Crystal Cathedral creditors vow to sue if church blocks a sale

Chapman University and the Roman Catholic Diocese of Orange appear to be the front-runners to buy the bankrupt Crystal Cathedral, but if church insiders vote to block the sale of the property, creditors vow to sue, according to court documents filed Tuesday.

In that event, the creditors committee would attempt to recover what it sees as “preferential” payments to church insiders in the two years leading up to the church’s Chapter 11 filing, the documents say.

A spokesman for the Crystal Cathedral did not respond to a request for comment. More than a dozen family members have been employed by the church, and a U.S. trustee for the Bankruptcy Court has questioned the job duties of several insiders.

As part of the filing by the creditors committee, a compromise was also offered: The church’s board could pick a buyer — with the committee’s approval — or the creditors group would pick one that might not include lease-back or buyback options.

The documents also warn that if insiders vote to reject the committee’s plan, it will try to recover money from the May 2010 sale of the church’s 170-acre Rancho Capistrano property that was deposited into a trust account.

Other potential buyers for the Garden Grove church were named, but the filing mainly focused on the diocese and the university, revealing that both had raised their initial bids by several million dollars.

The committee also called for a sale price of at least $50 million, the amount the church said it owed its creditors when it filed for bankruptcy last October.

Church officials announced 10 days ago that they no longer wanted to solicit offers for the property and instead had begun a faith-based effort to pay the church’s debt, relying on donations. Now, the creditors committee will move forward with a potential plan for the church, founded by the Rev. Robert H. Schuller, to emerge from bankruptcy. That plan is expected in the coming days.

The Diocese of Orange, according to the documents filed Tuesday, increased its cash offer from $50 million to $53.6 million and would require the Crystal Cathedral’s ministry to leave the property after three years.

The extra $3.6 million would be used as rent payments for the church for two years. If the church left sooner, it would receive the remaining balance. The diocese would also try to help the church find a new space of at least 50,000 square feet.

Bishop Tod D. Brown has said that the diocese needs a worship space for its more than 1.2 million parishioners in Orange County. The 3,000-seat Crystal Cathedral is a less expensive alternative to a proposed $100-million Catholic cathedral project in Santa Ana.

Chapman University amended its original offer of $46 million to $50 million and offered the church the services of two people related to Chapman with “extensive experience in business, financial and operational strategy,” according to a letter dated Aug. 4. The amended option would allow the church to lease back and repurchase core buildings and land, including the cathedral, the Tower of Hope and the memorial gardens.

University President James L. Doti did not respond to repeated requests for comment, but in the same letter, he wrote that Chapman “wants the ministry to take advantage of the repurchase right.”

“The Crystal Cathedral is one of the most significant and beloved buildings in the world, and the ministry should have every opportunity to own it once again,” he wrote.

The documents also disclosed that there is a new potential buyer for the property but gave no specifics.

The committee statement mentioned other formal proposals, a $47.5-million bid from arts and crafts retailer Hobby Lobby, and a $50-million one from My Father’s House Church International, which was singled out as an “inferior” offer.

The next hearing in the case is scheduled for Sept. 14 in Santa Ana.

nicole.santacruz@latimes.com