An Illinois judge has ruled against Catholic Charities in a case involving adoptions and foster care.
The state decided to stop contracting with the agency after it refused to work with gays and lesbians.
In his Thursday ruling, Sangamon County Circuit Judge John Schmidt sided with the state.
He said no one, including Catholic Charities, has a legal right to contract with Illinois.
However, Schmidt did not address the more sensitive issue of whether a state contractor that refuses to serve gays is violating Illinois' new civil unions law.
Tom Brejcha, the lawyer for Catholic Charities, said he may ask the judge to revisit the issue of religious freedom, The Chicago Tribune reported.
"There's a lot to argue about here," Brejcha said. "The exercise of religion cannot be substantially burdened. That alone could carry the case for Catholic Charities."
"A lot of these people involved feel they are compelled by their faith," he noted. "The burden is pretty substantial."