By STEPHEN BERNARD
Associated Press

NEW YORK - Morgan Stanley won a legal battle with former subsidiary Discover Financial Services over nearly $800 million Morgan Stanley says it was owed by the credit-card company.

New York state Supreme Court Justice Hon. Barbara Kapnick ruled last week that Discover Financial must pay Morgan Stanley a special dividend negotiated when Morgan Stanley spun off Discover in 2007.

At that time, the two agreed 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 that would interfere 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, and the roughly $785 million remaining was put in an escrow account pending the outcome of the lawsuit. That means that when Morgan Stanley receives the payment, as well as mounting interest, the sum will be added directly to its profit, since taxes were already paid on the money.

"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," said Morgan Stanley spokesman Mark Lake.

A spokeswoman for Discover, which is based in Riverwoods, Ill., said the company would appeal the judge's ruling. That could affect the timing of payment or nullify it if the appeal succeeds.

Discover is also continuing with a separate suit seeking damages from Morgan Stanley, claiming that the bank interfered with the settlement.