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.