Aston Villa have agreed to pay compensation to Birmingham City over Alex McLeish's move to Villa Park.
The 52-year-old quit his post at St Andrew's and was subsequently appointed Villa manager, leading to Blues threatening legal action.
But in a statement the clubs said: "Agreement has been reached between the parties, ending the legal disputes surrounding Alex McLeish's departure."
Villa will now pay Birmingham an undisclosed sum to settle the affair.
Relegated Birmingham had been demanding £5.4m to cover the remaining two years of McLeish's contract.
As well as asking for compensation, the Championship side also previously accused their city rivals of "tapping up" the former Scotland manager.
Blues also threatened to report Villa to the Premier League and to take out an injunction blocking the move.
McLeish had been in charge at Birmingham since November 2007.
Despite winning the Carling Cup in February, he was unable to prevent relegation from the top flight.
Chris Hughton has since been appointed as McLeish's replacement.