A month after a weekslong hearing on the motion to dismiss or to convert Merit Street Media’s Chapter 11 bankruptcy, U.S. Bankruptcy Judge Scott Everett converted the case to a Chapter 7 from the bench Tuesday afternoon.
“There is no hope for rehabilitation,” Judge Everett said.
He called the case an anomaly and said it came to him in “liquidation mode.”
Judge Everett said he had found several reasons to convert the case, which included not trusting the testimony of Chief Reconstructing Officer Gary Broadbent, a missing text Dr. Phil McGraw deleted and the makeup of the unsecured creditors committee.
“At this point, and not withstanding able counsel for the parties, the Chapter 11 case is a broken three-legged stool. The first leg is Mr. McGraw, who deletes unfavorable text messages he doesn’t want me to see, who vows to pay favored creditors no matter what the court does, and who vows to wipe out unfavored creditors,” Judge Everett said. “The second leg is Mr. Broadbent, who worked for Mr. McGraw’s newly created company after the petition date, without pushing back honest and direct answers to direct, simple questions. And the third leg is a creditors committee, half composed of the Ribmans who enjoy a favorable payment guarantee from either Mr. McGraw or the debtor, no matter what the court does, and who enjoy the right under the proposed plan to supervise litigation.”
Celebrity television psychologist McGraw, 75, 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.
Professional Bull Riders, whose content was broadcast on the network, claims Merit Street owes it $181 million for breach of contract.
McGraw made a “guarantee” to his friend and creditor Jamie Ribman in a text 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.
While McGraw’ testified to the court he didn’t know why the text could not be found on his phone, 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.
Merit Street Media counsel, Sidley Austin partner James Ducayet, immediately requested a stay pending appeal after Judge Everett finished a more than two-hour recitation of his ruling.
PBR and TCT objected to the stay and said that they needed to see the order and have time to submit briefing and request a hearing.
“I believe that the rule reference requires notice in the hearing under the Federal Rules of Bankruptcy Procedure, the parties get 14 days to file their notice of appeal. It’s extremely unlikely, especially given the government shutdown, that a [Chapter 7] trustee would even be in place, much less would take precipitous action before that 14-day period runs,” Trinity Broadcasting Network counsel, Foley & Larder partner Mark Moore, said.
Judge Everett took a short recess to rest his throat before returning to the bench. When he returned, the parties discussed what impact a stay would have on the appointment of a Chapter 7 trustee in the case.
Ducayet said they could have the motion for a stay filed by the morning. Moore said they needed time for the order to be entered.
Asher Bublick with the U.S. Trustee’s Office said that if the ruling was entered tonight, a Chapter 7 trustee could be appointed to the case by Wednesday.
Rather than signing and submitting his ruling tonight, Judge Everett said he will give the order “some thought” and asked the parties about their potential availability for tomorrow afternoon.
A Peteski Productions spokesperson told The Texas Lawbook they disagree with Judge Everett’s ruling and take issue with his comments on McGraw, who founded Peteski more than two decades ago.
According to the spokesperson, Peteski Productions intends to appeal the ruling “given all that Dr. Phil and Peteski Productions have done to protect Merit Street employees, distributors, and other interested parties and to resolve this unfortunate situation.”
“Dr. Phil is proud of his efforts to help Merit Street through this process but is also pleased that he can now devote his time and energy to his new network, Envoy.”
Counsel for TBN and Merit Street Media did not immediately respond to a request for comment.
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.
Jackson Walker partners Chip Babcock and Chris Bankler are representing Peteski Productions.
The case is Merit Street Media Inc. v. Trinity Broadcasting of Texas Inc. and TCT Ministries Inc., 25-08006.