NEW YORK (AP) _ A three-man appeals panel issued a quick decision in the Chris Dudley case Thursday, upholding an earlier judgment that clears the way for a trade of the backup center to the New York Knicks.

Dudley will be sent to the Knicks from the Portland Trail Blazers, who reached an agreement with the player on a $1.13 million contract while he was a free agent and then traded him to the Knicks in a three-way deal also involving Toronto.

The Raptors will receive second-year forward John Wallace from New York, the Knicks will get the Raptors' first-round draft pick in 1998 and Portland will receive New York's No. 1 pick. Toronto also will send a second-round pick to Portland.

A snag developed late Thursday as Portland and New York argued whether the pick going to the Trail Blazers would be lottery protected. The teams wrangled over the phone for several hours and didn't resolve their differences, keeping kept the trade from being finalized until Friday at the earliest.

``We're ecstatic,'' NBA Players Association director Bill Hunter said after the appeal decision was announced. ``Clearly, the panel recognized there was little merit to the NBA's argument. The collective bargaining agreement clearly specifies that a sign-and-trade transaction involving a Larry Bird free agent is permissible.''

``We disagreed with the result, but we will obviously comply with the ruling of the appeals panel,'' NBA deputy commissioner Russ Granik said. ``This is an issue we will have to address in the next round of collective bargaining.''

At issue was whether Dudley, who opted out of a contract with three years and $13 million remaining on it and then re-signed with Portland after realizing he had misjudged the free agent market, could sign for a lower salary with the Trail Blazers, be traded to the Knicks and still retain his Larry Bird-exception rights.

The Bird rule gives players who play three or more years with the same team the ability to re-sign with their current team regardless of the salary cap. It would grant Dudley the right to secure a long-term deal with the Knicks after playing for a lower salary this season.

If Dudley had not retained his Bird rights, the Knicks _ who are over the salary cap _ would only have been allowed to give Dudley a 20 percent raise.

Arbitrator Kenneth Dam ruled in the union's favor after a three-day hearing Sept. 2-4. The NBA immediately appealed, leaving Dudley and Wallace in limbo.

No further appeals are permitted.

It was Dudley's second victory in an action against the NBA. Three years ago, when he first signed with Portland, the league challenged a one-year opt-out clause that allowed the Blazers to resign him at a much higher salary regardless of cap restrictions. The NBA fought that battle all the way through the courts but lost at each stop.

Dudley, who attended Thursday's appeal, had not reported to Portland's training camp. He did not show up at Nassau Coliseum on Thursday night as the Knicks lost their first exhibition game, 104-101 to Philadelphia.

Dudley, who averaged 3.9 points and 7.3 rebounds for Portland last season _ his 10th in the NBA _ will be the backup to Patrick Ewing.

``We always believed that we were doing everything by the book,'' Dudley said. ``While it was unfortunate we had to go through these drawn-out proceedings, we felt confident all along that our position would be vindicated. I am very relieved to have this ordeal behind me, and while I will miss the Blazers fans and Portland community, I look forward to pursuing a championship with the Knicks.''

Wallace, who got off to a fast start last season but was used sparingly thereafter, averaged 4.8 points and 2.3 rebounds. He was a first-round choice (18th overall) from Syracuse in the 1996 draft and had been practicing with the Knicks since camp opened Oct. 3.

Knicks coach Jeff Van Gundy informed Wallace of the panel's ruling during the afternoon.

``He made it clear that he wanted to be here in how he handled himself during his seven weeks in limbo, how much work he put in and what he said,'' Van Gundy said.

``John is one of the top players in the game finishing on the break, and the (Raptors) run more than we do. He's going to a good place for himself. They'll be able to play him through whatever mistakes he makes.''