A federal judge ordered that the bankruptcy case filed by Dr. Phil McGraw’s Merit Street Media be converted to a Chapter 7 liquidation, saying that the Trump-backing celebrity TV psychologist showed a lack of candor by deleting incriminating text messages that revealed a scheme to pay “favored creditors.”
According to Bankruptcy Judge Scott Everett, “there is no hope for rehabilitation” for McGraw’s Chapter 11 bankruptcy filing, and Merit Street would therefore need to go into “liquidation mode” going forward. The change allows the court to sell off the assets of the failed TV network in order to repay companies what they claim is owed.
The ruling is the culmination of a months-long fight surrounding the cable network that Dr. Phil launched just a year ago, which filed for bankruptcy in July and then sued its distribution partner Trinity Broadcasting for breach of contract, accusing the Christian media giant of “sabotage” and abusing “its position as the controlling shareholder.”
TBN would follow up with its own countersuit, claiming that McGraw and his production company Peteski of a “years-long fraudulent scheme that they developed and executed to fleece” the TV conglomerate. Trinity Broadcasting also accused the talk show host of “reprehensible conduct” in negotiating a 10-year/$500 million deal by creating a “false sense of urgency” when he approached the broadcaster about starting a new network following his departure from CBS.
A day before Merit Street filed for bankruptcy, McGraw formed a new venture called Envoy Media, which would essentially deliver the same content as Merit Street across television and digital platforms.
The Professional Bull Riders league joined TBN in objecting to the “bad faith” Chapter 11 bankruptcy proceedings, claiming Merit Street “orchestrated” the bankruptcy to avoid litigation. PBR claims that Merit Street owes it $181 million after reneging on its deal to air the league’s programming, which PBR pulled from the network last November after saying the association had never been paid.
Court documents in the trial showed McGraw saying he was looking at “getting rid of TBN” as a partner and executing a “gangster move” to make the Christian broadcaster a noncontrolling shareholder in Merit. After kicking off his Envoy venture, text messages and emails showed McGraw saying he could “wipe out” the claims PBR and TBN had against Merit with the Chapter 11 bankruptcy.
The court filings also showed that Merit Street attempted to conceal this bankruptcy “scheme” to shift assets and employees to Envoy, which has since struck carriage deals with cable distributors.
Last month’s bankruptcy trial further revealed that McGraw made a “guarantee” to friend and creditor Jamie Ribman that his investment in Merit was safe and that he’d be reimbursed, regardless of how the court ruled in the bankruptcy case. The text message was not found on McGraw’s phone but was provided to the court in discovery from another participant’s phone, suggesting McGraw deleted it.
Ribman’s trust, which has a $5 million claim against Merit Street, is part of an unsecured creditors committee that reached a settlement with the media outlet as part of the bankruptcy proceedings.
With Dr. Phil’s production company, Peteski, also being proposed as the debtor-in-possession lender in the bankruptcy filing and McGraw listed as Merit’s sole director, Everett said in his ruling that he’d “never seen a case” like this – specifically since Envoy had hired Merit’s employees and planned to gobble up its remaining assets.
“Mr. McGraw believed he was calling the shots,” Everett said, adding that “this Chapter 11 case is an anomaly” since “there never has been a pretense of a rehabilitation or a reorganization” of Merit Street. He further noted that Merit’s business was “dead as a doornail,” stating that it should then be dissolved to pay off its creditors.
“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,” the judge declared.
“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,” he continued, referencing Chief Reconstructing Officer Gary Broadbent. “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.”
In a statement after the judge’s decision was read, Peteski said they would appeal the ruling.
“We take great exception to the court’s improper assertions regarding the alleged destruction of evidence, which simply did not happen,” a company spokesperson said. “We will not let this stand 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.”
PBR, which has since signed broadcasting deals with FOX Nation and the CW network for the 2025 season, applauded Everett’s ruling.
“Dr. Phil’s Merit Street Media reneged on its agreement with PBR after just five months for no valid reason, and then Dr. Phil attempted to skirt obligations a second time through a bankruptcy scheme the court called an ‘anomaly.’ We’re grateful they did not allow it,” a spokesperson told The Independent. “We look forward to continuing this process, which thanks to today’s ruling, will be overseen by an impartial trustee, to recover what we’re owed by Dr. Phil and his company.”
The general counsel for TBN, John Casoria, said that Trinity “appreciates the court taking the time and energy to hear the facts, learn the truth, and provide a detailed recitation of the events that transpired.” He added that the broadcaster “looks forward to bringing this matter to conclusion with a Chapter 7 trustee at the helm.”
