Morgan Stanley (NYSE: MS) Wins Antitrust Legal Battle Against Discover (NYSE: DFS), Awarded Nearly $800 Million

Morgan Stanley (NYSE: MS) received a ruling from a New York state Supreme Court Justice on Wednesday awarding the bank nearly $800 million; ordering Discover Financial Services (NYSE: DFS) to pay what was deemed as Morgan’s portion of an antitrust settlement with Visa (NYSE: V) and MasterCard (NYSE: MA).

Discover Financial, formerly owned my Morgan Stanley until a 2007 spin-off, had agreed to share a large portion of any settlement awards with the bank that may have been gained in its antitrust suit against Visa and MasterCard. 

That antitrust suit claimed Visa and MasterCard blocked Discover, the fourth largest U.S. credit card issuer, from issuing cards with several banks that the two credit card giants do business with.

Discover received a ruling in its favor in October 2008 and eventually was awarded $2.75 billion in the case, of which Morgan Stanley was eligible for $1.2 billion.  However, Discover declined to payout Morgan Stanley, claiming it interfered in the antitrust settlement.

Morgan Stanley then filed suit with Discover for breach of contract. New York State Supreme Court Justice Barbara Kapnick ruled in favor of Morgan Stanley, stating that Discover must pay the bank a special dividend that was negotiated in a contract when it was spun off from Morgan Stanley as a stand-alone company.

Discover, after paying taxes on its antitrust award, put $785 million in an escrow account while the Morgan Stanley lawsuit was pending.  Morgan will receive the money in the escrow account, plus any interest earned on those funds, likely pushing the total near $800milllion.

The payout should have a direct positive impact to Morgan Stanley’s bottom line since taxes were already paid on those funds.

A separate lawsuit, where Discover is pursuing its claim of interference by Morgan Stanley in its antitrust settlement, is still outstanding.