Mr Falwell, an early supporter of Donald Trump, was first suspended last August after he posted a social media picture of himself holding a drink and standing with an unrelated pregnant woman.
Both of them had their zippers down, and Mr Falwell joked that the drink was a “prop only.”
Later that month he agreed resign from the Virginia-based university after former Miami pool boy Giancarlo Granda claimed he had a years-long sexual relationship with Falwell and his wife, Becki.
Mr Grenada claimed he had sex with Ms Falwell while her husband watched on, while Mr Falwell said his wife had an affair with Mr Grenada.
Mr Falwell filed a defamation suit against the university last October, claiming they had accepted the allegations without verifying them, before dropping his legal action.
Now in their own lawsuit, which seeks more than $10 million, Liberty says that Mr Falwell failed to disclose to the university the alleged threats of extortion he had received in connection to his personal scandals.
“Falwell Jr. … knew that matters of infidelity, immodesty, and acceptance of a loose lifestyle would stand in stark contrast to the conduct expected of leaders at Liberty,” the university’s lawsuit states.
The university added in the suit that the institution demands adherence to “Biblical standards of morality.”
Mr Falwell attacked the university’s lawsuit, which was filed in Lynchburg Circuit Court, in a statement to the Washington Post.
“The Executive Committee of the Liberty University Board of Trustees has made yet another attempt to defame me and discredit my record following a series of harsh and unnecessary actions against my children, Becki and me,” he said.
“Throughout all my years at the University, where we built a multi-billion-dollar enterprise that reaches Christians worldwide, I always abided by the requirements that applied to everyone on the university staff.”