A federal appeals court has backed Dominion Federal Savings & Loan in its dispute with a former Washington builder who claimed the McLean thrift institution reneged on an agreement to fund a Florida retirement community.

A three-judge panel of the U.S. Court of Appeals in Richmond earlier this month overturned a lower-court decision assessing Dominion $250,000 in punitive damages for breaching its fiduciary duty to help Gerard M. LaVay finance the Savannah Club project.

The court ruled that punitive damages were barred because of Virginia's one-year statute of limitations for personal actions.

LaVay filed his lawsuit against Dominion in 1985, more than a year after he was notified of potential violations by Dominion, the court said.

The court did not consider the $1,000 in compensatory damages awarded LaVay.

The case originated in 1983 when LaVay sought a loan of about $13 million from Dominion to purchase 883 acres of property in Florida and develop a mobile-home retirement complex.

LaVay paid Dominion a $15,000 fee for a letter of commitment to fund the project and $5,000 to an appraisal company to appraise the project.

Negotiations subsequently broke down, however, and LaVay accused Dominion of breaking its agreement.

Dominion said it withdrew from the project when it received a report from its own appraisal company that the project was worth only $10.9 million -- not enough to support the $13 million loan.

After a trial last year, a jury awarded LaVay $861,000 in damages, although the U.S. District Court in Alexandria and the appeals court have now reduced the award to $1,000. Both LaVay and Dominion had no comment last wee