Federal thrift regulators regained control of a struggling Kansas savings association yesterday after an appeals court temporarily blocked a lower court order forcing the government to return the thrift to its former owners.

A three-judge panel of the 10th Circuit Court of Appeals in Denver acted on an emergency request from the Office of Thrift Supervision, which had launched a massive legal defense of its authority to seize failing financial institutions.

On Wednesday, a federal judge in Topeka ruled that the OTS had acted "arbitrarily and capriciously" in taking over Franklin Savings and Loan of Ottawa, Kan., earlier this year.

Based on that order, Franklin founder Ernest Fleisher went back to his old office yesterday morning, but a few hours later he was ousted again as a result of the appeals court decision.

While the appeal was being mounted, regulators made certain Fleisher could do little to operate the S&L. OTS examiners and officials from the Federal Deposit Insurance Corp. had served Fleisher with a letter from OTS Director Timothy Ryan restricting his authority.

With the government running the thrift again, the appeals court will reopen the issue of whether the government has exceeded its authority.

The dispute involves not only the legal power of the OTS, but also accounting disputes over the health of the S&L.