Schwartz Brothers Inc., the Lanham-based record and tape distributor, has settled its bitter lawsuit against Motown Records over Motown's abrupt termination of its 25-year-old agreement with Schwartz Brothers to distribute Motown records in the Washington and Philadelphia areas.

Terms of the settlement were not disclosed. Area record store owners said yesterday they are now receiving Motown products from MCA Inc. distributors, the firm assigned the account after Motown dropped Schwartz Brothers in July.

"All matters in dispute have been settled to the parties' mutual satisfaction," lawyers for Motown, MCA and Schwartz Brothers said in a brief joint statement announcing the settlement of the lawsuit under way in Maryland Circuit Court in Prince George's County. They would not elaborate.

Claiming that Motown accounted for 50 percent of its record-distributing volume, Schwartz Brothers sued for $5 million in damages from Motown and MCA. The company had won a temporary injunction preventing Motown from making the switch to MCA, but Motown had continued to refuse to ship records to Schwartz, claiming that the Lanham company owed Motown $232,000 in back payments.

Earlier this year, Schwartz settled a similar lawsuit against Arista Records, after Arista switched its distribution from Schwartz Brothers to RCA. Terms of that settlement also were not disclosed.

Companies like Schwartz have for many years served as the regional independent distributors of record companies that chose not to operate their own distributor networks. Over the past couple of years, however, Motown, Arista, A&M and Chrysalis have terminated their independent distribution agreements and contracted with major record labels like RCA and Columbia, in an effort to gain efficiency and cost-savings.

In its suit, Schwartz Brothers had said that its 25-year-old agreement with Motown had been the backbone of Schwartz's growth into one of the largest record and tape distributing companies on the East Coast. "The sudden loss of the Motown family of labels would have a devastating effect on Schwartz Brothers," the company's president, James Schwartz, said in an affidavit filed in connection with the case. "The sales volume would be next to impossible to replace." The company said in its suit it might have to lay off as many as 80 employes if it lost Motown's business.

Motown, however, said that it never had a written agreement with Schwartz and added that the 15-day notice of termination it gave Schwartz was adequate and in keeping with industry practices.