A Texas bankruptcy judge on Thursday significantly trimmed a request by Merit Street Media to pay administrative expenses in its bankruptcy case, expressing concern that the company is appealing its case's Chapter 7 conversion while running its business at a loss.

After an all-day hearing Thursday, U.S. Bankruptcy Judge Scott W. Everett partially denied a request from Merit Street — a joint venture between talk show host Dr. Phil McGraw and Christian network Trinity Broadcasting — to pay $484,000 in administrative expenses paid in arrears, approving just under $40,000 in employee wages. Judge Everett balked at approving any of the payments, saying that Merit Street is in the red and that he feared the Chapter 7 estate would be set up to fail.

"If the debtor knew they were going to operate at a loss, why did they keep operating?" Judge Everett said. "I'm sympathetic to the employees, but if I grant the motion, will the Chapter 7 estate be insolvent right off the bat?"

Judge Everett ruled Oct. 28 to convert the case to a Chapter 7 liquidation as requested by Trinity and creditor Professional Bull Riders Inc., finding a liquidating trustee would be best suited to administer the claims in the case and avoid unfair treatment among the creditor body.

Following the ruling, Merit Street asked the court to impose a stay of the conversion order pending the debtor's filing of an appeal. However, opposition from Trinity Broadcasting and Professional Bull Riders led the court to reserve ruling on how any stay of his order would be implemented, and instead issue a status quo order.

Judge Everett said he would not be ruling on the stay Thursday, and would try to reach a decision before he is called into jury duty on Monday. But interpretation of the status quo order was itself an issue in Thursday's hearing, with Merit Street arguing status quo meant continuing to operate the channel to bring in ad revenue — the only source of income for the estate.

The judge said the imbroglio the debtor found itself in was a result of its own bid to stay the Chapter 7 conversion pending appeal.

"If there had not been a stay request, there would have been a conversion order very soon after, and we wouldn't be here talking about unpaid expenses," Judge Everett said. "And now the debtor doesn't even have enough cash to pay what has been requested."

The judge ultimately agreed to pay wages for what the debtor's counsel described as a skeleton crew to keep the channel running in order to collect ad revenue, plus benefits to allow one employee to retain health insurance to cover an upcoming surgery.

"Day-to-day people cannot afford to take a hit of this magnitude," Jeri Leigh Miller of Sidley Austin LLP, counsel to the debtor, told the court. "In maintaining the status quo, per your honor's order, the employees continued to work — they are the least responsible for this situation and they are the least able to bear the burden of missed paychecks."

Trinity and Professional Bull Riders argued, for their part, that keeping the business running at a loss was a violation of the status quo, and that the debtor had placed itself in an untenable situation. With $200,000 in cash on hand, the debtor should not be asking for leave to draw $400,000 more from existing lenders to pay the bills it racked up in October, the objectors argued — and a debtor heading into Chapter 7 simply has no authority to pay Chapter 11 expenses.

"No further cash should be permitted to leave the estate," Abbey Walsh, counsel to Professional Bull Riders, told the court. "The employees agreed to extend their contracts, knowing they're not going to get paid."

In his October ruling to convert the case, the judge found that the Chapter 11 plan proposed by Merit Street in September was premised on the pursuit of litigation against Trinity and Professional Bull Riders that will be partially controlled by the Ribman Trust.

The judge said in his oral ruling that the status of Jamie Ribman — the husband of Ribman Trust administrator Darcy Ribman — as a favored creditor of McGraw creates a conflict when paired with the Ribman Trust's role on the creditors committee and its proposed role under the Chapter 11 plan filed by Merit Street.

That status would also create issues if the court dismissed the bankruptcy because it would allow McGraw to execute his preferred plan to favor the Ribman claims over other creditors, Judge Everett found.

In Thursday's hearing, counsel for the Ribman Trust argued that there was no evidence that Jamie Ribman was acting on behalf of the trust, saying a text from McGraw to Ribman discussing the future of the bankruptcy case — the subject of much discussion in Judge Everett's October ruling — was purely circumstantial.

"It's not just smoke, it's actual fire," Trinity counsel Mark Moore of Foley & Lardner LLP hit back. "McGraw sent text to Ribman about trust business."

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 Peteski Productions and Trinity to continue producing and airing McGraw's eponymous show, which had just ended a successful 21-year run on CBS. Peteski is McGraw's production company through which he owns a majority stake in the debtor.

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

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.