ABC, which once faced the prospect of paying $5.5 million in damages over its undercover probe of Food Lion supermarkets, yesterday saw the verdict slashed to a mere $2.

A federal appeals court in Richmond overturned a jury's finding that ABC had committed fraud when it sent two producers to work as deli clerks for an expose on the supermarket chain allegedly selling moldy kielbasa and other spoiled food. A North Carolina trial judge had already reduced the jury's award to $315,000, which the appellate judges threw out in a 2-1 ruling.

"This case has been the poster child for whether or not these kinds of claims are viable," Washington attorney Lee Levine told The Post's Howard Kurtz. "The result is going to be that these cases are worth two dollars."

The court upheld a conviction for trespassing and breach of loyalty against the two network producers, Lynne Dale and Susan Barnett, who acknowledged concealing their ABC connection while applying for the supermarket jobs. But those damages were set at $1 apiece.

ABC News President David Westin called the ruling "a victory for the American tradition of investigative journalism." While Food Lion spent millions on "legal fees and public relations offensives," he said in a statement, the decision shows "that the First Amendment continues to protect investigative journalists from attempts to intimidate them through threats of outlandish damage claims."

In a prepared statement, Food Lion said it was "disappointed that the 4th Circuit Court of Appeals did not affirm the decision in Food Lion's favor in its entirety." However, it noted that "the court did recognize that ABC's manipulative and illegal tactics caused unwarranted damage to our company and our employees." Food Lion said it is reviewing the court's decision with its lawyers.

The lawsuit over the 1992 "PrimeTime Live" story sparked a national debate on the use of hidden cameras and deception in newsmagazine investigations. The producers used miniature cameras, in one case hidden in a bra, to record the allegedly unsanitary practices. While Food Lion disputed the allegations, it did not sue for libel, choosing instead to focus on the deception. At the trial, the company played video outtakes that it claimed showed the producers orchestrating the story.

In yesterday's ruling, Judge M. Blaine Michael said there was no question that ABC had used deceptive practices. "However, the deception . . . did not harm the consuming public. Presumably, ABC intended to benefit the consuming public by letting it know about Food Lion's food handling practices. . . . Moreover, ABC was not competing with Food Lion, and it did not have any actual or potential business relationship with the grocery chain."

But Judge Paul Niemeyer argued in dissent that ABC had committed fraud, saying "the reporters contributed to the damage. For example, when Barnett saw food that she suspected to be out of date, she sold it to her camera crew rather than throw it away."

Payback time.

The Fox series "Action"--recipient of virtue czar Bill Bennett's Silver Sewer Award--is coming to Washington.

The Hollywood spoof, beloved by critics, features language and situations that until now have been found only on cable programs. As such, it has become this season's lightning rod for inside-the-Beltway stumping about what's wrong with TV--and with America--these days.

In tonight's episode, "Mr. Dragon Goes to Washington," we see hotshot action movie producer Peter Dragon (played by Jay Mohr) defending the violent content of his movies at a Senate committee hearing.

"He's testifying and trying to do the normal dog-and-pony show, saying we in the media are aware of the problems and want to try to address them," explained show creator Chris Thompson.

But when the senator who heads up the committee browbeats him, Dragon loses his cool and "spews some fairly offensive rhetoric," Thompson offered.

Like what? asked The TV Column.

"He essentially calls them hypocrites and whores and excoriates them about what they're doing," Thompson said.

We pressed for more details.

"He says he may have produced some bad movies, but his guns are fake, he's never vetoed a gun control bill, never subsidized tobacco farmers while cutting food programs for inner-city kids, never sent troops to Kuwait but not to black Africa because big oil companies do not have any interests in black Africa."

Lest you think this episode is a one-sided affair, even more time is devoted to doing what the show usually does--skewering the entertainment industry. Thompson goes after Hollywood's efforts to cleanse itself through charities and carefully staged do-gooder photo-ops.

To atone for his antics in our nation's capital, Dragon's studio boss makes him start a camp for children with German measles. He's also forced to attend a charity auction and winds up buying Mary Tyler Moore's corn holders for thousands of dollars. He catches on to the game, when, after getting mugged in a parking lot by an assailant who turns out to be funny, Dragon hires the mugger and starts a camp for inner-city screenwriters.

Thompson insists that he had planned to do this episode all along and that having the Silver Sewer Award bestowed on his show by Bennett and Sen. Joseph Lieberman (D-Conn.) had nothing to do with it. Bennett, former education secretary and now head of conservative think tank Empower America, and Lieberman concocted the award in 1998 to identify "the nation's worst cultural polluters."

But, Thompson confesses, "I could never understand why Bill Bennett hates my show, since they're saying Hollywood is a bunch of self-involved vipers out to make a buck off the American public, and I'm saying the same thing. We're on the same side!

"But sometimes satire is lost on the self-important," Thompson sniped.

Fans of ABC's "The Practice": WJLA will air the missing episode--the one that got bumped for sports coverage last weekend--at 1:05 a.m. this Saturday. So stay up late tomorrow night, or learn how to program your VCR between now and then.

CAPTION: Illeana Douglas, Jay Mohr and Jack Plotnick of Fox's "Action," in a episode about Beltway bandits.