The bankruptcy judge presiding over the Chapter 11 case of Merit Street Media expressed his concerns Monday over some of the evidence presented during a multi-day trial over motions to dismiss the company's bankruptcy, saying some testimony caused him to lose sleep.

During closing arguments in the trial, U.S. Bankruptcy Judge Scott W. Everett said some of the testimony given by Chief Restructuring Officer Gary Broadbent gave rise to serious concerns about whether the witness was being wholly truthful in his answers.

"I lost sleep after Mr. Broadbent's testimony. It's generally not a good thing when the judge loses sleep," Judge Everett said. "I have some concern that Mr. Broadbent's testimony and response to my questions may not have satisfied the duty of candor he had to the court."

Specifically, Judge Everett said Broadbent's answers concerning a post-bankruptcy board meeting where Merit Street's directors discussed a potential voluntary dismissal of the Chapter 11 case did not ring true to the court, who said it was a very recent and very unusual occurrence, and that he would expect Broadbent to have a more fulsome recollection of that meeting.

"It was a very unusual set of circumstances that led to that," Judge Everett said of the meeting. "It's not something I would forget in a year, in 10 years, in a hundred years if I was still living. It was a very memorable part of the case."

Texas-based Merit Street filed for bankruptcy in July with plans to sell its assets in Chapter 11. The broadcasting group was formed in 2023 as a joint venture between Dr. Phil McGraw's Peteski Productions and faith-based television broadcaster Trinity Broadcasting Network to continue producing and airing McGraw's eponymous show, which had just ended a successful 21-year run on CBS.

The relationship between McGraw and Trinity began breaking down when the enterprise failed to turn a profit in the short-term, and resulted in Trinity giving up its majority stake in the venture to McGraw in the summer of 2024. Despite each side pouring tens of millions of dollars into the company, it continued to lose money until the bankruptcy filing.

Trinity moved to dismiss the Chapter 11, arguing it was filed in bad faith as a way to wipe out Trinity's claims against the debtor and start a new media venture with Merit Street's assets and employees but without Trinity's involvement. Trinity also argued that McGraw lacked the required corporate authority to make the decision to file for bankruptcy.

McGraw testified during the trial that he engaged Broadbent, an experienced restructuring professional, to explore options for Merit Street to continue operations if possible. When Broadbent recommended a Chapter 11 filing, McGraw said he followed the expert's advice.

In defense of the bankruptcy filing, Merit Street Media attorney James W. Ducayet of Sidley Austin LLP said the petition was filed in good faith for a valid bankruptcy purpose because the company was performing poorly and both Trinity and Peteski had decided to stop funding its shortfalls.

"This company is losing money hand over fist and it's about to go dark," Ducayet argued.

He said the losses were amounting to about $5 million per month before the bankruptcy and the situation got so dire that eventually Peteski had to stop pouring money into the company.

Ducayet defended Broadbent's testimony, saying he is an experienced and qualified restructuring professional and that he gave the court his best recollection and explained his thinking in making recommendations to Merit Street both before and after the bankruptcy filing.

Robert Slovak of Foley & Lardner LLP, representing Trinity, said in his closing argument that McGraw made a decision to break off the corporate relationship with Trinity as early as June 2024 and then executed a series of actions designed to accomplish that goal.

The parties implemented a stock agreement in August 2024 whereby Trinity swapped its 70% stake in Merit Street to McGraw for his 30% holdings, making McGraw the majority owner. Less than a year later, McGraw formed a new media entity called Envoy Media Co., filed Merit Street for bankruptcy and submitted bidding procedures for Peteski to credit bid for the new debtor's assets, all within a five-day period, Slovak argued.

"His project to get rid of TBN culminated in the bankruptcy filing," Slovak said.

The true goal of the bankruptcy filing was to wipe out the claims of Trinity and Professional Bull Riders Inc. — a creditor of Merit Street that signed a deal for the channel to broadcast bull-riding events on the debtor's channel, and which is also seeking dismissal of the case — and to obtain the assets of the debtor, as well as its employees, to run his new media operation, Slovak argued.

A text message obtained during discovery from McGraw to a friend who had invested in the business indicated McGraw's intent to repay the friend while breaking from Trinity was a key point of evidence for Trinity's argument about the bad faith in the bankruptcy. Judge Everett said he had serious concerns that the text message was missing from McGraw's phone during discovery but was intact on the recipient's device.

He questioned the makeup of the official committee of unsecured creditors in the case, since one of the two members of the committee as currently constituted is tied to the friend and investor who received the message from McGraw.

Judge Everett said he would endeavor to issue a bench ruling on the dismissal motions as soon as possible but did not give a firm estimate for when that would happen.

Merit Street is represented by Jeri Leigh Miller, Stephen Hessler, Patrick Venter and James W. Ducayet of Sidley Austin LLP.

Peteski is represented by Carl C. Butzer, Charles L. Babcock, Vienna F. Anaya, Bruce J. Ruzinsky, William T. Farmer, Matthew D. Cavenaugh and Emily Meraia of Jackson Walker LLP.

Professional Bull Riders is represented by Jason M. Rudd and Scott D. Lawrence of Wick Phillips Gould & Martin LLP and Jennifer R. Hoover, Andrew D. Kinsey, Nicholas J. Secco, Alyssa A. Moscarino and Abbey Walsh of Benesch Friedlander Coplan & Aronoff LLP.

Trinity is represented by Holland N. O'Neil, Robert Slovak, Steven C. Lockhart, Mark C. Moore, Stephanie L. McPhail, Rajiv Dharnidharka and Nora J. McGuffey of Foley & Lardner LLP.

The unsecured creditors committee is represented by Louis R. Strubeck Jr., Gregory M. Wilkes, Laura Smith and Julian Gurule of O'Melveny & Myers LLP.

The bankruptcy case is In re: Merit Street Media Inc., case number 8:25-bk-80156, in the U.S. Bankruptcy Court for the Northern District of Texas.

The adversary action is Merit Street Media Inc. v. Trinity Broadcasting of Texas Inc., case number 8:25-ap-8006, in the U.S. Bankruptcy Court for the Northern District of Texas.