Hearing set over Vermont Catholic trust funds as abuse case intensifies

The chapter 11 filing, made in the fall of 2024, came after decades of settlements and claims tied to priest misconduct.

The Vermont Roman Catholic Diocese is facing a pivotal court fight over whether parish assets placed in trusts 20 years ago can be reached to help pay clergy abuse claims, with a hearing scheduled for July 28 in U.S. Bankruptcy Court.

That dispute sits at the center of the diocese’s Chapter 11 case, which has already generated about $2 million in legal costs and is moving toward its two-year mark. Bankruptcy Judge Heather Cooper has ordered all sides to keep trying to settle their differences by Oct. 16, but she told the court Friday that progress has been uneven and that the process remains stalled.

The chapter 11 filing, made in the fall of 2024, came after decades of settlements and claims tied to priest misconduct. Court records say the church has paid $34.5 million over the past two decades to resolve 67 lawsuits, yet it still faces 119 additional allegations, some dating back to 1950.

At issue now are local parish holdings that the diocese says were transferred into trusts in 2006 for pious, charitable or educational purposes. Those trusts were meant to keep parish property away from exposure to verdicts and other liabilities, according to the church’s earlier position. A committee representing more than 100 abuse claimants argues the arrangement was designed to place roughly $500 million beyond their reach and should not stand under Vermont law.

The committee’s lawyers say the trusts violate the state’s fraudulent deeds statute, which bars transfers made with the intent to avoid a debt or duty. In a new filing, they argued the diocese is masking control of the assets by treating parishes and high schools as unincorporated associations. They contend the trust property should be available to satisfy survivor claims.

The legal battle gained fresh attention after Celeste Heinonen, a Utah resident who interviewed in 2020 for the diocese’s chief financial officer position, filed a sworn statement in the bankruptcy case this month. In her declaration, she said the interview left her stunned when then-Bishop Christopher Coyne discussed moving diocesan assets as quickly as possible in order to pursue bankruptcy.

Heinonen said Coyne raised what she described as an ethical proposition, asking whether she would assist in preparing paperwork so that, if lawsuits were lost, the diocese would have no remaining assets to cover judgments. She said she did not give a firm response and later met with John McDermott, then the diocese’s second-in-command and now bishop after Coyne’s 2023 appointment as archbishop of the Archdiocese of Hartford, Conn.

According to Heinonen, McDermott said the diocese needed to protect current parishioners and prevent the sins of the past from harming them or the institution. Heinonen said she left the interview upset and uncertain and was not offered the job. She later passed the information to Burlington attorney Celeste Laramie, who represents several abuse claimants.

The parish trust issue may determine whether the bankruptcy can move forward. Under federal rules, both the court and creditors must approve any reorganization plan, and the claimants’ committee says that cannot happen until the trust question is resolved.

Committee lawyers said mediation has failed to break the deadlock and that litigation is necessary to clarify the size of the bankruptcy estate and possibly recover millions for creditors, including survivors.

Not everyone in court agreed with excluding local church leaders from those discussions. At a Friday session, a lawyer for one of the diocese’s insurers said parish representatives are usually part of mediation in cases like this because they also have rights under insurance policies.

The diocese is one of 44 Catholic organizations in the United States that have sought Chapter 11 protection. If it cannot present a stronger restructuring plan by fall, Judge Cooper has warned that she may dismiss the case. That could reopen abuse lawsuits that are currently paused, further endangering the diocese’s finances.