A legal battle is brewing between the parent company of AmTrust Bank of Cleveland and the federal regulators who took over the failing thrift late last year.

AmTrust Financial Corp., the corporate parent of AmTrust Bank, asked a bankruptcy judge in court papers filed Friday in U.S. Bankruptcy Court in Cleveland to disallow the Federal Deposit Insurance Corp.'s $2.2 billion claim against it.

The FDIC, which has been acting as the receiver for AmTrust Bank, has been sparring with the family owned bank's parent since it took over the bank just days after the parent filed for bankruptcy protection. The FDIC said it has a $2.2 billion unsecured "priority claim" against the parent based on its failure to maintain minimum capital levels at the thrift. Debts owed to a government agency typically receive priority status under bankruptcy law.

AmTrust Financial disputes the validity of the FDIC's $2.2 billion priority claim and said the "mere threat" of it presents a "clear and substantial" obstacle to its ability to file a reorganization plan.

The FDIC, which said AmTrust Bank's failure will cost its deposit insurance fund about $2 billion, said AmTrust Financial's arguments "are completely without merit," in court papers filed Monday.

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