Misapplication of Payments

by Contractors in Louisiana
By
Carl Barkemeyer, Attorney at Law
The State must prove the following
elements: 


1. the existence of a contract to construct, erect, or repair a

building, structure, or other improvement;
2. the receipt of money on the contract; and
3. a knowing failure to apply the money received as necessary to
settle claims for material and labor due under the contract.
Penalties for Misapplication of Payments


• Misdemeanor Misapplication of Payments

• When the alleged amount misapplied is one thousand dollars or less, the
defendant shall be fined not less than one hundred dollars nor more than
five hundred dollars or imprisoned for not less than ninety days nor more
than six months, or both.
• Felony Misapplication of Payments
• When the alleged amount misapplied is greater than one thousand
dollars, the defendant shall be fined not less than one hundred dollars nor
more than five hundred dollars or imprisoned with or without hard labor
for not less than ninety days nor more than six months, or both, for each
one thousand dollars in misapplied funds, provided that the aggregate
imprisonment shall not exceed five years.
Burden of Proof

• Prosecutor has the burden of proof in criminal cases.

• The standard is beyond a reasonable doubt – not preponderance of
the evidence.
Circumstantial Evidence

• When the state relies on circumstantial evidence to prove an

element of its case, the evidence must exclude every reasonable
hypothesis of innocence. LSA-R.S. 15:438.
Example

• ABC Builders, LLC contracts with John Smith to build his 2000 total
sq/ft house for $150,000.
• All draws from Smith to ABC complete.
• All inspections pass, CO granted, job complete.
• Liens placed on the property by various subs and suppliers in the
amount of $20,000.
• ABC did not pay these invoices although they received all draws
from homeowner.
• Prosecute under this statute?
Depends…
• Misapplication of payments by a contractor, La. R.S. 14:202
requires more than simply proof that a contractor has left unpaid
claims for materials and labor at the end of a construction
contract.
• Merely inadequate bookkeeping, negligent supervision, poor cost
calculation skills, or disputes over charges and cost overruns are
not criminal acts. Negligence and inefficiencies are more properly
the subject of a civil suit.
• As long as the contractor applies all the money he receives from
the owner to the labor and material bills he incurs on the owner's
job, he is not criminally responsible under La. R.S. 14:202, even if
the amount received is insufficient to discharge all the bills.
• The contractor could have initially underestimated the costs of
labor and material required, or construction delays could have
increased labor or material costs beyond the payments received,
or there may have been other cost overruns.
Proof

• Prosecutor must prove at trial beyond a reasonable doubt that the

contractor knowingly failed to apply the draws to the job.
• The evidence must exclude these other reasonable hypotheses of
innocence to support a conviction.
Carl Barkemeyer, Attorney at Law
This presentation is not intended to be
formal legal advice nor the formation of
an attorney-client relationship.