ALBANY — A federal lawsuit arising from the closing of The Sanctuary for Independent Media by the city of Troy on code violations after the display of a controversial art exhibit in March 2008 has been settled, according to legal papers filed Friday in U.S. District Court.

The Sanctuary for Independent Media, the city and retired city Public Works Commissioner Robert Mirch said the lawsuit was settled late Friday afternoon.

The venue hosted Iraqi-American artist Wafaa Bilal's digital artwork "Virtual Jihadi," which featured a video game in which President George W. Bush is hunted by a terrorist bomber, after Rensselaer Polytechnic Institute cancelled it due to complaints made about its content.

Mirch led picketing of the Sanctuary and made strong public statements attacking the showing while Bilal's work was exhibited. As head of public works, Mirch also oversaw the city's code enforcement office.

The Sanctuary, at 331 Sixth Ave., was closed March 11, 2008, the day after the demonstration for code violations by the city. The lawsuit alleged this violated its rights to free speech.

Details of the settlement of the civil rights lawsuit were not immediately available pending approval by the City Council. Mirch said he understood that there was a financial agreement to establish a fund for programming involving the city and the media group.

"We're looking forward to moving forward in a positive way with the (city's) new administration," said Steve Pierce, executive director of the Sanctuary for Independent Media.

The details of the settlement will be announced at a later date, said Mike Fraser, a spokesman for Mayor Lou Rosamilia.

"I'm glad it was settled and I don't have to return to New York," said Mirch, who currently is in Florida.

The trial was scheduled to begin Monday in U.S. District Court before U.S. District Judge Mae A. D'Agostino.

Portions of the lawsuit alleging violations of the Sanctuary's First Amendment and Equal Protection rights were dismissed in August 2011, according to court papers.

The court rejected a defense motion to dismiss the media organization's claims of violation of due process related to the closing for code violations.

Reach Kenneth C. Crowe II at 454-5084 or kcrowe@timesunion.com.