the court, on motion or on its own, finds

plaintiff’s prima facie case is not an affirmative defense.” In re Rawson Food Service,

Inc., 846 F. 2d 1343, 1349 (11th Cir. 1988). I treat those defenses as general denials.

that on some or all of those issues there is no federal right to a jury trial.” FED.

R. CIV. P. 39(a)(2). The Seventh Amendment guarantees that “[i]n suits at

common law, . . . the right of trial by jury shall be preserved.” The Amendment

thus “embrace[s] all suits which are not of equity or admiralty jurisdiction,

whatever may be the peculiar form which they may assume.” Parsons v.

Bedford, 3 Pet. 433, 447 (1830); see SEC v. Jarkesy, 603 U.S. 109, 122 (2024)

(“The Seventh Amendment extends to a particular statutory claim if the claim

is ‘legal in nature.’ ”) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,

53 (1989)). “[A]ny seeming curtailment of the right to a jury trial should be

scrutinized with the utmost care.” Dimick v. Schiedt, 293 U.S. 474, 486 (1935).

B. Affirmative Defenses

“An affirmative defense is generally a defense that, if established,

requires judgment for the defendant even if the plaintiff can prove his case by

a preponderance of the evidence.” Wright v. Southland Corp., 187 F.3d 1287,

1303 (11th Cir. 1999). Although motions to strike defenses are ordinarily

disfavored, Federal Rule of Civil Procedure 12(f) provides that a “court may

strike from a pleading an insufficient defense or any redundant, immaterial,

impertinent, or scandalous matter.” An affirmative defense is “insufficient as

a matter of law” only if it is “patently frivolous” on its face or if “it is clearly

invalid as a matter of law.” Belmer v. EZPawn Fla., Inc., 8:20-cv-1470-T-

33SPF, 2020 WL 7419663, at *1 (M.D. Fla. Sept. 28, 2020) (quoting Microsoft

Corp. v. Jesse’s Computers & Repair, Inc., 211 F.R.D. 681, 683 (M.D. Fla.

2002)). But an affirmative defense is sufficient to overcome a motion to strike

if it “puts into issue relevant and substantial legal and factual questions.” Id.

(quoting Reyher v. Trans World Airlines, Inc., 881 F. Supp. 574, 576 (M.D. Fla.

1995)); see also Reyher, 881 F. Supp. at 576 (“[A] court will not exercise its

discretion under the rule to strike a pleading unless the matter sought to be

omitted has no possible relationship to the controversy, may confuse the issues,

or otherwise prejudice a party.”).

III. ANALYSIS

The government takes issue with all the defendants’ demands for a jury

trial on the claim for disgorgement and seeks to strike two of the Madison

Defendants’ affirmative defenses. I address each motion in turn.

A. Jury Demand

The parties disagree about whether the Seventh Amendment guarantees

the defendants the right to a jury trial on the government’s claim for

disgorgement under 26 U.S.C. § 7402(a). The defendants contend that it does,

arguing that, because “a claim for disgorgement is . . . analogous to common

law fraud and is punitive in nature,” the Seventh Amendment provides for a

jury trial. Brown Resp. (Doc. 45) at 3. The government says otherwise,

asserting that disgorgement of ill-gotten gains is an equitable remedy that

“return[s] those profits to the source from which they were wrongfully

obtained, thus restoring the status quo.” MTS Madison Jury Demand at 6.

Taking seriously the Supreme Court’s direction to “carefully preserve[] the

right to trial by jury where legal rights are at stake,” Chauffeurs, Teamsters &

Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990), the government

nonetheless persuades that the remedy sought here is equitable in nature and

thus outside the Seventh Amendment’s purview.

1. SEC v. Jarkesy

Both parties rely principally on the Supreme Court’s recent decision in

Jarkesy, which provides the roadmap for resolving their dispute. I start with

the Seventh Amendment, which, “[b]y its text . . . guarantees that in ‘[s]uits at

common law, . . . the right of trial by jury shall be preserved.’ ” Jarkesy, 603

U.S. at 122 (quoting U.S. CONST., amend. VII). The phrase “common law,” as

used by the Framers, stands “in contradistinction to equity, and admiralty, and

maritime jurisprudence.” Id. (quoting Parsons, 3 Pet. at 446); see Boyle v.

Zacharie & Turner, 6 Pet. 648, 654 (1832) (“[T]he settled doctrine of this court

is, that the remedies in equity are to be administered . . . according to the

practice of courts of equity in [England], as contradistinguished from courts of

law.”). A statutory claim like the one at issue here is therefore covered by the

Seventh Amendment if it is “legal in nature.” Jarkesy, 603 U.S. at 122 (quoting

Granfinanciera, 492 U.S. at 53). To determine whether a claim is legal in

nature, courts must “consider the cause of action and the remedy it provides,”

with the latter consideration being “more important.” Id. at 122–23 (quoting

Tull v. United States, 481 U.S. 412, 421 (1987)).

In Jarkesy, “the remedy [was] all but dispositive.” Id. at 123. There, the

Securities and Exchange Commission initiated an enforcement action seeking

civil penalties, a form of monetary relief, against an investment firm and its

manager for alleged securities fraud violations.2 Id. at 118–19 (explaining that

the SEC alleged violations of the Securities Act, the Securities Exchange Act,

and the Investment Advisers Act). While “monetary relief can be legal or

equitable,” the Court explained that “[w]hat determines whether a monetary

remedy is legal is if it is designed to punish or deter the wrongdoer, or, on the

other hand, solely to ‘restore the status quo.’ ” Id. at 123 (quoting Tull, 481 U.S.

at 422); see id. (explaining that “courts of equity could order a defendant to

return unjustly obtained funds, [but] only courts of law issued monetary

penalties to ‘punish culpable individuals’ ” (quoting Tull, 481 U.S. at 422)). A

civil sanction that does not “solely . . . serve a remedial purpose,” but “also

2 The SEC’s final order also “directed [defendants] to cease and desist committing or

causing violations of the antifraud provisions, ordered [Jarkesy’s firm] to disgorge

earnings, and prohibited Jarkesy from participating in the securities industry and in

offerings of penny stocks.” 603 U.S. at 119. In the proceedings below, the Fifth Circuit

described those as “equitable remedies,” but explained that “the penalty facet of the

action suffices for the jury-trial right to apply to an adjudication of the underlying

facts supporting fraud liability.” Jarkesy v. SEC, 34 F.4th 446, 454–55 (5th Cir. 2022),

aff’d and remanded, 603 U.S. 109 (2024), and adhered to, 132 F.4th 745 (5th Cir.

2024). The Supreme Court did not address disgorgement.

serv[es] either retributive or deterrent purposes, is punishment.” Id. (quoting

Austin v. United States, 509 U.S. 602, 610 (1993)).

In determining that the SEC’s civil penalty functioned as a

punishment—and therefore the Seventh Amendment governed—the Court

first looked to the Securities Exchange Act’s and Investment Advisers Act’s

preconditions for imposing penalties. The statutes authorized civil penalties

based on six factors: “(1) whether the alleged misconduct involved fraud, deceit,

manipulation, or deliberate or reckless disregard for regulatory requirements,

(2) whether it caused harm, (3) whether it resulted in unjust enrichment,

accounting for any restitution made, (4) whether the defendant had previously

violated securities laws or regulations, or had previously committed certain

crimes, (5) the need for deterrence, and (6) other ‘matters as justice may

require.’ ” Id. (quoting 15 U.S.C. §§ 78u–2(c), 80b–3(i)(3)). Because those

factors “tie the availability of civil penalties to the perceived need to punish the

defendant rather than to restore the victim, such considerations are legal

rather than equitable.” Id.

Next, the Court observed that the relevant statutory “criteria that

determine the size of the available remedy” sound in punishment. Id.

Collectively, the Securities Act, the Securities Exchange Act, and the

Investment Advisers Act fix increasing tiers of monetary sanctions based first

on whether “the violation involved fraud, deceit, manipulation, or deliberate or

reckless disregard for regulatory requirements,” and then on whether “those

acts also resulted in substantial gains to the defendant or losses to another.”

Id. Those criteria, the Court reasoned, “are also legal in nature” because they

“condition[] the available penalty on the culpability of the defendant and the

need for deterrence, not the size of the harm that must be remedied.” Id.

As “final proof” that the SEC’s desired remedy was punitive, the Court

explained that “[a]lthough the SEC can choose to compensate injured

shareholders from the civil penalties it collects,” nothing in the statutes

“obligate[s] [it] to return any money to victims.” Id. (citing 15 U.S.C. § 7246(a)).

“Such a penalty does not ‘restore the status quo’ and can make no pretense of

being equitable.” Id. (quoting Tull, 481 U.S. at 422). Accordingly, the SEC’s

elected remedy of civil penalties was “a type of remedy at common law that

could only be enforced in courts of law,” and thus defendants were entitled to

a jury trial under the Seventh Amendment. Id. at 125.

Turning lastly to the cause of action, the Court explained that securities

fraud resembles common law fraud, a legal claim that “must be heard by a

jury.” Id. at 120. “Congress deliberately used ‘fraud’ and other common law

terms of art in the Securities Act, the Securities Exchange Act, and the

Investment Advisers Act. E.g., 15 U.S.C. § 77q(a)(3) (prohibiting any practice

‘which operates . . . as a fraud’).” Id. at 125. And “[w]hen Congress transplants

a common-law term, the old soil comes with it.” Id. (quoting United States v.

Hansen, 599 U.S. 762, 778 (2023)). Ultimately, “the close relationship between

federal securities fraud and common law fraud confirms that [the] action is

‘legal in nature,’ ” and thus implicated the Seventh Amendment. Id. at 126

(quoting Granfinanciera, 492 U.S. at 53).

2. Disgorgement under the Internal Revenue Code

The government’s statutory claim here bears limited resemblance to the

SEC’s securities fraud claim in Jarkesy, and more importantly, the remedy of

disgorgement does not carry the hallmarks of punishment necessary to trigger

the Seventh Amendment.

i. The tax claim here does not require fraud

Starting with the nature of the government’s claim itself, the relevant

provision of the Internal Revenue Code provides:

The district courts of the United States . . . shall have such

jurisdiction to make and issue in civil actions, writs and orders of

injunction . . . and such other orders and processes, and to render

such judgments and decrees as may be necessary or appropriate

for the enforcement of the internal revenue laws. The remedies

hereby provided are in addition to and not exclusive of any and all

other remedies of the United States in such courts or otherwise to

enforce such laws.

26 U.S.C. § 7402(a). The Eleventh Circuit has rejected a “narrow construction

of § 7402(a),” holding “that there need not be a showing that a party has

violated a particular Internal Revenue Code section” to trigger its application.

United States v. Ernst & Whinney, 735 F.2d 1296, 1300 (11th Cir. 1984).

Rather, “[t]he language of § 7402(a) encompasses a broad range of powers

necessary to compel compliance with the tax laws,” including a court’s ability

“to enjoin interference with tax enforcement even when such interference does

not violate any particular tax statute.” Id. (collecting cases); see United States

v. Askins & Miller Orthopaedics, P.A., 924 F.3d 1348, 1354 (11th Cir. 2019)

(“Section 7402(a) of the Internal Revenue Code grants federal district courts

an array of powers to aid in enforcing the tax laws. . . .”). So, unlike in the

securities fraud claims at issue in Jarkesy, here “the Government is not

required to prove fraud or a violation of § 6701 to obtain injunctive relief” under

§ 7402(a) and thus need not prove the elements of fraud transplanted from the

common law’s “old soil.” United States v. Stinson, 661 F. App’x 945, 952 (11th

Cir. 2016); see also MTS Madison Jury Demand at 12–13. Instead, “[i]t is

sufficient under I.R.C. § 7402 for the Government to prove a pattern of gross

negligence or recklessness, so long as injunctive relief is necessary or

appropriate for the enforcement of the internal revenue laws.” Stinson, 661 F.

App’x at 952 (citation modified); see Ernst & Whinney, 735 F.2d at 1301

(explaining that “the decision to issue an injunction under § 7402(a) is

governed by the traditional factors shaping the district court’s use of the

equitable remedy”).

The government’s core allegations suggest that the defendants exhibited

a “pattern of gross negligence or recklessness” leading to their unjust

enrichment at the expense of the federal treasury. At base, the government

contends that “[t]he Defendants’ conduct substantially interferes with the

enforcement of the internal revenue laws and has caused the United States to

issue falsely or fraudulently inflated tax refunds to individuals not entitled to

receive them.” Compl. ¶ 254. True, the government uses generic language

regarding the defendants’ “Fraudulent Schemes” throughout the complaint,

including in allegations pertinent to disgorgement. See, e.g., Compl. ¶¶ 97–109,

229–230. But only in its claim for injunctive relief under 26 U.S.C. § 7407—

which permits the government to rely on violations of certain IRC provisions—

does the government allege specific statutory violations amounting to fraud.

See, e.g., Compl. ¶ 239(b) (“The Defendants continually and repeatedly engage

in conduct subject to penalty under 26 U.S.C. § 6694 by preparing tax returns

that understate their customers’ tax liabilities and overstate their refunds and

credits. . . . with the knowledge that the positions they take on tax returns are

unreasonable and lack substantial authority.”).

Elsewhere in that same count, though, the government makes clear that

the defendants also violated portions of the IRC not predicated on fraudulent

conduct. For example, “the Defendants engage in conduct subject to penalty

under 26 U.S.C. §§ 6695(b) and 6695(c) for failure to properly sign and identify

himself or herself as the paid tax return preparer,” id. ¶ 239(d), and “engage

in conduct subject to penalty under 26 U.S.C. § 6695(g), which penalizes a tax

return preparer who does not exercise due diligence in determining eligibility

for earned income tax credits,” id. ¶ 239(e). Although the government need not

prove violations of those underlying provisions for its disgorgement claim

under § 7402(a), even if it did, it would not necessarily be required to prove the

common law elements of fraud. See, e.g., 26 U.S.C. § 6694(a)(1) (penalizing tax

preparers who “knew (or reasonably should have known) of the [unreasonable]

position,” disclosed on a tax return or claim of refund); cf. id. § 6695(b)

(excusing preparer’s failure to sign if “it is shown that such failure is due to

reasonable cause and not due to willful neglect”). Accordingly, the defendants’

claim that “the alleged tax fraud in this case is indistinguishable from common

law fraud” overlooks that the government need not prove fraud to begin with,

even if the defendants’ conduct might otherwise qualify. Brown Resp. at 10.

Because defendants point to no other common law parallels, this initial inquiry

does not suggest the claim’s legal nature.

ii. Disgorgement is an equitable remedy

The government seeks a return of the defendants’ “receipts (in the form

of fees earned by engaging in false or fraudulent conduct) for preparing federal

tax returns that make false or fraudulent claims.” Compl. ¶ 257. Because this

disgorgement request sounds in equity, the remedy proves “all but dispositive”

here. Jarkesy, 603 U.S. at 123.

At the outset, the Madison Defendants question the propriety of

disgorgement because § 7402(a) “does not specifically refer to or authorize [it]

as a remedy,” and because the statute’s “enforcement” purpose “tend[s] to

suggest that economic claims flowing from this provision are punitive / legal in

nature.” Madison Resp. MTS Jury Demand (Doc. 58) at 3–4. I disagree. Section

7402(a) authorizes courts “to make and issue . . . writs and orders of injunction,

and of ne exeat republica, orders appointing receivers, and such other orders

and processes, and to render such judgments and decrees as may be necessary

or appropriate for the enforcement of the internal revenue laws.” Under the

ejusdem generis canon, because the specifically enumerated powers are

equitable in nature, so too are “other orders and processes.” See, e.g., Epic Sys.

Corp. v. Lewis, 584 U.S. 497, 512 (2018) (“[W]here . . . a more general term

follows more specific terms in a list, the general term is usually understood to

embrace only objects similar in nature to those objects enumerated by the

preceding specific words.” (citation modified)). Nor does “enforcement” restrict

the open-ended authorizations to legal claims, since the modifying

“enforcement” phrase attaches equally to the enumerated equitable remedies.

See ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION

OF LEGAL TEXTS § 19, at 147 (2012) (“When there is a straightforward, parallel

construction that involves all nouns or verbs in a series, a prepositive or

postpositive modifier normally applies to the entire series.”).

But even though § 7402 authorizes equitable relief here, courts do not

exercise “freewheeling power to fashion new forms of equitable remedies”

under “general statutory grants of equitable authority.” Trump v. Hawaii, 585

U.S. 667, 714 (2018) (Thomas, J., concurring). Instead, courts must “analyze[]

whether a particular remedy falls into ‘those categories of relief that were

typically available in equity.’ ” Liu v. SEC, 591 U.S. 71, 78–79 (2020) (quoting

Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)). Historically, “[e]quity

courts . . . routinely deprived wrongdoers of their net profits from unlawful

activity, even though that remedy may have gone by different names.” Id. at

79 (comparing traditional remedies of “accounting” and “restitution”). So,

although “disgorgement” “is a 20th-century invention,” at least in name, see id.

at 94 (Thomas, J., dissenting), and represents a “ ‘limited form of penalty

insofar as it takes money out of the wrongdoer’s hands,” the Supreme Court

has “situate[ed] the remedy squarely within the heartland of equity” because

it focuses on restoring the status quo, much like the traditional equitable

remedies of accounting and restitution, id. at 80 (quoting Tull, 481 U.S. at 424);

see also Smith v. Vodges, 92 U.S. 183, 186 (1875) (“Where money has been

misappropriated, the general rule of equity is, that those wronged may pursue

it as far as it can be traced, and may elect . . . to recover the money.”); accord,

e.g., SEC v. Almagarby, 92 F.4th 1306, 1320 (11th Cir. 2024) (“[D]isgorgement

sounds in equity and[ ] stripping wrongdoers of ill-gotten profits is consistent

with equitable practice.”).

Thus, “[b]ecause § 7402 encompasses a broad range of powers necessary

to compel compliance with the tax laws . . . disgorgement is an available

remedy” to the IRS, United States v. Stinson, 239 F. Supp. 3d 1299, 1326 (M.D.

Fla. 2017) (citation modified), aff’d, 729 F. App’x 891 (11th Cir. 2018), and it

functions as “an equitable remedy intended to prevent unjust enrichment,” id.

at 899 (quoting SEC v. Levin, 849 F.3d 995, 1006 (11th Cir. 2018)). Based on

this conventional understanding, courts before Jarkesy had little trouble

concluding “that disgorgement, in the context of § 7402, is an equitable remedy

not [] triable by a jury.” United States v. Meyer, 376 F. Supp. 3d 1290, 1295

(S.D. Fla. 2019); United States v. RaPower-3, LLC, 294 F. Supp. 3d 1238, 1240

(D. Utah 2018) (“[D]isgorgement is equitable and is not tried by a jury.”), aff’d

960 F.3d 1240 (10th Cir. 2020).

Jarkesy does not alter that conclusion. Rather, Jarkesy recognizes that

“courts of equity could order a defendant to return unjustly obtained funds,”

exactly what disgorgement under § 7402 accomplishes in this context.3 603

3 In other contexts, too, courts post-Jarkesy have concluded that disgorgement claims

do not trigger the Seventh Amendment’s protections. See, e.g., Nat’l Presto Indus.,

Inc. v. U.S. Merchants Fin. Grp., Inc., 121 F.4th 671, 678–80 (8th Cir. 2024) (holding

that district court properly denied request for jury trial on Lanham Act claim seeking

disgorgement (citing Hard Candy, LLC v. Anastasia Beverly Hills, Inc., 921 F.3d

1343, 1359 (11th Cir. 2019)); Proofpoint, Inc. v. Vade USA, Inc., No. 23-16085, 2024

WL 4003096, at *1 (9th Cir. Aug. 30, 2024) (“[T]he Seventh Amendment extends to a

U.S. at 123. In doing so, and in contrast to the securities fraud statutes which

“condition[ed] the available penalty on the culpability of the defendant and the

need for deterrence, not the size of the harm that must be remedied,” id., the

government seeks only the return of the defendants’ “receipts (in the form of

fees earned by engaging in false or fraudulent conduct) for preparing federal

tax returns that make false or fraudulent claims,” Compl. ¶ 257; Kokesh v.

SEC, 581 U.S. 455, 458–59 (2017) (“Generally, disgorgement is a form of

‘[r]estitution measured by the defendant’s wrongful gain.’ ” (quoting

Restatement (Third) of Restitution and Unjust Enrichment § 51 cmt. a (A.L.I.

2010)). Because disgorgement here neither varies nor increases based on the

defendants’ relative culpability, the key underlying “considerations” are not

legal in character. Jarkesy, 603 U.S. at 124.

Further, returning the amount of the net gain to the United States

Treasury also works primarily to “restore the status quo,” Tull, 481 U.S. at

422, and adequately “restore[s] the victim,” Jarkesy, 603 U.S. at 124. Unlike in

Jarkesy, where the SEC was “not obligated to return any money to [non-

governmental] victims,” id., the direct victim of the defendants’ actions is the

federal government. As the government’s complaint plausibly alleges, the

defendants “deduct their return preparation fees directly from their customers’

statutory claim only if that particular claim is legal in nature, which disgorgement is

not.” (citation omitted)).

refunds.”4 Compl. ¶ 50; see id. ¶ 254 (“The Defendants have unjustly profited

at the expense of the United States by subtracting their tax preparation fees

from these bogus refunds.”). While the balance of the “bogus refunds” also

represents an amount owed to the IRS, the ill-gotten gains necessarily form a

portion of the siphoned-off tax revenues, for which the government requests “a

period of discovery to determine the appropriate amount of disgorgement.”5

Compl. ¶ 258(h).

More still, § 7402’s disgorgement remedy is “in addition to and not

exclusive of any and all other remedies of the United States in such courts or

4 In its motions, the government claims that the defendants “contract with a third

party, in this case Refund Advantage, to process their customers’ tax

refunds. . . . From each refund, Refund Advantage then subtracts 1) its per-return

refund processing fee, 2) the per-return fee that is transmitted to the provider of the

tax preparation software that the Defendants use, and 3) the Defendants’ tax

preparation fee. The remaining balance is then transmitted to the customer.” MTS

Madison Jury Demand at 2–3. The Madison Defendants suggest that the third-party

routing, which is absent from the complaint, means that the defendants are not the

direct recipients of ill-gotten gains. See Madison Resp. MTS Jury Demand at 8. I

disagree. The defendants can be unjustly enriched even if the refunds passed through

another entity first. See, e.g., United States v. Lawrence, No. 15-62233-CIV, 2016 WL

5390569, at *6 (S.D. Fla. Sept. 27, 2016) (rejecting defendant’s argument “that the

United States cannot obtain disgorgement from him because customers paid his

companies, not him personally, for tax preparation”).

5 At first glance, disgorging the defendants’ “receipts” or “fees” appears to target their

full revenues, not just profits. Some courts view this as the proper scope of

disgorgement in SEC and FTC actions. See, e.g., FTC v. Washington Data Res., Inc.,

704 F.3d 1323, 1327 (11th Cir. 2013) (per curiam) (holding that the correct measure

of disgorgement is net revenue, not net profit, because “defendants in a disgorgement

action are not entitled to deduct costs associated with committing their illegal acts.”

(citation omitted)). Other “courts limited awards to the net profits from wrongdoing,

that is, ‘the gain made upon any business or investment, when both the receipts and

payments are taken into the account.’ ” Liu, 591 U.S. at 83 (quoting Rubber Co. v.

otherwise to enforce such laws,” whether that be injunctive relief or penalties.

Here, as was proper in courts of equity, the government seeks disgorgement as

a monetary remedy “incidental to or intertwined with injunctive relief,” such

as in “actions for disgorgement of improper profits.” See Chauffeurs, 494 U.S.

at 570–71. In addition, the IRS could seek fines above and beyond the

defendants’ ill-gotten gains through the IRC’s penalty-enabling provisions.

See, e.g., 26 U.S.C. §§ 6694, 6695, and 6701, and if it did, the defendants would

likely be entitled to a jury. See, e.g., Ross v. Bernhard, 396 U.S. 531, 537–38

(1970) (“[W]here equitable and legal claims are joined in the same action, there

is a right to jury trial on the legal claims which must not be infringed either by

trying the legal issues as incidental to the equitable ones or by a court trial of

a common issue existing between the claims.”). But that the government does

not, and cannot, seek to further penalize the defendants through a

disgorgement remedy supports a conclusion that “the nature of the issue to be

tried” and the relief sought is equitable. Id. at 538.

The defendants push back, arguing that disgorgement under § 7402, like

the penalty in Jarkesy, aims “to enforce the laws of the internal revenue service

Goodyear, 9 Wall. 788, 804 (1870)); see id. at 100 (Thomas, J., dissenting) (arguing

that if disgorgement is treated as an equitable remedy, “the order should be limited

to each petitioner’s profits.”). At this stage, I need not decide the proper amount of

disgorgement and thus do not decide whether defendants may deduct expenses from

net “receipts” or “fees,” which involves assessing whether “ ‘the entire profit of a

business or undertaking’ results from the wrongful activity.” Id. at 84 (quoting Root

v. Railway Co., 105 U.S. 189, 203 (1882)).

by putting fraudulent tax return prepares out of business and dissuading other

tax preparers from crossing the line.” Brown Resp. at 9. That’s true, as far as

it goes. Insofar as the defendants’ “ ‘entire profit of a business or undertaking’

results from the wrongful activity,” Liu, 591 U.S. at 84 (quoting Root, 105 U.S.

at 203), that goes to the amount of disgorgement, not the remedy’s legal or

equitable categorization. It also says little of the remedy’s equitable character

where the government also seeks injunctions that would put Madison Tax

Services out of business. See, e.g., Compl. ¶ 258(d)(i) (seeking to enjoin the

defendants from “[p]reparing, assisting in the preparation of, or directing the

preparation of federal tax returns”). The defendants do not suggest that the

requested injunctive relief is legal in character, even though it would almost

certainly cause other tax preparers to pause before flouting the IRC.

In a final effort to undercut disgorgement as an equitable remedy, the

defendants rely on the Supreme Court’s decision in Kokesh v. SEC, 581 U.S.

455 (2017), which addressed the “sole question” of “whether disgorgement, as

applied in SEC enforcement actions, is subject to [28 U.S.C.] § 2462’s limitation

period” for “any ‘action . . . for the enforcement of any civil fine, penalty, or

forfeiture, pecuniary or otherwise.” 581 U.S. at 457, 461 n.3 (quoting 28 U.S.C.

§ 2462) (emphasis added). There, “SEC disgorgement constitute[d] a penalty

within the meaning of § 2462” because it was imposed for violations of “public

laws,” served “punitive purposes,” and was “not compensatory” given that the

court retained discretion over how to distribute the disgorged profits. Id. at

463–65. Further, “SEC disgorgement sometimes exceed[ed] the profits gained

as a result of the violation,” and thus left the defendants worse off, deviating

from a non-punitive return to the status quo. Id. at 466.

Despite its appeal to broader principles, “Kokesh is a statutory analysis

of terms” that “certainly did not discuss or overrule the longstanding precedent

of categorizing disgorgement as an equitable remedy.” RaPower, 294 F. Supp.

3d at 1241–42. In fact, “the Kokesh Court evaluated a version of the SEC’s

disgorgement remedy that seemed to exceed the bounds of traditional

equitable principles,” and thus “has no bearing on the [government’s] ability to

conform future requests for a defendant’s profits to the limits outlined in

common-law cases awarding a wrongdoer’s net gains.” Liu, 591 U.S. at 85–86.

That’s particularly true here, where disgorgement under § 7402 must be

“governed by the traditional factors shaping the district court’s use of the

equitable remedy.” Ernst & Whinney, 735 F.2d at 1301. I therefore do not think

Kokesh’s narrow holding applies to an IRS disgorgement order that seeks to

restore the status quo through the return of the federal government’s lost tax

revenue without leaving the defendants “worse off.” See Kokesh, 581 U.S. at

466.

Ultimately, because such a disgorgement order only requires the

“defendant[s] to return unjustly obtained funds,” without additional hallmarks

of a penalty, I conclude that the Seventh Amendment is not implicated here

and grant the government’s motions to strike the defendants’ jury demand.

B. Affirmative Defenses

In addition to the defendants’ demands for a jury trial, the government

also moves to strike the Madison Defendants’ unclean hands and setoff

affirmative defenses as improper and based on irrelevant, extraneous matters.

3. Unclean Hands

The Madison Defendants aver that the government’s conduct bars its

requested equitable relief under the doctrine of unclean hands. More

specifically, the Madison Defendants plead that the government “wrongfully

seized and liquidated [Madison’s] stock account, deprived him of notice, due

process and the opportunity to defend himself against their claims resulting in

damages in excess of $4 million.” Madison Am. Ans. at 14 (Second Affirmative

Defense). Allegedly compounding those primary injuries with a “defamatory

campaign,” Madison says the government “publish[ed] the instant complaint,

which contains a vast amount of disparaging, unproven, factually incorrect and

or misleading information on their website coupled with a link to the

complaint.” Id. at 14–15. Madison’s boundless description of the government’s

alleged wrongdoing foreshadows trouble for his theory of defense.

Of course, it is a well-trodden maxim that “[h]e who comes into equity

must come with clean hands.” Keystone Driller Co. v. Gen. Excavator Co., 290

U.S. 240, 241 (1933). To prevail on an unclean hands defense, though, “a

defendant must show that (1) the plaintiff’s wrongdoing is directly related to

the claim, and (2) the defendant was personally injured by the wrongdoing.”

Bailey v. TitleMax of Georgia, Inc., 776 F.3d 797, 801 (11th Cir. 2015). “[C]ourts

require the connection between the unclean-hands conduct and the matter in

litigation to be very close.” Bowe v. Pub. Storage, No. 1:14-CV-21559-UU, 2015

WL 11233137, at *3 (S.D. Fla. June 26, 2015).

At the outset, and before engaging with these standards, the government

posits that “[u]nclean hands is unavailable against the government in suits to

‘vindicate the public interest.’ ” MTS Aff. Def. at 4 (citing United States v.

Cushman & Wakefield, Inc., 275 F. Supp. 2d 763, 773 (N.D. Tex. 2002)). To be

sure, some courts have suggested as much. See, e.g., SEC v. Gulf & Western

Indus., Inc., 502 F. Supp. 343, 348 (D.D.C. 1980) (“[T]he doctrine of unclean

hands . . . may not be invoked against a governmental agency which is

attempting to enforce a congressional mandate in the public interest.”); SEC v.

Kirkland, No. 606-CV-183ORL, 2006 WL 8449839, at *1 (M.D. Fla. Sept. 6,

2006) (“[G]enerally, motions to strike are granted when the doctrine of unclean

hands has been asserted against a government agency carrying out its

congressionally mandated duties.”). But the Eleventh Circuit has not formally

adopted the government’s view, at least to the far-reaching limits it proposes.

Instead, the government is presumed to “come[] into court with clean hands

and is entitled to the equitable relief it obtained” unless it “did something

which in good conscience it should not have done, or failed to do something fair

dealing required it to do.” United States v. Second Nat’l Bank of N. Miami, 502

F.2d 535, 548 (5th Cir. 1974);6 SEC v. Cuban, 798 F. Supp. 2d 783, 788 (N.D.

Tex. 2011) (“Second National Bank does not support the conclusion that the

affirmative defense of unclean hands can never be invoked against the SEC

when . . . [it] is attempting to enforce a congressional mandate in the public

interest, such as in an enforcement action.”).

Even on this more modest view of the government’s position, the

Madison Defendants fail to adequately plead an unclean hands affirmative

defense. To begin, the allegations are not “directly related to the claim” at issue

here. Bailey, 776 F.3d at 801. As the government’s complaint details, “[o]n

August 12, 2019, the IRS assessed penalties against Madison under 26 U.S.C.

§ 6694(b) for his willful or reckless conduct in preparing tax returns in 2015,

2016, and 2017.” Compl. ¶ 26. The government does not seek to reassess

penalties against Madison for those tax years or to collect them through the

present action. Instead, as the IRC provides for, the government requests

equitable relief which is “not exclusive of any and all other remedies of the

6 The Eleventh Circuit adopted as binding precedent all decisions rendered by the

United States Court of Appeals for the Fifth Circuit prior to September 30, 1981. See

Bonner v. City of Pritchard, 661 F.2d 1206, 1207 (11th Cir. 1981) (en banc).

United States in such courts or otherwise to enforce such laws.” 26 U.S.C.

§ 7402(a). According to the government, Madison’s unlawful tax preparation

activities continued into tax years 2019–2024, a time period that did not form

the basis for the penalties or purported “wrongful[] seiz[ure]” of Madison’s

securities accounts. See, e.g., Compl. ¶¶ 31, 121–164. Thus, I agree that

“[w]hether the IRS did or did not wrongfully seize property in relation to a

penalty assessed against Mr. Madison has no bearing” on the government’s

entitlement to injunctive relief or disgorgement based on separate, ongoing

violations of federal tax law for different tax years. See Reply MTS Aff. Def.

at 2.

Likewise, Madison’s contention that the government’s complaint and

press release amount to a “defamatory campaign to destroy [Madison’s]

business and livelihood” is without merit, even if perhaps more “directly

related” to the claim. Madison Am. Ans. at 15. First, Madison provides no

support for the proposition that defamation—a common-law tort—is actionable

as an affirmative defense to a claim for equitable relief. Second, as the

government points out, even if it were, the government has not waived its

sovereign immunity for defamation claims generally. Cf. Ware v. United States,

838 F. Supp. 1561, 1563 (M.D. Fla. 1993) (“[A]ny claims of defamation are

expressly excluded from the [Federal Tort Claims Act’s] limited waiver of

sovereign immunity.”); Burns v. United States, 809 F. App’x 696, 701 (11th Cir.

2020) (same). Third, insofar as Madison attacks the complaint for “mak[ing]

numerous false, misleading and damaging statements about the honesty and

integrity of all of the defendants,” Madison. Am. Ans. at 15, those statements

are categorically immune from liability under the litigation privilege doctrine,

which “affords absolute immunity for acts occurring during the course of

judicial proceedings.” Jackson v. BellSouth Telecommunications, 372 F.3d

1250, 1274 (11th Cir. 2004) (noting that Florida’s litigation privilege

“developed to protect litigants and attorneys from liability for acts of

defamation”). Finally, even assuming the government’s related press release

falls outside the scope of immunity, Madison does not allege that the press

release includes false statements. Rather, as Madison concedes, the release

“identifies [the government’s] claims as ‘alleged’ ” and “refers readers to the

linked complaint.” Madison Am. Ans. at 15; see also Hornbuckle Decl. (Doc. 63-

1) ¶ 2 (explaining that the DOJ Office of Public Affairs “publishes thousands

of DOJ press releases each year regarding DOJ activities, including injunctions

sought by the United States”). Without any allegation of falsity, Madison’s

defamation defense fails.

Because the Madison Defendants’ unclean hands defense “is clearly

invalid as a matter of law,” I grant the government’s request to strike the

affirmative defense. Microsoft, 211 F.R.D. at 683.

4. Setoff

Relying on the same purportedly wrongful government conduct above,

the Madison Defendants allege “entitle[ment] to a setoff against any

disgorgement claim Plaintiff may be able to establish in this action” equal to

damages flowing from (among other alleged harms) the liquidation of

Madison’s securities account and harm to his reputation and business.

Madison Am. Ans. at 13; Madison Resp. Aff. Def. (Doc. 57) at 2, 10 (arguing

that Madison’s assets were subject to a “wrongful levy”). The government

moves to strike the defense as improper, unrelated to the claims at issue, and

insufficiently pleaded. See MTS Aff. Def. at 9–10. I agree that “set off” is not a

valid affirmative defense under the circumstances and grant the motion to

strike on that basis.

Ordinarily, a defendant seeking to limit his overall liability for damages

may raise a setoff either as an affirmative defense in a contract action or as a

counterclaim in a tort action. See Puck v. Silverman, 2023 WL 9228323, at *2

(S.D. Fla. Dec. 22, 2023) (“[A] review of the case law shows that courts [in

contract actions] routinely recognize setoff as a valid affirmative defense under

Florida law”); KMS Rest. Corp. v. Wendy’s Int’l Inc., 194 F. App’x. 591, 598

(11th Cir. 2006) (per curiam) (In certain tort actions, “set-off is not an

affirmative defense to be considered by the jury but is a determination

regarding damages to be made by the court after the verdict is rendered.”

(quoting Felgenhauer v. Bonds, 891 So.2d 1043, 1045 (Fla. 2d DCA 2004)).

Where a defendant pleads setoff as an affirmative defense, he must “raise[]

matters extraneous to the plaintiff’s prima facie case.” In re Rawson Food

Serv., Inc., 846 F.2d 1343, 1349 (11th Cir. 1988); see also S. Broad. Grp., LLC

v. Gem Broad., Inc., 145 F. Supp. 2d 1316, 1331 n.9 (M.D. Fla. 2001)

(explaining that a demand to offset damages “aris[es] out of a transaction

extrinsic to plaintiff’s cause of action”), aff’d sub nom. S. Broad. v. GEM Broad.,

49 F. App’x 288 (11th Cir. 2002).

To be fair, the defendants here seek to limit their potential liability based

on an “extrinsic transaction,”7 namely the IRS’s earlier assessment of civil

penalties against Madison. Unlike in a typical setoff scenario, though, the

Madison Defendants attempt to reduce their exposure to statutory, equitable

remedies rather than contract or tort-based damages. The IRC’s text and

structure counsel against such a defense in this situation, where Madison’s

7 To the extent the Madison Defendants also ask to set off any disgorgement with

damages from “Plaintiff’s gratuitous publication of false, misleading and or incorrect

information on their website, outside the course of this judicial proceeding, and not

in connection with the collection of taxes, the use of press releases and search engine

optimization services to publish such false information across the internet and any

related conduct,” such conduct is intrinsic to the government’s filing of the present

action. See Madison Am. Ans. at 13. More, the defendants’ allegation that the

government uses “search engine optimization services” is conclusory and without

support. See Hornbuckle Decl. ¶ 4 (“The Office of Public Affairs does not pay to

advertise its press releases or boost search results on internet platforms.”). The

defendants’ post-answer efforts to bolster that allegation are futile, as pleadings

cannot be supplemented through a response brief. See, e.g., Burgess v. Religious Tech.

Ctr., Inc., 600 F. App’x 657, 665 (11th Cir. 2015) (per curiam).

primary complaint is that the IRS wrongfully liquidated his securities account

without adequate notice. See Madison Am. Ans. at 13. On those facts, I agree

with the government’s view that Madison’s recovery requires “an independent

cause of action.” Reply to MTS Aff. Def. (Doc. 63) at 2. Under the IRC, an

aggrieved party may bring a refund action in federal district court if “property

was wrongfully levied upon [by the IRS].’ ” 26 U.S.C. § 7426(a)(1).

Madison has not brought an action to recover the wrongfully levied

account, nor does he frame this defense under the statutory provision that

might otherwise authorize it. See id. § 7426(b)(2)(B) (authorizing court to

“grant a judgment for the amount of money levied upon”). Regardless, such an

action would challenge the substance and procedure of a separate IRS penalty,

not equitable relief which exists “in addition to and not exclusive of” that

penalty. 26 U.S.C. § 7402(a). The Madison Defendants may not circumvent the

IRC’s procedures by styling a damages action as an affirmative defense, and I

therefore strike the setoff defense.

IV. CONCLUSION

The government persuades that the defendants’ answers include legally

inviable demands and defenses. First, the Seventh Amendment does not

provide a right to a jury trial on disgorgement claims under the IRC. Second,

neither unclean hands nor setoff is a proper affirmative defense on the facts

alleged by the parties. Accordingly, the following is ORDERED:

1. The United States’ Motions to Strike Defendants’ Jury Demands (Docs.

31, 51) are GRANTED.

2. The United States’ Motion to Strike Affirmative Defenses (Doc. 50) is

GRANTED. Defendants Darryl Madison and Madison Tax Services’

First Affirmative Defense (Setoff) and Second Affirmative Defense

(Unclean Hands) are STRICKEN.

ORDERED in Tampa, Florida, on December 15, 2025.

athryn’Kimball Mizelle

United States District Judge

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