State Attorney General Tom Corbett has quietly surrendered in a legal dispute that undermines Pennsylvania's ban on corporate campaign contributions.

In a U.S. District Court filing yesterday, Corbett agreed not to appeal a federal judge's ruling that a nonprofit corporation in Virginia acted legally in spending $1.2 million to promote a candidate for the state Supreme Court, Maureen Lally-Green, in November's general election.

Lally-Green lost the race, but a settlement that Corbett agreed to last summer remains in effect. It allows corporations and labor unions to spend whatever they want to boost the image of candidates, as long as their advertising avoids specific words like "elect" or "vote for."

Besides the damage to Pennsylvania's longtime ban on corporate and union campaign donations, taxpayers will also take a hit: Corbett agreed to pay $140,000 to help offset the legal bills of the Virginia nonprofit that challenged the state's campaign-finance laws.

The Virginia-based Center for Individual Freedom filed suit last summer, claiming that the state's ban on corporate donations violated its First Amendment rights.

Instead of fighting the case, Corbett agreed to a stipulated judgment - later signed by U.S. District Judge Anita B. Brody - that said the ban would apply only to spending that specifically urges election or defeat of a candidate.

In late October, the Virginia group paid for hundreds of 30-second television spots that praised Lally-Green for "protecting children" and "cracking down on violent criminals," but that never specifically mentioning the upcoming Supreme Court election in which Lally-Green was one of two Republican candidates.

Corbett claimed that the ads went too far, violating the earlier consent agreement. But Judge Brody ruled last month that the ads were fully consistent with the agreement. She ordered Corbett and the state's top election official, Commonwealth Secretary Pedro Cortes, to reimburse the Virginia group for its legal bills defending the ads.

The Virginia group has declined to identify where it got the money for the Lally-Green advertising.

Corbett, a Republican seeking re-election this year, did not return calls yesterday seeking comment.

His Democratic opponent, Northampton County District Attorney John Morganelli, has accused him of "eviscerating" the finance laws by mishandling the case.

A Department of State spokeswoman said yesterday that its attorneys decided that legislative changes to the law would be a better solution than a court appeal. *