Mellon Bank Corp. agreed last week to settle a lawsuit brought against its former technology chief, Bipin C. Shah, charging the executive had stolen trade secrets and improperly recruited bank employees.

Separately, the bank said it has decided not to seek a replacement for Mr. Shah.

Instead, Mellon is dismantling the technology products and services division that Mr. Shah headed, largely dividing it along operations and business lines.

Mr. Shah resigned from the bank July 27 to set up Transaction Processing Inc. with about $200 million in venture capital from Chicago-based firm Golder Thoma & Cressey.

The venture is aimed at acquiring and running networks of automated teller machines and point-of-sale terminals and would compete with one of Mellon's more profitable lines of business.

Mellon filed its charges Aug. 26, after four of its employees left the bank to join Mr. Shah in the new venture. The bank accused Mr. Shah of negotiating to set up his company while still employed at Mellon, improperly luring away Mellon employees, and using proprietary information to market the new firm.

Under the settlement, Mellon agreed to dismiss its charges, and Mr. Shah and the other former bank employee named in the suit did not admit to any wrongdoing.

Mr. Shah agreed not to use confidential information derived from Mellon, not to take any current customers away from the bank, and not to hire any more Mellon employees.

Both sides agreed not to disclose whether Mellon received any financial remuneration as part of the settlement.

"Isn't this great?" said Mr. Shah. "Now we can concentrate on building the business."

Mr. Shah said he has hired eight employees, including the four from Mellon, all working on network acquisitions.

He is widely perceived as a network services visionary, having spent many years helping to build the Mac network business at CoreStates Financial Corp. into a powerhouse.

A |Subtle Reorganization'

Mellon outlined its organizational changes in a newsletter circulated internally. In the new chart, cash management and a group devoted to new products and market research will report directly to vice chairman W. Keith Smith.

Other more technology-intensive units - such as the data center; new software development; and network services, which includes teller machine operations and merchant payments - now report to Allan Woods, an executive vice president and head of the financial institution services group.

"This is really a fairly subtle reorganization, each of the businesses involved has always been managed on a standalone basis," Mr. Smith said. "It's just a matter of them being grouped a bit differently. It's my job to insure the overall cohesiveness of the various units."

Since the resignation of the veteran technologist George P. DiNardo in December 1990, Mellon has been without a chief technology officer, except for two brief periods.

Between August and October 1991, Keith P. Russell headed the technology division before being promoted to head of the credit policy division. And Mr. Shah headed the technology organization for the five months from March to July of this year.

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