Ernest Fleischer, an unassuming, bespectacled tax lawyer who took over a small Kansas thrift and grew it into the biggest savings institution in Kansas before the federal government took it over, has died. He was 89.
Fleischer had suffered the last few years from a degenerative neurological condition.
Fleischer was held in awe by other tax lawyers, who regarded him as one of the best tax practitioners in the country.
"He was absolutely brilliant," said Jason Reschly, a tax practitioner at Husch Blackwell who met Fleischer in 1981 when both worked at the Kansas City-based law firm Stinson Mag & Fizzell.
"Most people, when they attack problems, go through a linear path of thought and as they run into problems, they just try to get around that problem," Reschly said. "Ernie would go back to the beginning of the issue and see if there was a totally different approach to it that would give you a better answer."
Fleischer, who was also a CPA, joined Stinson Mag after graduating from Harvard Law School in 1959. He was a tax law partner there for three decades before becoming chairman of Franklin Savings Association, a sleepy savings and loan based in Ottawa, Kansas, that was founded in 1889.
Savings and loan career
Fleischer, who had acquired majority ownership of Franklin, built it into one of the nation’s fastest growing thrifts, boosting its assets from $400 million to $11.4 billion using sophisticated hedging strategies to guard against volatile interest-rate swings. At one point, Franklin was the 25th largest savings institution in the United States.
Fleischer devised the hedging techniques in conjunction with Wayne Angell, an economics professor at Ottawa University who later became a Federal Reserve governor. The idea was to avoid the fate of hundreds of savings and loans that failed after high interest rates caused their cost of money to exceed their rates of return.
Fleischer was viewed as a pioneer by many on Wall Street, and other savings and loans began to emulate his hedging strategies. Very few of Franklin’s assets consisted of home mortgages, the traditional bread and butter of savings and loans. Instead, Franklin invested primarily in mortgage-backed securities.
But with profits falling, Franklin began to look for other sources of income. In 1988, its parent company bought the stock brokerage L.F. Rothschild Holdings Inc. and the Houston-based brokerage Underwood Neuhaus & Company. Both acquisitions soured, and L.F. Rothschild sought Chapter 11 protection the following year.
Although Franklin had just reported a quarterly profit of $3 million, in February 1990 federal regulators took over Franklin after examiners forced it to make accounting changes that they said left it with a negative net worth. At the time, it was the biggest savings and loan ever taken over by the government.
In explaining the takeover, the Office of Thrift Supervision, the federal agency that oversaw savings and loans, said Franklin was unable to generate sufficient profits to cover the high interest rates it was paying to attract deposits.
Fleischer, who was not accused of wrongdoing, insisted Franklin was still a going concern. Two weeks before the government seized the thrift, Franklin had more than $388 million in capital, according to generally accepted accounting principles. But it began hemorrhaging red ink shortly after the government took it over.
For the next two decades or so, Fleischer waged a series of sometimes quixotic legal battles over what he viewed as the government’s unwarranted and capricious takeover of Franklin, winning some and losing others.
He won a stunning victory just months after the takeover when a federal judge ruled the seizure was illegal and restored control to Fleischer and Franklin’s other shareholders. But a federal appeals court reversed that decision, finding that the Office of Thrift Supervision was justified in seizing what the court described as “a high-flying, debt-laden, troubled savings and loan.”
Fleischer won another victory in 1995, when a court ruled that Franklin’s owners were entitled to $13 million in tax refunds. And he won a major court victory a year later when, in a lawsuit brought by the government, a federal jury found that Franklin’s business affairs had not been mismanaged and its directors and officers were not liable for $125 million in losses as the government had alleged.
But Fleischer’s lawsuit seeking hundreds of millions of dollars in damages for what he said was the wrongful seizure of Franklin was dismissed. The U.S. Supreme Court later declined to hear the case.
Intellect and integrity remembered
Kansas City lawyer Pete Smith, who represented Fleischer when Franklin’s parent company sought Chapter 11 protection in 1991, said, “The only thing that exceeded his intelligence was his honesty and integrity.”
The bankruptcy filing was prompted by a dispute with the government over who was entitled to the tax refund. It ended up being one of the longest bankruptcy proceedings in Kansas history, stretching out over 21 years. In the end, Fleischer won the right to keep the tax refund, which he used to fund the Franklin litigation and to pay creditors, who ended up getting 100 cents on the dollar.
“He was such a smart guy and unique,” Smith said. “He just approached everything differently than anyone else. When people would look at a situation, they’d see one thing and Ernie would see something different.”
Reschly, Fleischer's partner at both Stinson Mag and Husch Blackwell, said an estate planning lawyer who worked with Fleisher related that Fleisher had come up with a unique solution to a bedeviling tax problem. Some time later, the lawyer attended a seminar at which a lawyer with a big national firm discussed the brilliant idea he'd come up with for the same problem.
“And it was exactly what Ernie had suggested three years before,” Reschly said.
Smith said that when Fleisher took the witness stand, as he often did during the many legal proceedings following Franklin’s takeover, “the judges would sit up and lean forward and listen carefully because they just knew he was telling the truth. If something happened that made it sound better for us than it should have, Ernie would say, ‘No, that’s not right. We’re not entitled to that.’”
After Franklin was seized, Fleischer returned to practicing tax law and joined Husch Blackwell in Kansas City.
In an email to the firm’s employees on Thursday, Husch Blackwell’s managing partner, Jeff Simon, said: “After a life courageously lived, our former colleague and friend, Ernie Fleischer, passed away earlier this week. For those of us who knew Ernie, we will never forget him, his intellect, his fierce commitment to his clients, and his principled battles for justice.”
Family and friends
Ernest Fleischer was born in St. Louis, an only child. His father was in the textile business, but he was unable to join him in the business because he was colorblind. He studied at Washington University in St. Louis, where he earned three degrees in four years, including an MBA, before heading off to Harvard Law School.
One of his classmates and friends at Harvard was Marty Ginsburg, who, like Fleischer, went on to become one of the top tax practitioners in the country. Ginsburg married a woman named Ruth Bader, who went on to become a justice of the U.S. Supreme Court as Ruth Bader Ginsburg.
Fleischer met his wife-to-be, Barbara, on a blind date while working as a summer associate at Stinson Mag after his second year in law school. They married two months later, a union that lasted more than 63 years.
"Family came first and last with him," Chip Fleischer, his son, said in an email. "Nothing delighted him more, truly, than to have my sister or me, our spouses, his grandchildren or great grandchildren walk into the room. He was cerebral to be sure (from the time I was 16 or so onward, he said I was not obliged to take his advice or 'obey' him, but that he asked I listen to and seriously consider his input before deciding things for myself) but one felt unconditional love from him."
Chip Fleischer, who heads New Hampshire-based Steerforth Press, an independent publisher of narrative nonfiction books, said his father was more dismayed and disappointed than bitter over the seizure of Franklin Savings.
"He knew he could not read, cajole, glad-hand or pressure people so he relied on the truth of the matter, the demonstrable underlying economics, GAAP [generally accepted accounting principles] regulations and ultimately, the law, just as he had always done in representing clients on tax matters," Chip Fleischer said.
"He never once lost sight of the fact that in the U.S. we have the right to challenge the government in court and, win or lose, resolve matters peacefully. He was grateful for what he had and where he lived. I never heard him use the popular term 'first world problem' but that's essentially how he regarded the Franklin situation, as unjust and factually wrong as it may have been."
Ernest Fleischer is survived by his wife; two children, Pam and Chip; three grandchildren; and three great-grandchildren.
An obituary on the Louis Memorial Chapel website said that finance and tax law were his passion. It added, “Dogs, wood-burning fireplaces and baseball brought him joy.”
