Liposome-encapsulated Daunorubicin-Cytarabine and Gemtuzumab Ozogamicin in Treating Patients With Relapsed or Refractory Acute Myeloid Leukemia (AML) or High Risk Myelodysplastic Syndrome

Inclusion Criteria: * Diagnosis of CD33 positive (\>= 3%), relapsed refractory acute myeloid leukemia by World Health Organization (WHO) criteria. Patients with post-hypomethylating agent (post-HMA) failure high-risk myelodysplastic syndrome (MDS), as defined by the presence of \> 10% blasts, are also eligible. * Patients with MDS or chronic myelomonocytic leukemia (CMML) who received hypomethylating agent based-therapy for the MDS or CMML and progress to AML are eligible at the time of diagnosis of AML regardless of any prior therapy for MDS or CMML. The WHO classification will be used for AML. * Eastern Cooperative Oncology Group (ECOG) performance status score of =\< 2. * Total serum bilirubin =\< 2 x upper limit of normal (ULN). Patients with known Gilbert's syndrome may have a total bilirubin up to =\< 3 x ULN. * Serum creatinine =\< 2.0 mg/dl. * Alanine aminotransferase (ALT) and/or aspartate aminotransferase (AST) =\< 3 x ULN; =\< 5 x ULN in case of suspected leukemic liver involvement. * Females of childbearing potential must have a negative serum or urine beta human chorionic gonadotropin (b-HCG) pregnancy test result within 14 days prior to the first dose of study drugs and must agree to use one of the following effective contraception methods during the study and for 30 days following the last dose of study drug. Effective methods of birth control include: Birth control pills, shots, implants (placed under the skin by a health care provider) or patches (placed on …