Level 7 seeks more than $2 million in damages.
Officials at the U., onetime Level 7 manager Robert Moyer and plaintiff attorney Lisa Marcy all either declined to comment or had not responded to requests for comment by Monday evening.
The lawsuit states that in summer and fall 2011, Level 7 began discussions with the U. to produce and sell U.-branded merchandise in the school's bookstore.
Level 7 said it could provide a low-cost, high-worth alternative to Champion, Gear and Under Armour. The company also pitched two new brands to the U.: "Utah Athletic Apparel" and a separate women's clothing line, "cUte."
As part of a discussed deal, Level 7 expected an exclusive license to sell goods under those brands which it says it developed and promoted for five years at Utah retailers.
The company offered the U. a larger royalty than the school demanded from other manufacturers, but the lawsuit says that the U. asked Level 7 to instead donate to Utah Athletics, and so Level 7 principal Donnette Mayer donated $50,000. Robert Moyer and Donnette Mayer are listed together as major gift givers in the U.'s Office of Development.
Level 7 says the U. made a 20 to 25 percent return on its merchandise, counting the $50,000 donation, and that the "normal rate of return" is 12 percent.
The lawsuit states that Level 7 began Chinese production operations, marketing and design "before the agreement was executed," because the license from U. subcontractor Collegiate Licensing Corp. was billed by Brett Eden, U. licensing and marketing director, as "a mere formality."
After Level 7 began to deliver merchandise, the lawsuit states, the company learned that four other vendors had been given without a request for proposal or legal review the rights to sell products in the Sandy Red Zone store for "approximately $15,000."
The U. announced earlier this year that the Red Zone stores would close when their leases expired after a legislative audit found they unfairly compete with for-profit businesses.
When Level 7 asked U. Athletic Director Chris Hill about these alleged "side deals," they were eliminated, the suit says. But the company claims further unspecified "inappropriate relationships" occurred, this time in the bookstore.
Then Under Armour began to assert its influence, the lawsuit alleges.
Hill had requested that Level 7 create an all-black throwback jersey, but after it cleared licensing and legal review, Under Armour stepped in and complained that the U. had breached its contract.
The company says the U. "informed Level 7 that even though Under Armour had no right to stop the university from selling other jerseys, the university did not want to fight with Under Armour and, therefore, Level 7 could not sell its black replica jerseys."
Under Armour further benefited, the lawsuit states, when Associate Athletic Director Ann Argust paid $4.50 per shirt more than Level 7 had previously charged to have Under Armour create 6,000 fan shirts.
Those events led the U. to nix its deal with Level 7, the suit states.
The U. told Level 7 that it needed to comply with public bidding requirements which, the lawsuit says, it had previously told Level 7 were not applicable and said that other suppliers would be more lucrative for the U. Further, Level 7 alleges that the U. told licensing companies not to renew Level 7's one-year licenses and crippled its U.-brand business.