Terms of the settlement were not immediately disclosed.
"I am extremely pleased that we have reached a settlement," Anucha Browne Sanders said in a statement. "The jury's verdict in this case sent a powerful and enduring message that harassment and retaliation at Madison Square Garden will not be tolerated. ... It has been a long journey, but I believe that justice has been done."
The deal came as Browne Sanders was preparing to return to U.S. District Court in Manhattan, where her description of her ordeal with the Knicks exposed the club's tawdry side, from its dysfunctional clubhouse to its star player's sexual exploits with an intern.
The case was supposed to resume this week before U.S. District Judge Gerard E. Lynch, who was set to decide how much Browne Sanders was owed in compensatory damages, a payout that usually involves lost wages and future loss of income. The Knicks also faced the possibility they might be ordered to pay what was likely to be millions of dollars in legal fees.
By settling, the Knicks avoided paying her legal fees, while Brown Sanders gets her money faster and avoids the possibility of having her award reduced on appeal.
Although Browne Sanders had demanded the right to resume working for the Knicks, one of her lawyers, Kevin Mintzer, said she will continue working at the University of Buffalo as an associate athletic director and senior woman administrator.
Mintzer refused to divulge the amount of the settlement, as did representatives for MSG and Thomas.
"As I have said before, I am completely innocent," Thomas said. "This decision doesn't change that. However, this is the best course for Madison Square Garden, and I fully support it."
Because the jury was unable to reach a verdict on one of the accusations against Thomas, the possibility of another trial loomed. It would have brought with it another wave of negative publicity about the team and the off-court escapades that made the first trial a feeding frenzy for those interested in the inner workings of one of the NBA's most storied franchises.
"We don't feel any less strongly than we did throughout the entire episode," MSG said in a statement. "The outcome was a travesty of justice, and we vehemently disagree with the jury's decision. However, at the strong request of (the NBA commissioner) and in the interest of focusing on basketball, we can all agree that it is time for us to move on and put this issue behind us."