rule order

The order of some rules I created aren't behaving as expected/desired. Any help would be appreciated.
I have hazel watching a folder.
First rule- "untagged files" is to move any untagged files into a subfolder (named "untagged")
Second rule- "move in to subfolder" (run rules on folder contents), for any new folders I dump in there
Rules #3-#6- move tagged files to other locations.

For some reason the "untagged files" rule (#1) keeps running on the subfolder (named "untagged") and repeatedly gives me the error message: "Could not move file...source and destination are the same."

It seems like my rule #2 is causing the Rule #1 to go into the subfolder that I don't want it to, and tries to move a file into it's current location. How is that? Am I missing something?

I'd suggest adding an exclusion rule to your subfolder-diving rule #2 so it'd look like this:

(ALL)

If KIND is FOLDER
AND NAME is not "Untagged Files"

THEN

Run rules on folder contents.

Perfect!
Thanks.