Both sides reached an "amicable resolution," but the details were kept confidential, according to a statement released by Graff's attorney Bruce Broillet.
"Both parties are glad that the matter could be resolved without the time and expense of a trial," the statement read. Trial had been scheduled to begin Monday.
The paper reported that Graff — who once dated Hilton's then-fiancé, Greek shipping heir Paris Latsis — went "berserk" at a nightclub, tried to strangle Hilton and attempted to steal her diamond necklace.
Graff denied the report and claims Hilton said, "I'm going to destroy you" after trying to oust her from the club, according to the suit.
Hilton denied that she was behind the report.
But former publicist Rob Shuter said in a deposition that Hilton asked him to help plant the story and that he gave the paper comments attributed to himself, Hilton and anonymous sources that were dictated by Hilton.