06 Jan 2010
Jan. 6 (Bloomberg) -- Morgan Stanley won a partial judgment in a New York state court lawsuit over its separation agreement with Discover Financial Services, which the bank spun off in 2007.New York Supreme Court Justice Barbara Kapnick in Manhattan ruled yesterday that Discover couldn't escape its obligation under the agreement with Morgan Stanley to pay a special dividend from a lawsuit settlement. Discover's allegation that Morgan Stanley breached the contract wasn't grounds for setting aside that obligation, the judge said.
"Discover has made no showing, nor is there any evidence in the record to suggest, that Morgan Stanley's alleged breach goes to the ‘root' or ‘essence' of the separation agreement or otherwise deprived Discover of the benefit of its bargain," Kapnick said in her ruling.
Under the separation agreement, Discover was to pay the first $700 million recovered from a lawsuit against Visa Inc. and MasterCard Inc. to Morgan Stanley. The New York-based bank was also to receive half of any settlement proceeds above $1.5 billion, up to a maximum of $1.5 billion, according to regulatory filings. Visa and MasterCard said in October 2008 that they would pay $2.75 billion to settle the lawsuit accusing them of blocking banks from issuing Discover cards.
Morgan Stanley sued, claiming it was owed $1.2 billion from the settlement.
Morgan ‘Pleased'
"We are pleased with the court's opinion, which confirms that Discover is in breach of contract and that there was never any basis for Discover to withhold payment to us," Mark Lake, a Morgan Stanley spokesman, said yesterday in an e-mail.
Other claims remain in the suit against Riverwoods, Illinois-based Discover.
Discover lawyer John Kenney, of the New York-based law firm Houget Newman Regal & Kenney LLP, didn't immediately return a voice-mail message seeking comment after regular business hours.
The case is Morgan Stanley v. Discover Financial Services, 603017/08, Supreme Court of the State of New York, County of New York (Manhattan).
