Oberlin College, known as a bastion of progressive politics, said on Thursday that it would pay $36.59 million to a local bakery that said it had been defamed and falsely accused of racism after a worker caught a Black student shoplifting.

That 2016 dispute with Gibson’s Bakery resulted in a yearslong legal fight and resonated beyond the small college town in Ohio, turning into a bitter national debate over criminal justice, race, free speech and whether the college had failed to hold students to account.