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

In court papers filed Friday in U.S. Bankruptcy Court in Cleveland, AmTrust Financial Corp., the corporate parent of AmTrust Bank, asked a bankruptcy judge 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 says 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 but says the "mere threat" of it presents a "clear and substantial" obstacle to its ability to file a reorganization plan.

The company is asking Judge Pat E. Morgenstern-Clarren, the judge overseeing the parent's Chapter 11 case, to estimate the claim at $0.00 and to disallow it in its entirety.

The FDIC, which says 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.

The two sides intend to fight it out in court, but the details will remain behind closed doors. Morgenstern-Clarren on Friday said AmTrust can file under seal its request to disallow the FDIC's claim.

AmTrust Financial filed for Chapter 11 protection on Nov. 30, 2009. The company's bank unit and its 66 branches in Florida, Ohio and Arizona weren't part of the Chapter 11 filing.

But several days later, regulators seized the thrift and sold its assets to New York Community Bancorp Inc., and the FDIC was named receiver of the AmTrust Bank.

The seizure of its AmTrust's thrift represented one of the largest bank or financial company failures of last year. The parent company blamed its financial woes on the collapse of the real-estate bubble and the resulting downturns in housing and construction, which had battered its investments in land development and home loans.

Founded in Cleveland in 1889 and formerly known as Ohio Savings Financial Corp., AmTrust and its subsidiaries listed assets of $11.7 billion and debts of $11.5 billion in court papers. AmTrust, whose holdings also include interests in real estate and insurance, employed some 1,700 people.

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