After 37 years of litigation, the District is on the cusp of ending court oversight of its services for the mentally ill. The settlement, reached after eight months of “painstaking” negotiations, represents a major victory for the D.C. government as it seeks to overcome a legacy of mismanagement.

U.S. District Judge Thomas F. Hogan cited “great progress,” including the recent opening of a state-of-the-art hospital, in granting preliminary approval Monday to an agreement to end the class-action lawsuit, now known as Dixon v. Gray.

“This is a momentous and historic settlement,” said Hogan, citing the case’s “long and tortured history.” He is the third federal trial judge to handle the case, which started before the District was granted home rule.

In the coming months, the District will alert more than 27,000 residents affected by the case about the pending settlement. Hogan scheduled a hearing for Feb. 2 to hear objections to final approval of the agreement.

Should he grant final approval, as is widely anticipated, the District would continue to report on its progress until Sept. 30, 2013. At that time, the plaintiffs could object to final dismissal of the case should the city not be in compliance with the settlement.

The old St. Elizabeth's Hospital, which once housed the Dixon plaintiffs. (Jeffrey MacMillan/FOR THE WASHINGTON POST)

Stephen T. Baron, director of the city mental health department since 2006, expressed confidence in meeting the final terms. “We’re going to be able to make it happen; there’s no doubt about that,” he said.

The case dates to 1974 when William Dixon and other patients at St. Elizabeths Hospital sought treatment options other than the old and troubled institution straddling Martin Luther King Jr. Avenue SE. A year later, a judge expanded the case to cover all of the District’s mentally ill residents.

“It was a crumbling, wretched institution,” said Peter J. Nickles, who was among the Covington and Burling lawyers who filed the original case. “In no sense of the word did the city treat the folks who were captured in the mental health system in a tolerable, civilized fashion.”

The lawsuit sought to compel the District and the federal government, which then operated the hospital, to recognize that the widespread institutionalization of the mentally ill was costly, counterproductive and inhumane.

The District government in 1980 agreed to establish a network of community-based treatment options, but it had difficulty creating and managing the system. In 1997, Judge Aubrey E. Robinson Jr. placed the city’s mental health department under receivership.

The District regained control in 2000, and it subsequently agreed to meet 19 conditions to end the case, ranging from increasing billings to Medicaid to using more modern medications for residents with schizophrenia. In his most recent report, a court-appointed monitor said that 15 of the 19 criteria had been substantially met. Late last year, the District and plaintiffs began settlement talks, and the agreement presented to Hogan on Monday eased the remaining four requirements. They concern housing, employment services and follow-up mental health care for adults and children.

Under the agreement, the District has agreed to build or subsidize an additional 300 housing units, provide job counseling on demand and reduce the number of youths sent to certain private treatment facilities.

The court monitor, Dennis R. Jones, called the tentative settlement a “full and fair resolution” of the case he has overseen since 2000 — a period, he said, when the District had a “non-system” of mental health care.

Jones noted that de-institutionalization has been good for people and for the city’s budget. “The classic win-win,” he said.

In April 2010, city officials opened a new St. Elizabeths Hospital on the eastern edge of the vast federal reservation. The $161 million facility is intended to house many fewer residents than its predecessor did. In 1974, more than 3,600 patients were in treatment at St. Elizabeths; today, the hospital has about 280 patients. About 17,000 more are in community-based treatment programs or receive services at private clinics.

Mayor Vincent C. Gray (D), who stands to have the distinction of being the last District executive to have his name on the case, hailed the preliminary ruling as a “significant milestone.” As a part of the settlement, the Gray administration agreed to add $3.5 million to the budget for the fiscal year starting Oct. 1 to fund the improvements.

“We hope this will serve as a precedent for other federal court consent decrees under which the District has been operating for many years,” he said. Hogan echoed that sentiment from the bench, saying the Dixon case provides an “excellent example for the other cases the District has that can be resolved with the proper dedication and oversight.”

But observers of the other cases, which represent the ongoing consequences of an era of municipal mismanagement that is nearly two decades in the past, agree that none are as close to resolution as the Dixon case.

As the District’s attorney general from 2008 until last year, Nickles argued strenuously to end Dixon and the five other class actions that bear on the city’s delivery of services to the developmentally disabled, delinquent youths, special-education students and endangered children. In 2009, he filed motions in several cases claiming that a Supreme Court ruling compelled a rapid end to the various cases, but trial judges have received the argument coolly; an appeal is pending.

Nickles — now back at Covington, whose lawyers continue to handle the case — called the potential settlement “a moment in the District’s history to savor.”

“When Judge Hogan says, ‘I give my approval,’ you know you earned it,” he said.

Still, plaintiffs’ attorneys and mental health advocates broadly agree that the District’s mental health system, though functioning adequately, remains in need of improvement — particularly in the handling of children and youths.

Amber W. Harding, an attorney with the Washington Legal Clinic for the Homeless, said the system, for instance, needs to focus more on holding private providers of mental health services accountable.

“I would hope that D.C. wouldn’t think they are done, that they have succeeded in providing quality services to everyone who needs them,” Harding said. “I hope that this would be the floor, not the ceiling.”