The agency claims that, in doing so, Michigan is violating its constitutional right to religious expression.
The lawsuit was filed Monday by the Becket Fund for Religious Liberty on behalf of Michigan-based foster and adoptive services contractor St. Vincent Catholic Charities, a couple who adopted five children through St. Vincent and a woman who was adopted through St. Vincent.
"There isn't any access problem or harm in (St. Vincent) continuing to operate as they were," Becket Fund attorney Nick Reaves told CNN. "They don't stand in the way of same-sex couples."
The legal challenge comes after Michigan last month said it would end contracts with adoption agencies that discriminate against same-sex couples or LGBTQ people who "may otherwise be qualified foster care or adoptive parents" for children in state custody.
The agreement was part of a settlement in another lawsuit by the American Civil Liberties Union on behalf of two lesbian couples who said they were turned away from adoption agencies because of their sexuality.
St. Vincent is one of 90 private contractors the state uses to place children in homes, according to the lawsuit.
"Faith-based agencies like St. Vincent consistently do the best work because of their faith, and we need more agencies like them helping children -- not fewer," Becket Fund President Mark Rienzi said in a statement. "The actions by the attorney general of Michigan do nothing but harm the thousands of at-risk children in desperate need of loving homes."
The plaintiffs argue that although they don't work with same-sex couples, such couples have opportunities to use other agencies in Michigan.
"They help make sure a couple they can't work with is able to find an agency that's better suited to meeting their needs," Reaves said.
St. Vincent would rather cease child-placement services altogether than act against their religious beliefs, Reaves added. The group is currently caring for 86 children and last year placed 69 children in foster homes and finalized 19 adoptions, he said.
Michigan Attorney General Dana Nessel, a Democrat and one of the defendants named in the lawsuit, said through a spokeswoman that "the plaintiffs' attorneys do not understand the settlement agreement."
"Agencies have sole discretion to decide whether to accept an MDHHS referral to provide foster care case management or adoption services, and the state cannot take adverse action against an agency that rejects a referral based on its sincerely held religious beliefs," Nessel's office said in a March statement about the earlier settlement.
"Upon accepting a referral, however, the law does not provide an agency with discretion to refuse to provide the accepted child or individual with state-contracted foster care case management or adoption services that conflict with its sincerely held religious beliefs. On the other hand, the terms of the agency's contract with the State expressly prohibit discrimination in the provision of these contracted services."
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