Discover Financial Services said on Friday that it paid Morgan Stanley $775 million to settle a dispute over the proceeds from an antitrust lawsuit filed before Morgan Stanley spun off Discover in 2007.
The settlement, which Discover disclosed in a Securities and Exchange Commission filing, comes after a New York state Supreme Court justice ruled early last month that Discover had to pay Morgan Stanley a special dividend negotiated when the credit card company was spun off.
A the time of the June 2007 spinoff, Discover agreed with Morgan Stanley to share money received from an antitrust lawsuit Discover had pending against Visa Inc. and MasterCard Inc. Discover settled the antitrust case for $2.75 billion, of which Morgan Stanley was entitled to $1.2 billion.
However, Discover declined to pay Morgan Stanley, claiming it interfered in the Visa and MasterCard settlement. Morgan Stanley, which is based in New York, then sued Discover in a New York court for breach of contract.
Discover paid the taxes on the settlement money, which was put in an escrow account pending the outcome of the lawsuit. That means the settlement will be added directly to Morgan Stanley's profit since taxes were already paid on the money.
Discover, based in Riverwoods, Ill., said the $775 million that it paid satisfies its obligations under the settlement. After last month's ruling by New York State Supreme Court Justice Barbara Kapnick, Discover had said it would appeal.
Shares of Discover fell 9 cents to $12.95 in midday trading Friday while Morgan Stanley shares slipped 8 cents to $27.04.
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