Northern District Judge Scott Everett heard five hours of closing arguments in the ongoing hearing over whether to dismiss Merit Street Media’s Chapter 11 bankruptcy case, which celebrity television psychologist Dr. Phil McGraw has been accused of filing in “bad faith.”
The court has heard testimony from the chairman of Trinity Broadcasting Network and employees of Merit Street. McGraw, 75, returned to the witness stand Thursday morning in Dallas, where he talked about his background and how his eponymous show came to be in the wake of his popularity after appearing as a guest on Oprah Winfrey’s show.
McGraw launched Merit Street Media television network in April 2024, a year after he ended his two-decade run of Dr. Phil on CBS. Merit Street filed for bankruptcy in July.
Shortly after filing for bankruptcy, McGraw launched Dallas-based ENVOY Media Co., a new media venture that delivers live news, original entertainment and interactive content across traditional and digital platforms.
Merit has accused Trinity Broadcasting Network and its affiliate TCT Ministries of failing to fulfill their obligations under the 2023 agreement that established Merit Street. Merit alleges Trinity violated the agreement by charging for production services, not covering distribution costs and delivering a “shoddy” production work.
According to its bankruptcy filing, Merit has between $100 million and $500 million in assets but has liabilities in the same range.
While Trinity has asked the court to dismiss the case, Professional Bull Riders, whose content was broadcast on the network, claims Merit Street owes it $181 million for breach of contract. PBR has asked the court to convert the bankruptcy from Chapter 11 to Chapter 7.
McGraw told his lawyer, Jackson Walker partner Charles Babcock, who is representing Peteski Productions, that he didn’t want to start over his career after his show left CBS. He emphasized he didn’t want to file for bankruptcy. Peteski, which is owned by McGraw, formed Merit Street in 2023 and produced episodes for the network.
“We had so many good things going for us that to shut all of that down is painful and tragic,” McGraw said. “I hate that Merit Street Media is shutting down.”
McGraw added that he trusted Chief Reconstructing Officer Gary Broadbent that bankruptcy was the best option.
“My attitude is you don’t hire a brain surgeon and hold the mirror to see if you can coach him through doing it. You’ve got to trust the professionals, and I think he knows what he’s doing. And that’s why we’re here. — to get the protection of the bankruptcy court,” McGraw said.
Nicholas Secco, Benesch’s Chicago-based trial practice group chair, represented the Professional Bull Riders. He questioned McGraw about a text message to his friend and creditor, Jamie Ribman, that is missing from his phone. The text stated that the bankruptcy would wipe out all of PBR’s claims against Merit Street.
Judge Everett asked him if he had an explanation for why only that text is still missing. He asked him if he deleted it because it was “unflattering and didn’t want people to see it.” McGraw said he doesn’t know why the text is not on his phone.
McGraw also made a “guarantee” to Ribman that his investment was safe and that he didn’t care how the court ruled and would reimburse Ribman by wire transfer when he wanted. McGraw said Ribman denied the offer in a phone call. The text message chain between McGraw and Ribman was provided to the court through Phil McIntyre’s phone, who was also on the chain. McIntyre worked as a consultant for McGraw.
A trust associated with Ribman, which has a $5 million claim against Merit Street, is one of two members of an unsecured creditors committee that has struck a settlement with the company as part of a bankruptcy exit plan. Judge Everett questioned the trust’s role on the committee and why PBR wasn’t included.
U.S. Trustee Liz Young told Judge Everett that the committee was capable of serving in the case. She cited attorney-client privilege in declining to answer whether they would have appointed the Ribman trust had they known about the conversation between McGraw and Ribman.
Foley & Lardner partner Robert Slovak presented closing arguments to Judge Everett on behalf of TBN.
Judge Everett said he has lost sleep over Broadbent’s testimony.
“Generally not a good thing when the judge loses sleep,” Judge Everett said.
During Broadbent’s testimony, Judge Everett had Broadbent rank the options presented in the case. He ranked denying the motions first, dismissing the case second and converting to Chapter 7 as third.
The judge also asked the parties what should happen if he finds there is not a neutral fiduciary who is willing to honor an obligation of candor to the court. Is that finding alone cause for appointing a trustee or is it either an independent or overlapping cause for appointment of a Chapter 7 trustee?
Slovak deferred to his cocounsel, Foley & Lardner partner Mark Moore, but said that TBN’s preference is Chapter 7. He asked Judge Everett to either dismiss the bankruptcy case or convert it to a Chapter 7.
Secco then presented his closing arguments to Judge Everett for PBR. He said the evidence is overwhelming in showing that the bankruptcy was filed in bad faith.
“PBR is willing to submit to the illuminating gaze of a Chapter 7 trustee,” Secco said. “If the debtor will not voluntarily submit, then we ask the court to push them into the light as the only way to cleanse the stain that has infected these proceedings from the outset is to convert to Chapter 7 and start anew.”
Moore quickly took the podium to pick up on what Slovak couldn’t answer for the court. He said the court has the authority to grant the motion and find cause to dismiss, grant the motion and find cause to convert or grant the motion and find cause and appoint a Chapter 11 trustee.
“This bankruptcy case was filed for an illegitimate purpose by one man to benefit one man,” Moore said.
He added that “only the appointment of an independent fiduciary through conversion of Chapter 7 will accomplish all of the court’s goals.”
Chicago-based Sidley Austin partner James Ducayet presented to Judge Everett on behalf of Merit Street. He said they have all worked “tirelessly” to achieve a resolution that would be in the best interest of all the creditors.
He noted that the two parties, TBN and PBR, have their own interests in the case.
“I think it is probably the understatement of the year to say that those two parties and Dr. McGraw have a lot of bad blood. The rhetoric in this case, the innuendo in this case, … the allegations have been, frankly, astonishing,” Ducayet said.
He said the facts matter and asked Judge Everett to deny the motion to dismiss.
Babcock and Jackson Walker partner Chris Bankler presented to Judge Everett for Peteski.
Both Babcock and Bankler argued that bankruptcy was the only option for the company because it was out of money.
O’Melveny partner Lou Strubeck, who represents the creditors committee, said a dismissal or conversion or the appointment of a U.S. Trustee is not in the best interest of the unsecured creditors.
“There’s no evidence to suggest anything to the contrary,” Strubeck said.
Judge Everett said that the motion is under advisement and that he will give an oral ruling within a few weeks.
Sidley Austin partners Stephen Hessler and Steven Sexton, and senior managing associates Jeri Leigh Miller, Weiru Fang, Andrew Rodheim and Patrick Venter are also representing Merit Street Media.
Foley & Lardner partners Rajiv Dharnidharka, Steven Lockhart, Mark Moore and Holland O’Neil, associates Nora McGuffey and Stephanie McPhail, and senior counsel Davis Mosmeyer III are also representing Trinity Broadcasting and TCT Ministries.
The case is Merit Street Media Inc. v. Trinity Broadcasting of Texas Inc. and TCT Ministries Inc., 25-08006.