The Colorado Civil Rights Commission dropped its latest case against Christian cakeshop owner Jack Phillips on Tuesday, handing him a second victory against state officials who have pursued him for six years over his refusal to create cakes for certain LGBT events.

Mr. Phillips, owner of Masterpiece Cakeshop in Lakewood, agreed in return to withdraw his lawsuit against the state, which he filed last year to stop the commission’s “harassment” after he was hit with a complaint for declining to make a blue-and-pink cake for a transgender transition.

Kristen Waggoner, senior vice president of the Alliance Defending Freedom, called the outcome “great news for everyone.”

“This is the second time the state has launched a failed effort to prosecute him,” said Ms. Waggoner, who represents Mr. Phillips. “While it finally appears to be getting the message that its anti-religious hostility has no place in our country, the state’s decision to target Jack has cost him more than 6½ years of his life, forcing him to spend that time tied up in legal proceedings.”

Colorado Attorney General Phil Weiser said in a statement that both sides agreed “it was not in anyone’s best interest to move forward with these cases.”

“The larger constitutional issues might well be decided down the road, but these cases will not be the vehicle for resolving them,” said Mr. Weiser, a Democrat. “Equal justice for all will continue to be a core value that we will uphold as we enforce our state’s and nation’s civil rights laws.”

The latest case, dubbed Masterpiece II, stemmed from a request by Denver lawyer Autumn Scardina for a cake — blue on the outside, pink on the inside — to mark the seven-year anniversary of her transition from male to female.

The bakery declined the request made June 26, 2017, the same day the U.S. Supreme Court agreed to hear the case over the commission’s decision to penalize Mr. Phillips for refusing in 2012 to make a cake for a same-sex wedding.

In June, the Supreme Court ruled in the baker’s favor, citing the commissioners’ hostility toward Mr. Phillips and his Christian beliefs.

Examples of anti-religious animus also were evident in Masterpiece II. Republican state Rep. Dave Williams said in a Feb. 18 court declaration that a current commissioner told him over the phone in November “that they believe there is anti-religious bias on the commission.”

In addition, the Alliance Defending Freedom produced statements from a 2018 public meeting “in which two commissioners voiced their support for comments that a previous commissioner, Diann Rice, made in 2015.”

At the meeting, Ms. Rice said “[f]reedom of religion and religion has been used to justify all kinds of discrimination throughout history, whether it be slavery, whether it be the Holocaust,” according to a court transcript.

While he won at the nation’s high court, Mr. Phillips has paid a price for years of litigation, having lost 40 percent of his business after he was ordered to stop making wedding cakes unless he would agree to do so for same-sex ceremonies.

He said Tuesday in a statement that Colorado has been “relentless in seeking to crush me and my shop for living consistently with my deeply held religious beliefs.”

“[A]s evidence of the state’s hostility toward my faith continues to emerge, the state announced that it will be dismissing its most recent complaint against me,” Mr. Phillips said. “Today is a win for freedom. I’m very grateful and looking forward to serving my customers as I always have: with love and respect.”

Alliance Defending Freedom senior counsel Jim Campbell, who has described the latest request for a cake as a “setup,” said he hopes the commission’s decision signals that “the state is done going along with the obvious efforts to harass Jack.”

“He shouldn’t be driven out of business just because some people disagree with his religious beliefs and his desire to live consistently with them,” Mr. Campbell said. “We look forward to the day when Jack doesn’t have to fear government punishment for his faith or harassment from people who oppose his beliefs.”

The Colorado attorney general’s office said each side would bear its own costs and attorneys’ fees, adding that the agreement “does not affect the ability of Autumn Scardina, the complainant in the state administrative case, to pursue a claim on her own.”

Ms. Scardina, who could not be reached Tuesday for comment, also had asked Masterpiece in 2017 to prepare a cake with satanic themes, according to Mr. Phillips‘ lawsuit.

In January, Senior U.S. District Judge Wiley T. Daniel rejected the state’s motion to dismiss the lawsuit, ruling that the commission’s decision to pursue a second claim against Mr. Phillips “supports the existence of bad faith.”

In Masterpiece I, the commission ruled that Mr. Phillips had violated the Colorado Anti-Discrimination Act by refusing to create a wedding cake for a same-sex couple, while he has long maintained that he serves all customers but won’t celebrate all events.

His case has come to symbolize the ongoing friction between anti-discrimination laws that encompass gender identity and the First Amendment rights of small-business owners who adhere to traditional religious beliefs.

“When I set out to build my dream of opening my own cake shop, combining my love for art and baking in a family business, I never imagined this chapter would be part of the Masterpiece Cakeshop story,” Mr. Phillips said. “I have and will always serve everyone who comes into my shop; I simply can’t celebrate events or express messages that conflict with my religious beliefs.”

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