The largest financial backer of Lauth Group Inc. agreed Thursday to drop its federal lawsuit against the Indianapolis-based real estate developer, which is reorganizing under bankruptcy protection.

An affiliate of Chicago-based Inland American Real Estate Trust canceled the suit, while another affiliate withdrew its request to have a Chapter 11 trustee appointed to oversee Lauth’s operations.

“We will continue to move forward with the important business of restructuring the company’s portfolio and exiting bankruptcy,” Lauth Chairman Robert Lauth said in a written statement. “Both parties agreed to appoint a special mediator to participate in the bankruptcy cases and provide the court with non-binding commentary on proposed restructuring efforts.”

The judge set a hearing on a settlement agreement involving four of Lauth’s properties for April 20.

Inland American invested $228 million in 2007 for an ownership stake in dozens of Lauth properties. But Lauth defaulted on its agreement to pay dividends to Inland in late 2008, and several Lauth subsidiaries filed for Chapter 11 bankruptcy reorganization in May 2009.

Lauth’s troubles began in early 2008 as demand dried up for the office, industrial and retail developments that had fueled its rapid growth. The company doubled its revenue from 2004 to 2005, then doubled it again from 2005 to 2006. During the same period, the value of Lauth’s project lineup jumped from $143 million to $592 million.

The company started 2008 with about 450 employees, but layoffs have since shrunk the staff to about 40.

Inland initially challenged Lauth’s bankruptcy filing by claiming it had taken control of Lauth's holding company, LIP Holdings LLC, after it defaulted on their agreement.

But Lauth pointed to a section of the original agreement with Inland that required approval from at least one Lauth representative and one Inland representative for major company decisions, including a change in control. The judge agreed with Lauth’s interpretation.