Cannot Override WordPress 404 for a Sub-Directory

The way the wordpress htaccess works is that first it looks if there is a file matching the request location, in which case it is being “run”, otherwise the wordpress handles the URl. Basically you don’t even “execute” your subdirectory’s htaccess unless you access an existing fie there.

What you should do is to add to the wordpress htaccess rules that will prevent it from handling urls under the subdirectory.