The Oregon Court of Appeals on Thursday upheld a decision by Oregon's labor commissioner that forced two Gresham bakers to pay $135,000 to a lesbian couple for whom the bakers refused to make a wedding cake.

Melissa and Aaron Klein made national headlines in 2013 when they refused to bake a cake for Rachel and Laurel Bowman-Cryer, citing their Christian beliefs. The Bowman-Cryers complained to the Oregon Bureau of Labor and Industries, saying they had been refused service because of their sexual orientation.

An administrative law judge ruled that the Kleins' bakery, Sweetcakes by Melissa, violated a law that bans discrimination based on sexual orientation in places that serve the public. Brad Avakian, the state labor commissioner, affirmed heavy damages against the Kleins for the Bowman-Cryer's emotional and mental distress.

The decision will likely be the most controversial ruling, and the one with the biggest impact, handed down by Avakian during his nearly 10 years in the role. He has decided not to seek re-election when his term expires next year.

The Kleins appealed Avakian's decision, arguing for a religious exemption from the Oregon Equality Act, the anti-discrimination law. They also argued Avakian was biased against them, that his actions violated their rights to free expression as artists and their right to due process, and that the fine was excessive.

But in their ruling Thursday, a panel of state appeals court judges sided with Avakian, saying the Kleins did, in fact, deny the Bowman-Cryers because they were lesbians. The justices also rejected the Kleins' argument that Avakian's ruling violated state and federal free speech protections.

In the ruling, Judge Chris Garrett wrote that Avakian's order does not violate the Klein's free speech rights because it simply "requires their compliance with a neutral law." Garrett also wrote that the Kleins "have made no showing that the state targeted them for enforcement because of their religious beliefs."

In a statement, Avakian said the Appeals Court ruling "sends a strong signal that Oregon remains open to all."

Through their attorney, the Bowman-Cryers said Thursday's ruling affirms "the long-standing idea that discrimination has no place in America."

"All of us are equal under the law and should be treated equally," the couple said. Any ruling to the contrary would "create a sweeping license to discriminate," they said.

The appeals court ruling represents an "important victory" for the Bowman-Cryers, who faced humiliation, harassment and death threats after their wedding preparations turned into an ordeal, said Nancy Marcus, senior attorney at Lambda Law, a national pro-LGBT rights group. Marcus said the court's ruling is critical yet "completely unsurprising" because it aligns with courts in other states, which have not allowed businesses to exempt themselves from anti-discrimination laws.

Adam Gustafson, lead attorney for the Kleins and the former White House counsel for President George H.W. Bush, was not immediately available for comment. Gustafson had argued the bakers' religious beliefs should shield them from being compelled to conduct speech -- in this case, baking a cake. Such a requirement would "offend the conscience and the constitution," Gustafson argued.

The First Liberty Institute, a religious freedom law firm whose attorneys also represented the Kleins, said it is disappointed by Thursday's ruling. "The Oregon Court of Appeals decided that Aaron and Melissa Klein are not entitled to the Constitution's promises of religious liberty and free speech," said Kelly Shackelford, the institute's president.

The Kleins paid the fine following Avakian's order and closed their baking business around the same time. Donors gave the bakers more than $500,000, money they say has been spent on legal fees. The $135,000 damage award belonging to the Bowman-Cryers has been locked in an escrow account pending appeals.

The Kleins' case is one of several similar cases that has attracted significant media attention. Another, stemming from a Colorado ruling, was argued before the U.S. Supreme Court earlier this month. The court justices are reportedly divided over whether a baker was justified in turning away a gay couple seeking a wedding cake because of their religious beliefs. That baker, like the Kleins, contends that creating and custom-decorating a cake is an act of artistic expression that deserves more free speech protections than the sales of other goods and services.

-- Gordon R. Friedman

503-221-8209; @GordonRFriedman