In unusually forceful language, U.S. Attorney General Loretta Lynch said North Carolina's law requiring transgender people to use the public restroom corresponding to the gender on their birth certificate amounts to "state-sponsored discrimination" and is aimed at "a problem that doesn't exist."
She said it serves only to "harm innocent Americans."
Billions of dollars in state aid for North Carolina — and a potentially landmark decision regarding the reach of the nation's civil rights laws — are at stake in the dispute, which in recent weeks has triggered boycotts and cancelations aimed at getting the state to repeal the measure that took effect in March.
Last week, the U.S. Justice Department said the law amounts to illegal sex discrimination against transgender people and gave Gov. Pat McCrory until Monday to say he would refuse to enforce it.
McCrory instead doubled down by filing a federal lawsuit Monday arguing that the North Carolina law is a "common sense privacy policy" and that the Justice Department's position is "baseless and blatant overreach."
"This is not a North Carolina issue. It is now a national issue," said McCrory, a Republican who is up for re-election in November, at a news conference.
The governor accused the Obama administration of unilaterally rewriting federal civil rights law to protect transgender people's access to bathrooms, locker rooms and showers across the country.
Later in the day, the Justice Department responded by suing North Carolina, seeking a court order declaring the law discriminatory and unenforceable.
Lynch spoke directly to residents of her native state, saying they have been falsely told by North Carolina proponents that the law protects vulnerable people from harm in bathrooms.
"Instead, what this law does, is inflict further indignity on a population that has already suffered far more than its fair share," she said. "This law provides no benefit to society, and all it does is harm innocent Americans."
Defenders of the law have argued that it is necessary to protect the safety and privacy of people in bathrooms. Opponents have argued that the danger of a transgender person molesting a child in a restroom is all but nonexistent.
Stars such as Bruce Springsteen and Pearl Jam have canceled shows in North Carolina over the new law. PayPal abandoned a planned 400-employee operation center in Charlotte, and Deutsche Bank froze expansion plans near Raleigh.
Nearly 200 corporate leaders from across the country, including Charlotte-based Bank of America, have urged the law's repeal, arguing it is bad for business because it makes recruiting talented employees more difficult.
Several other states have proposed similar laws in recent months limiting protections for gay, bisexual and transgender people. On Monday, the American Civil Liberties Union of Mississippi sued that state over a law that will allow workers to cite their religious objections to gay marriage to deny services to people.
North Carolina Attorney General Roy Cooper, a Democrat running against McCrory for governor, has refused to defend the law, which was passed in reaction to a Charlotte ordinance allowing transgender people to use the bathroom that corresponds to their gender identity.
Lynch likened her agency's involvement in the North Carolina law to the shifting expansion of civil rights that scrapped legal racial segregation and prohibitions against gay marriage.
"This is about the dignity and the respect that we accord our fellow citizens," Lynch said. "It's about the founding ideals that have led this country, haltingly but inexorably in the direction of fairness, inclusion and equality for all Americans."
The new North Carolina law also excludes lesbian, gay, bisexual and transgender people from state anti-discrimination protection and bars local governments from adopting their own anti-bias measures.
The Justice Department noted a ruling last month by a federal appeals court that a transgender Virginia high school student has a right to use bathrooms that correspond with his new identity. The ruling by a three-judge panel of the 4th U.S. Circuit Court of Appeals is binding in five states, including North Carolina. Virginia is seeking a re-hearing by the entire appeals court.
The U.S. Education Department and other federal agencies could try to cut off money to North Carolina to force compliance.
The state university system risks losing more than $1.4 billion in federal funds. An additional $800 million in federally backed loans for students who attend the public universities could also be at risk.
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