In 2001, the Audubon String Quartet expelled its first violinist, who then successfully sued the Quartet for more than $600,000. In the resulting bankruptcy proceedings, the musicians' instruments were liquidated to cover their debts. Classical musicians were outraged that the instruments were not covered under the "tools of the trade" exemption to bankruptcy liquidations. They prophesized the demise of one of the oldest American string quartets. Yet the Quartet regained its instruments and continued to operate for several years. This Comment will explain how the Audubon's post-bankruptcy recovery of their instruments aligns with the behavior and outcomes predicted by the Coase Theorem. It will then show how the Audubon's ability to regain their instruments without access to the tools of the trade exemption undermines the assumptions underlying the exemption in the first place. The exemption's purported benefits are questionable, and it imposes new transaction costs that impede Coasian bargaining and harm borrowers and lenders alike.
Unlikely Bedfellows: The Coase Theorem, Bankruptcy Liquidations, and the Audubon String Quartet,
Yale J. on Reg.
Available at: http://digitalcommons.law.yale.edu/yjreg/vol29/iss1/9