Level 7 Sports v. University of Utah et al

Lisa A. Marcy (#5311) Aaron & Gianna, PLC 2150 South 1300 East, Ste. 500 Salt Lake City, UT 84106 Telephone: (801) 359-2501 Facsimile: (801) 990-4601 [email protected] Attorneys for Level 7 Sports, LLC

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

Level 7 Sports, LLC,

Plaintiff,

v. Stat University of Utah; Dr. Chris Hill, Athletic

Director in his individual and official capacity; Ann R. Argust, Associate Athletic Director in her individual and official capacity; Gordon Wilson, Associate Vice President, Auditing and Risk Services in his individual and official capacity; Brett Eden, Director, Licensing and Marketing in his individual and official capacity; Richard Fairchild, Licensing Manager in his individual and official capacity; Arnie Combe, Vice-President of Facilities, University of Utah in his individual and official capacity; Robert Payne, Associate General Counsel, University of Utah in his individual and official capacity, Defendants.

Case No.: Judge:

COMPLAINT AND JURY DEMAND

PRELIMINARY STATEMENT This action results from damages arising from the Defendants’ misrepresentation, fraud,

detrimental reliance/promissory estoppel, negligence, specific performance, breach of contract,

breach of the covenant of good faith and fair dealing, unjust enrichment, conversion, quantum

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meruit, tortious interference with economic and business relations, accounting and retaliation for

whistleblowing under the federal False Claims Act, all arising from Defendants’ breach of

Plaintiff’s contractual rights or obligations.

In the Summer/Fall of 2011, Level 7 Sports, LLC (“Level 7”) and Defendants began

discussing the possibility of Level 7 producing and selling clothing to the Utah bookstore. At

that time, Defendants were buying the majority of their goods from companies such as

Champion, Gear, and Under Armour. Level 7 proposed that by buying from Level 7, Defendants

could obtain the same or better quality goods at lower prices yet sell at the same retail cost,

thereby increasing the profits/gross margins of the bookstore and licensing. The University of

Utah Athletic Department would also benefit from the proposed increase in licensing fees (from

the previous ten percent to twenty-five percent). Level 7 relied upon input from the Athletic

Department and its counsel concerning how to proceed generally, and specifically, how to

structure the additional licensing fee arrangement. The Athletic Department and its counsel

“advised” Level 7 (and Level 7 followed) to donate Level 7’s resulting profits to the Department

instead of the Department raising Level 7’s licensing fee. Level 7 made the donation as

“advised.”

Level 7 also discussed with the Defendants a new business concept in which the

Defendants would not buy clothing branded by other companies but, instead, would develop

their own brand. Level 7 proposed calling the new lines “Utah Athletic Apparel” and “cUte”

(for women.) Level 7 was involved in all aspects of the brand, including brand name and design

approval. In exchange for developing and promoting those brands, Level 7 would get an

exclusive license to produce and sell goods under the brands to the University and other retail

outlets throughout Utah for five years with an automatic renewal of three years provided there

3

was no material breach. As a result, Defendants instructed Level 7 to begin manufacturing of the

clothing before the agreement was executed. Based on those assurances, Level 7 went forward.

Because of the immediate need for production and looming deadlines, at Defendants’

request, and based on Defendants’ assurances, Level 7 began its performance under the

Agreement. Among other things, Level 7 invested in manufacturing capabilities, marketing

materials, tents, trailers, displays, etc. and retained designers. At Defendants’ request and with

their help, Level 7 sought and obtained the appropriate licenses for the use of the PAC 12 and U

logos on Utah Athletic Apparel and cUte clothing. While these activities continued forward,

Level 7 drafted a term sheet/letter of intent (“LOI”) that outlined the agreed-upon terms,

including the five-year period.

Level 7 performed all of its duties under the Agreement. It delivered the goods to

Defendants and paid the associated royalties. By everyone’s accounts, Level 7’s products were

some of the best-selling items in the University bookstore and at the Red Zones stores. Despite

that performance, however, the relationship between Level 7 and the Defendants began to

deteriorate when Level 7 learned about – and reported to various administrators – certain deals

and relationships at the University that Level 7 deemed inappropriate. When these deals and

relationships were reported to Dr. Hill, he agreed that they were inappropriate and immediately

contacted Vice President Combe expressing his concern. The relationship further deteriorated

when Under Armour began to complain that its products were not selling as well in light of the

Utah Athletic Apparel and cUte brands. Despite Defendants’ constant interference with its

agreement with Level 7, Level 7 continued to perform under the terms. It designed new

clothing, promoted the Utah Athletic Apparel and cUte brands, and paid royalties at the agreed-

upon rates.

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Defendants terminated the contract with Level 7 for pretextual reasons, including an

alleged desire to comply with public bidding requirements (which were, at the direction of

Defendants, avoided in the first instance) and a claim that they could make more money with

other suppliers. Not satisfied with only wrongfully terminating Level 7’s exclusive license for

the Utah Athletic Apparel and cUte brands (which Level 7 created), Defendants also instructed

licensing companies not to renew Level 7’s one-year licenses, thereby making it essentially

impossible for Level 7 to continue in its business, even if only to produce other properly

authorized clothing bearing approved designs to retail outlets across the State.

Level 7 has incurred significant damages as a result of Defendants’ individual and

collective conduct and actions, including lost profits and costs. Level 7 is seeking punitive

damages against the individual Defendants as well.

JURISDICTION AND VENUE

1. Jurisdiction of this Court is founded in 28 U.S.C. §§2201 and 2202, 28 U.S.C. §§1331 and

and 28 U.S.C. §1367.

2. Venue as to defendants is proper in the district of Utah, 28 U. S. C. §1391(b), (c), because

the claims arose in the District of Utah, the issues present a federal question, all the

defendants are sued in their individual and official capacities, and their official places of

business are all located within this District.

PARTIES

3. Plaintiff, Level 7 Sports, LLC, is a limited liability company licensed to do business in the

State of Utah.

4. The University of Utah is a state university established by the legislature in 1850. It

provides undergraduate and graduate education to students. It also provides additional

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activities to these students as well as to the public, such as athletic competitions in the

Pacific Athletic Conference (“PAC 12”).

5. Dr. Chris Hill is the Athletic Director at the University of Utah and is responsible for all

activities undertaken by that department. He has knowledge of the facts and circumstances

of this case. He is sued in his individual and official capacity.

6. Ann R. Argust is the Associate Athletic Director at the University of Utah. She reports

directly to Dr. Hill and is responsible for all activities undertaken by the Athletic Department

at the University of Utah. She has knowledge of the facts and circumstances of this case. She

is sued in her individual and official capacity.

7. Gordon Wilson is the Associate Vice President of Auditing and Risk Services at the

University of Utah. He has knowledge of the facts and circumstances of this case. He is

responsible for all activities undertaken by the Auditing and Risk Services at the University

of Utah. He is sued in his individual and official capacity.

8. Brett Eden is the Director of Licensing and Marketing Department at the University of Utah.

He has knowledge of the facts and circumstances of this case. He is responsible for all

activities undertaken by the Licensing and Marketing Department at the University of Utah.

He is sued in his individual and official capacity.

9. Richard Fairchild is the Licensing Manager at the University of Utah. He is responsible for

all activities undertaken by the Licensing and Marketing Department at the University of

Utah. He has knowledge of the facts and circumstances of this case. He is sued in his

individual and official capacity.

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10. Arnie Combe is the Vice-President of Facilities at the University of Utah. He is responsible

for all activities undertaken by the University of Utah. He has knowledge of the facts and

circumstances of this case. He is sued in his individual and official capacity;

11. Robert Payne is the Associate General Counsel of the University of Utah. He is responsible

for activities undertaken by the Legal Department at the University of Utah and also worked

alongside the other Defendants in their dealings with Level 7. He has knowledge of the facts

and circumstances of this case. He is sued in his individual and official capacity.

FACTUAL ALLEGATIONS

12. In the Summer/Fall of 2011, Level 7 Sports, LLC (“Level 7”) and Defendants began

discussing the possibility of Level 7 producing and selling clothing to the Utah bookstore.

13. At that time, Defendants were buying the majority of their goods from companies such as

Champion, Gear, and Under Armour.

14. Level 7 proposed that, by buying from Level 7, Defendants could obtain the same or better

quality goods at lower prices yet sell at the same retail cost, thereby increasing the

profits/gross margins of the bookstore and licensing. The University of Utah Athletic

Department would also benefit by the proposed increase in licensing fees from the previous

ten percent to twenty-five percent.

15. Level 7 relied upon input from the Athletic Department and its counsel, including Robert

Payne, concerning how to proceed and structure the additional licensing fee arrangement.

Level 7 followed this advice by giving a donation of the resulting profits to the Department

rather than raising the licensing fee.

16. Level 7 also discussed with the Defendants a new business concept in which the Defendants

would not buy clothing branded by other companies but, instead, would develop their own

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brand. Level 7 proposed calling the new lines “Utah Athletic Apparel” and “cUte” (for

women) (sometimes referred to hereinafter, collectively as the “Brands”).

17. Level 7 was involved in all aspects of the Brands, including brand name and design approval.

18. Level 7 received approval of its brand designs and developments from Ann Argust on behalf

of the Athletic Department.

19. In exchange for developing and promoting those brands, Level 7 would get an exclusive

license to produce and sell goods under the brands to the University and other retail outlets

throughout Utah for five years with an automatic renewal of three years provided there was

no material breach.

20. As a result, Defendants instructed Level 7 to begin manufacturing of the clothing before the

agreement was executed.

21. Brett Eden, the University’s Director of Licensing and Marketing, assured Level 7 that

Collegiate Licensing Corp. (“CLC”), the licensing company, worked for and/or was the

subcontractor for the University of Utah; therefore, Defendants controlled the entire licensing

process.

22. Eden stated, at a meeting with Level 7 also attended by Doug Knuth and Ann Lane (the

Bookstore’s lead buyer and merchandiser), that CLC’s licensing process was a mere

formality. As a result, Eden instructed Level 7 to begin manufacturing of the clothing before

the agreement was executed.

23. Based upon those assurances, as well as others contained in emails from Doug Knuth, Ann

Argust, Earl Clegg (the Bookstore manager), and Ann Lane, Level 7 moved forward with

performing its obligations under the Agreement.

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24. While Level 7 was not new to the clothing business, it was new to the supplier business for a

state agency. As a consequence, Level 7 relied upon the Defendants’ guidance for, among

other things, obtaining the necessary approvals and completing the required processes to

accomplish the parties’ goals under their Agreement.

25. Each time Level 7 asked Defendants, it was reassured that the Defendants would walk Level

7 through any necessary approvals.

26. At Defendants’ request and with their help, Level 7 sought and obtained the appropriate

licenses for the use of the PAC 12 and U logos on Utah Athletics Apparel and cUte clothing.

Defendants helped Level 7 get these licenses, but the agreements themselves were between

Level 7 and LRG or CLC, respectively.

27. While the duration of these licenses were for one year, renewable on an annual basis,

Defendants told Level 7 not to worry about any aspect of the licenses (including the term)

because according to Defendants, LRG and CLC “work for us”.

28. As part of Level 7’s agreement, Defendants told CLC that Level 7 would pay a ten percent

(10%) royalty for the first six (6) months of the agreement with CLC and twelve percent

(12%) thereafter.

29. The percentages were established so that the majority of products sold to the University in

the first season of the Agreement between Level 7 and the University would be made at the

ten percent (10%) royalty rate.

30. Rather than insisting upon a larger royalty, and upon the advice of Defendant Robert Payne,

contained in an email, Defendants asked that Level 7 instead donate money to University

Athletics. Level 7’s principal member, who was already a major contributor, complied,

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making a $50,000.00 donation to the Athletics Department on behalf of Level 7 in the first

year.

31. While discussions continued forward, Level 7 drafted a term sheet/letter of intent (“LOI”)

that outlined the agreed-upon terms, including the five-year period.

32. All personnel in athletics, licensing and the bookstore agreed that the LOI reflected the terms

of the agreement. Indeed, at least one University representative, Doug Knuth, confirmed that

a minimum five-year contract with an option to extend for another three years was reasonable

in light of the significant investment that Level 7 would have to make in order to start and

grow the business for the benefit of Defendants.

33. Level 7 later learned that Robert Payne, Associate General Counsel of the University had

instructed the Assistant Athletic Director not to sign the LOI so that the arrangement of the

parties would remain confidential.

34. When Level 7 inquired about the instruction, Defendants again reassured Level 7 that it had a

deal with Defendants and that “there was nothing to worry about.”

35. Because of the immediate need for production and looming deadlines, at Defendants’

request, and based on Defendants’ assurances, Level 7 began its performance under the

Agreement.

36. Among other things, Level 7 invested in manufacturing capabilities in China, marketing

materials, tents, trailers, displays, etc. and retained designers.

37. Level 7 would not have spent the time and money to develop these capabilities and to

promote the brands it created without being reassured by Defendants at every turn that it had

an agreement with Defendants. At each and every step in the process, Defendants told Level

7 how they wanted the company to operate in order to benefit Defendants.

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38. Level 7 relied upon those assurances and representations in disclosing its ideas (such as the

“Utah Athletics” and “cUte” brand names and concepts) and in spending the time, money

and other resources necessary to make the venture a success for all.

39. Level 7 performed all of its duties under the Agreement. It delivered the goods to

Defendants and paid the associated royalties. By everyone’s accounts, Level 7’s products

were some of the best-selling items in the University bookstore and at the Red Zones stores.

40. Despite that performance, however, the relationship between Level 7 and the Defendants

began to deteriorate when Level 7 learned about – and reported to various administrators –

certain deals and relationships at the University that Level 7 deemed inappropriate.

41. Level 7 twice reported these inappropriate activities to Dr. Chris Hill.

42. When these deals and relationships were reported to Dr. Hill, he agreed that they were

inappropriate and immediately contacted Vice President Combe.

43. Dr. Hill affirmed to Level 7 that he would “take care” of these matters, meaning that he

would notify Vice President Combe and instruct him to resolve the issue.

44. Dr. Hill failed to notify Combe.

45. When writing orders, Level 7 discovered from Ann Lane, that Utah Athletic Apparel and

cUte branded products could not be sold in the Red Zone store located in Sandy.

46. Upon inquiry, Level 7 learned that Brett Eden, in conjunction with the University of Utah

Bookstore, had given four other vendors three-year exclusive rights to sell products in the

Sandy Red Zone in exchange for providing limited funds for signage and without undergoing

the public Request for Proposal (“RFP”) process or getting approval from the University’s

legal department (to determine whether it was legal to accept payment from and give three-

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year exclusivity contracts to select vendors for approximately $15,000.00 when revenues at

the store exceeded $1.5 million in sales).

47. When Level 7 expressed concern to the University Athletics Department, Doug Knuth called

Robert Payne immediately who stated that he had never heard of such an agreement.

48. Level 7 then went to Dr. Hill who immediately contacted Arnie Combe to investigate the

matter.

49. The following day, Defendants instructed several bookstore managers and the Bookstore’s

buyer to contact the four vendors and “get rid of” the side deals. Within two weeks, all four

vendors agreed to walk away from the last remaining year of these side deals. The University

staff had been authorized to pay up to $25,000.00 to buy out these remaining years if

necessary. Earl Clegg was responsible for negotiating these buy-outs.

50. Managers advised each of the four vendors that their agreement was terminated. Several days

later, Level 7 was told the issue had been resolved.

51. Level 7 learned again of inappropriate relationships, this time within the bookstore, and went

to Dr. Hill with its concerns. Again, Dr. Hill contacted Mr. Combe and assured Level 7 that

the matter had been resolved when it had not.

52. The relationship between Level 7 and Defendants further deteriorated when Under Armour

began to complain to Defendants that its products were not selling as well in light of the Utah

Athletics and cUte brands.

53. At the request of Dr. Hill, Level 7 had designed and made an all-black, throwback jersey.

The design of the jersey was cleared through licensing (Brett Eden) and even through the

general counsel’s office (Robert Payne) to ensure that it would not violate any obligations the

University had to Under Armour. The jersey was approved by Dr. Hill.

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54. Level 7 was told that Under Armour was particularly upset about black replica jerseys that

Level 7 made and sold. When the black jerseys appeared in the bookstore, Under Armour

complained to the University of Utah, claiming that the latter had breached its contract.

55. Defendants instructed Level 7 to make the jerseys, again reassuring Level 7 (falsely) that the

dispute was resolved.

56. Under Armour continued to protest, however, and Defendants relented.

57. Defendants 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.

58. Defendants continued to placate Under Armour. One of the bookstores’ bestselling items is

the “fan shirt” created each year to celebrate the new football season.

59. In Level 7’s first year, its fan shirts sold remarkably well even though the University football

team was not particularly strong.

60. Nevertheless, Ann Argust, the Associate Athletic Director, whose husband was (and is) a

coach on the Under Armour-sponsored football team and the Athletic Department’s liaison to

Under Armour, bought shirts from Under Armour, instead of from Level 7, which cost more

money per shirt than Level 7’s shirts.

61. The University of Utah paid approximately $12.00 per shirt, which was $4.50 more than

what Level 7 had charged the prior season, and bought about 6,000 shirts. In total, this

purchase cost the University of Utah, and consequently, taxpayers, more than $24.000.00.

62. Ann Argust, the University’s liaison to Under Armour, made the decision to take the team

shirts and sell them directly through the Athletic Department to (a) cut out the bookstore, (b)

maximize profits, and (c) placate Under Armour with an estimated $75,000.00 purchase.

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63. Level 7 asked Defendants whether an RFP was required for this type of expenditure. This

inquiry was immediately dismissed; Defendants told Level 7 that “for Under Armour, we do

not need to.”

64. Despite Defendants’ constant interference with its agreement with Level 7, Level 7 continued

to perform under the terms. It designed new clothing, promoted the Utah Athletics and cUte

brands, and paid royalties at the agreed-upon rates.

65. After only nine months in business, Level 7 received notice of an audit from an auditor

independent of the licensing companies and Defendants.

66. The requested audit was a departure from normal procedures. When Level 7 mentioned the

audit to personnel in the Athletics Department, they, too, acted surprised.

67. Specifically, upon being informed about the audit by Level 7, Dr. Hill replied via email,

“This is B.S.”

68. Level 7 complied with the audit despite its concerns, confident that it had paid all of the

royalties that were owed (and an additional $50,000 to Athletics).

69. During the audit, the auditor confirmed that the Utah Licensing Department had requested

the audit. He also stated that it was the first time in his lengthy experience that such a small

company, with such a short history serving only one school, had been audited by CLC.

70. At the conclusion of the audit, the auditor determined that Level 7 needed to pay $18,000.00

more in royalties.

71. Level 7 objected to the auditors’ findings, explaining that the order was placed and filled

within the 10% royalty window (not the 12% window that accounted for the additional

$18,000 allegedly due) but delivery was delayed, at the University’s request, because,

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according to Earl Clegg and Ann Lane, the Athletic Department and the University

Bookstore were fighting about revenue from stadium sales.

72. During the duration of this dispute, the merchandise Level 7 had produced pursuant to its

Agreement with the Defendants was stored in a bonded warehouse in Salt Lake City. The

merchandise was ready for delivery; however, the Bookstore contended it could not accept

the merchandise because an order of its size was too large for the Bookstore. These

circumstances required additional storage options to be secured and delayed the ultimate

delivery of the merchandise.

73. Shortly after receiving Level 7’s written objection to the audit, Defendants terminated the

contract with Level 7 for pretextual reasons, including an alleged desire to comply with

public bidding requirements (which were, at the direction of Defendants, avoided in the first

instance) and a claim that they could make more money with other suppliers.

74. Significantly, the normal rate of return was twelve (12) percent and Level 7 had returned

twenty (20) to twenty-five (25) percent to the University when the $50,000 donation to

Athletics is included.

75. The termination letter was signed by both Dr.Hill, the University’s Athletic Director, and

Arnie Combe, Vice President of Facilities.

76. When Level 7 inquired further about the termination letter with Dr. Hill, Dr. Hill indicated

that he was told “just to sign the letter” and was not given a meaningful opportunity to read

and review it.

77. Dr. Hill also apologized, stating that he was sorry that Level 7 had been improperly treated

for whistleblowing.

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78. Not satisfied with only terminating Level 7’s exclusive license for the Utah Athletic Apparel

and cUte brands (which Level 7 created), Defendants also instructed CLC and LRG not to

renew Level 7’s one-year licenses, making it essentially impossible for Level 7 to continue in

this line of business, even if only to produce other properly authorized clothing bearing

approved designs for retail outlets across the state.

79. Several months after terminating the Level 7 agreement, Defendants’ purpose was revealed:

In the RFP, Defendants took the idea Level 7 brought to the Defendants two years earlier

and put part of it out to bid.

80. The RFP is for a three-year term, (the three remaining on Level 7’s wrongfully terminated

agreement), renewable for two additional years absent breach, allowing the recipient to be

the exclusive supplier of Utah Athletics labeled products to the University and other

authorized outlets.

81. The RFP seeks an enhanced royalty (like the 20-25% effective rate that Level 7 had paid

during the time the Defendants honored their agreement with Level 7).

82. Defendants also removed the replica jerseys from the RFP (this was the highest selling

product in all previous years) and, apparently, gave that part of the business exclusively to

Under Armour without a public bidding process.

83. Defendant University also continues to use the infrastructure, signage, tents, and trailers for

which Level 7 paid.

84. Level 7 has incurred significant damages as a result of Defendants’ individual and collective

conduct and actions.

85. Lost profits from the inception of the contract through the remainder of the five-year period

amount to more than $1,000,000.

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86. The contractual three-year extension, which, given the inevitable success of the venture,

would have been executed, would have totaled $700,000.

87. Further, Level 7 expended significant costs which exceeded $400,000 to establish production

capabilities in China, to retain designers, to purchase and “wrap” with advertising, trailers,

tents and various point of sale displays.

88. Those damages amount to more than $2 million in damages for the theft of ideas, conversion

of goods and services, fraud, misrepresentation or, in the alternative, breach of contract.

89. Level 7 also seeks punitive damages against the individual Defendants.

COUNT I Breach of Contract

(Against all Defendants)

90. The preceding paragraphs are incorporated as if fully stated herein.

91. An agreement existed between Level 7 and Defendants whereby in exchange for developing

and promoting the “Utah Athletics” and “cUte” (for women) brands (the “Brands”) for

Defendants, Level 7 would receive an exclusive license to produce and sell goods under the

Brands to the University and other retail outlets throughout Utah for five years with an

automatic renewal of three years provided there was no material breach.

92. Level 7 developed the goods, promoted the Brands, and paid the associated royalties to

Defendants thereby fulfilling its obligations under the agreement. By all accounts, Level 7’s

products were some of the best-selling items in the University bookstore and at the Red

Zones stores.

93. Nevertheless, Defendants breached their agreement with Level 7. Specifically, Defendants

breached their agreement with Level 7 when they agreed to give four other vendors three-

year exclusive rights to sell products in the Sandy Red Zone in exchange for those vendors’

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provision of limited funds for signage. Additionally, Defendants breached their agreement

with Level 7 by terminated said agreement prior to conclusion of its term and without just

cause.

94. As a result of Defendants’ breach, Level 7 suffered damages as set forth more fully below.

COUNT II. Fraud.


95. The preceding paragraphs are incorporated herein as if fully set forth herein.

96. Defendants made the following false statements to Level 7 while either knowing of their

falsity or recklessly and without regard to their truth:

a. Defendants falsely promised that, in exchange for developing and promoting the Utah

Athletic Apparel and cUte Brands, Level 7 would receive an exclusive license to produce

and sell goods under the Brands to the University and other retail outlets throughout Utah

for five years with an automatic renewal of three years provided there was no material

breach.

b. Brett Eden, the University’s Director of Licensing and Marketing, assured Level 7 that

Collegiate Licensing Corp. (“CLC”), the licensing company, worked for and/or was the

subcontractor for the University of Utah and, therefore, that Defendants in effect

controlled the entire licensing process, thereby making the process a mere formality.

c. As a result of this relationship between the University and CLC, Eden instructed Level 7

to begin manufacturing of the clothing before the agreement was executed.

d. Each time Level 7 asked Defendants about any approvals required or processes to be

completed, Defendants falsely assured Level 7 that Defendants would “walk Level 7

through” any necessary approvals or processes.

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e. Defendants incorrectly and intentionally told Level 7 not to worry about any aspect of the

licenses with CLC, including the term (which was only for one-year and renewable on an

annual basis) because, according to Defendants, LRG and CLC “work for us”.

97. The aforementioned statements were made by Defendants concerning important facts and

with the intention that Level 7 would rely upon the statements.

98. Level 7 did, in fact, rely upon Defendants’ statements.

99. As a result of this reliance, Level 7 suffered the damages set forth below.

COUNT III.

Negligent Misrepresentation. (Against all Defendants)

100. The preceding paragraphs are incorporated as if fully stated herein.

101. In addition to the false statements set forth in above, Defendants made the following

additional misrepresentations concerning facts that Defendants either knew were false or

made recklessly, knowing that they possessed insufficient knowledge upon which to base

such representations:

a. Level 7 drafted a term sheet/letter of intent (“LOI”) that outlined the agreed-upon terms

between Defendants and Level 7. All personnel in the University’s Athletics and

Licensing Departments, and the Bookstore agreed that the LOI reflected the terms of the

parties’ Agreement. Indeed, at least one University representative, Doug Knuth,

confirmed that a minimum five-year contract with an option to extend for another three

years was reasonable in light of the significant investment that Level 7 would have to

make in order to start and grow the business for the benefit of Defendants. Level 7 later

learned that Robert Payne, Associate General Counsel of the University had instructed

the Assistant Athletic Director not to sign the LOI so that the arrangement between the

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parties would remain confidential. When Level 7 inquired about the instruction Level 7

was falsely reassured that there was an Agreement between Defendants and Level 7 and

that “there was nothing to worry about.”

b. Defendants made the foregoing representations for the purpose of inducing Level 7 to act

upon those representations and perform pursuant to the parties’ Agreement.

102. Level 7 did, in fact, act upon those representations and perform pursuant to the parties’

Agreement. Under the circumstances, Level 7 acted reasonably and in ignorance of the

representations’ falsity.

103. Defendants owed a duty to Level 7.

104. Defendants breached that duty to Level 7.

105. Level 7’s injuries were a direct and proximate result of its reliance upon Defendants’

misrepresentations.

106. Level 7’s actions were induced to act by these misrepresentations.

107. As a result of Defendants’ conduct, Level 7 was induced to act, and Level 7 was injured

and suffered damages as set forth below.

COUNT IV. Detrimental reliance/Promissory estoppel.


108. The preceding paragraphs are incorporated as if fully set forth herein.

109. Because of the immediate need for production and looming deadlines prior to the

execution of the parties’ written agreement, at Defendants’ request, Level 7 began its

performance under the Agreement prior to the formal execution of the parties’ written

agreement.

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110. This performance included investments and expenditures undertaken by Level 7 pursuant

to the Agreement, including Level 7’s investment in manufacturing capabilities in China,

marketing materials, tents, trailers, displays, etc. and retained designers.

111. Level 7 would not have spent the time and money to develop these capabilities and to

promote the Brands it created had it not been reassured repeatedly that an Agreement

existed between Level 7 and Defendants.

112. In further support of the belief that the Agreement existed, Defendants advised Level 7

how Defendants wanted Level 7 to operate in order to benefit Defendants.

113. Level 7 relied upon those assurances, promises, and representations made by Defendants

to its detriment. Specifically, Level 7 relied upon Defendants’ representations when it

disclosed its Brand ideas and concepts (such as the “Utah Athletics” and “cUte” names

and designs) and when it committed to and did spend its time, money and other resources

necessary to make the business venture between Level 7 and Defendants a success for all

parties.

114. Defendants made assurances, promises, and representations to Level 7 about the parties’

Agreement and subsequent relationship as set forth above.

115. Defendants were aware of all material facts concerning the parties’ relationship and

should have reasonably expected that Level 7 would have relied upon those assurances,

promises, and representations and that said assurances, promises, and representations

would have induced Level 7’s reliance and/or action.

116. Level 7 relied upon Defendants assurances, promises, and representations and acted

accordingly; Level 7 operated and performed pursuant to the terms of the parties’

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Agreement and engaged openly with Defendants as it concerned the Brand ideas and

concepts developed by Level 7 for use pursuant to the Agreement.

117. Level 7’s reliance upon Defendants’ assurances, promises, and representations directly

resulted in the damages suffered by Level 7 as set forth below.

COUNT V.

Specific Performance. (Against all Defendants)

118. The following paragraphs are incorporated herein by reference.

119. As set forth in the preceding paragraphs, Level 7 performed in full as per the terms of its

Agreement with Defendants. Defendants, on the other hand, failed to perform as

obligated under the Agreement.

120. Defendants’ failure to perform was in bad faith and without excuse.

121. Level 7 is entitled to specific performance under the terms of the Agreement.

COUNT VI. Conversion.



123. As per the terms of the Agreement between Defendants and Level 7, rather than accept an

increase in licensing fees, Defendants requested that Level 7 donate $50,000.00 to the

Athletic Department.

124. Level 7’s principal owner did, in fact, donate $50,000.00 to the Athletic Department on

behalf of Level 7.

125. Level 7 also designed and purchased infrastructure, signage, tents, trailers and various

point of sale displays purchased and “wrapped” the same with Level 7 designed insignia.

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126. Defendants have not returned the property set forth in the preceding paragraph to Level 7

and continue to wilfully interfere with its return to Level 7. This interference has been

undertaken without lawful justification and has deprived Level 7 of the use and

possession of the money and property described above.

127. Through these acts, Defendants have converted Level 7’s property and damaged Level 7

as a result.

128. The measure of damages for the conversion of property is the value of the property at the

time of the conversion, plus interest. Level 7 requests these damages in addition to any

damages requested below.

COUNT VII. Quantum Meruit/Unjust Enrichment



130. In the event the factfinder determines that no enforceable written or oral agreement exists

between Defendants and Level 7, then Defendants still have the quasi-contractual duty to

pay the value of the benefits it received from Level 7 so as to avoid Defendants’ unjust

enrichment.

131. Defendants received the following benefits, among others, from Level 7:

a. Level 7’s $50,000.00 donation to the University.

b. The infrastructure, signage, tents, trailers and various point of sale displays

purchased by Level 7 and “wrapped” with Level 7 designed insignia.

Any and all intellectual property relating to Level 7’s Utah Athletic Apparel and

cUte Brands.

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132. Defendants had the appreciation and knowledge of the benefits conferred upon them by

Level 7.

133. Defendants accepted the benefits conferred by Level 7 without compensating Level 7 for

these benefits. Under these circumstances, it would be inequitable for Defendants to

retain these benefits without payment for their value because this would result in

Defendants unjust enrichment.

COUNT VIII.

Constructive Trust. (Against all Defendants)


135. Defendants have been unjustly enriched through the acquisition of Level 7’s material

property and ideas through the fraudulent and coercive conduct set forth above.

136. Accordingly, Level 7 is entitled to a constructive trust concerning that property

wrongfully in Defendants’ possession and rightfully belonging to Level 7, including,

without limitation, the trailers, tents and various point of sale displays that were

purchased and “wrapped” with Level 7 designed insignia, and any Level 7 produced

products remaining in Defendants’ possession.

COUNT IX. Accounting.



138. Defendants failed to pay money owed to Level 7 under the terms of the parties’

agreement.

139. To this end, Defendants have unjustly retained funds to which they were not entitled.

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140. Defendants failed to disclose the accurate number of products sold to avoid paying Level

7 the full amount of money owed to it under the terms of the parties’ agreement.

141. Accordingly, Level 7 is entitled to an accounting from Defendants concerning the money

owed to it pursuant to the terms of the parties’ agreement.

COUNT X. Tortious Interference with Economic and Business Relations.

(Against the individual Defendants)


143. Defendants wrongfully terminated their exclusive licensing agreement with Level 7

concerning the Brands created by Level 7.

144. Thereafter, and with no legitimate purpose other than to injure Level 7, Defendants

instructed CLC and LRG not to renew Level 7’s one-year licenses.

145. CLC and LRG adhered to Defendants’ instructions and refused to renew Level 7’s

licenses.

146. Level 7’s inability to renew its licenses made it impossible for Level 7 to conduct this

line of business, even if only to produce other properly authorized clothing bearing

approved designs to retail outlets across the state.

PRAYER FOR RELIEF.

WHEREFORE, Level 7 prays as follows for an award of damages for:

a. Lost profits from the inception of the contract through the remainder of the five-

year period amounting to more than $1,000,000.

b. The liquidated amount for the three-year contractual extension, which, given the

inevitable success of the venture, would have been executed, amounting to

$700,000.

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c. The amounts expended by Level 7 to establish production capabilities in China, to

retain designers, to purchase and “wrap” with advertising, trailers, tents and

various point of sale displays amounting to $400,000.

These damages amount to more than $2 million in damages for the theft of ideas, conversion of

goods and services, fraud, misrepresentation or, in the alternative, breach of contract.

d. punitive damages from the individual Defendants for their willful and wanton

conduct as alleged herein.

REQUEST FOR JURY.

Level 7 requests a trial by jury. DATED this 16th day of May, 2014.

AARON & GIANNA, PLC /s/ Lisa A. Marcy___________ Lisa A. Marcy Plaintiff’s address: c/o Aaron & Gianna, PLC

Documents

Level 7 Sports v. University of Utah et al