Favalora Constructors, Inc. contracted with RC Corporation to renovate a building on Magazine Street in New Orleans. Favalora then contracted with South Texas Pioneer Millwork to fabricate and furnish cabinets, counter tops, shelving and a reception desk at a cost of $24,245.00. The materials were to be installed by Favalora. Pioneer submitted an invoice to Favalora for the work. Favalora, in turn, submitted the invoice to RC Corporation for the amount due Pioneer. RC Corporation paid Favalora for the materials, but Favalora failed to remit payment to Pioneer. Pioneer filed a lien on the Magazine Street property. The owner paid Pioneer $19,905.00 to release the lien, reserving all of its rights against Favalora. The trial court rendered judgment against Favalora and in favor of Pioneer as follows: 1) payment of the balance of the debt, $4,340.00; 2) payment of a penalty under L.R.S. 9:4814 of $500.00 per $1,000.00 that were knowingly misapplied, for a total of $12,000.00; 3) payment of a penalty pursuant to L.R.S. 9:2784 for the failure to timely pay Pioneer, which was capped at 15% for a total of $3,000.00; 4) payment of attorney’s fees of $29,201.50; 5) payment of costs of $1,387.58. Favalora appealed.

Favalora argued penalties could not be awarded on the amount that was paid by the owner, $19,905.00, and the maximum amount of the claim which was subject to penalties was $4,340.00. The court of appeal found the settlement with the property owner of Pioneer’s lien did not reduce the amount of the statutorily mandated penalty that Pioneer could claim. A total of $24,245.00 was misapplied. The court of appeal refused to interpret the statute to provide that the amount of a penalty specified is reduced when the supplier is able to secure payment from the property owner through the lien process.

L.R.S. 9:4814 provides that no contractor or subcontractor, who has received money on account of a contract for the construction, erection or repair of a building, structure, or other improvement, shall knowingly fail to apply the money received as necessary to settle claims to sellers of movables or laborers due for the construction or under the contract. Any seller of movables or labor whose claims have not been settled may file an action for the amount due, including reasonable attorney’s fees and court costs, and for civil penalties as provided. When the amount misapplied is greater than $1,000.00, the penalties shall not be less than $500.00 or more than $1,000.00 for each $1,000.00 in misapplied funds. Reasonable attorney’s fees and costs shall also be assessed.

L.R.S. 9:2784 provides that if a contractor or subcontractor without reasonable cause fails to make any payment to his subcontractors and suppliers within 14 consecutive days of the receipt of payment from the owner for improvements to an immovable, the contractor or subcontractor shall pay to the subcontractors and suppliers, in addition to the payment, a penalty in the amount of one-half of one percent of the amount due, per day. The total penalty shall not exceed 15%. Reasonable attorney’s fees are required to be awarded. However, any claim which the court finds to be without merit shall subject the claimant to all reasonable costs and attorney’s fees for the defense against such claim.

The court of appeal affirmed the award of penalties under both statutes, together with an award of attorney’s fees and costs. The court of appeal awarded an additional $3,000.00 to Pioneer for attorney’s fees for work on the appeal. South Texas Pioneer Millwork v. Favalora Contractors, Inc., 11-722 (La.App. 5 Cir. 3/13/12), 2012 WL 833315.