The Indianapolis Star reported that the Christmas scene in front of the government building in Brownstown, in Jackson County, also includes secular imagery of Santa Claus and candy canes.
After Woodring sued in a lower court, the court initially ruled in her favor. The county then appealed the decision. The Seventh Circuit Court of Appeals ruled in favor of the county on Tuesday.
Judge David Hamilton, who dissented from the Seventh Circuit majority opinion, said the courthouse nativity display "sent a clear message of government endorsement of Christianity."
The religious liberty law firm Becket, which filed a friend-of-the-court brief on behalf of the county, said that Tuesday's ruling is "common sense."
Diana Verm, Senior Counsel at Becket, said in a statement, "Most people don't think Christmas decorations ought to be a federal issue."
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"This decision doesn't just follow Supreme Court precedent, it also follows common sense: the Establishment Clause protects against coercive government action, not harmless displays of holiday cheer," Verm said.
A spokesperson for ACLU of Indiana-which represented Woodring-did not immediately respond to a request for comment.