May 12 (Bloomberg) — Stockton, the bankrupt California city seeking to resolve $1.18 billion in claims, is in the rare position of fighting a creditor in court to win approval of its debt-cutting plan, a dispute that may presage a much larger battle coming to Detroit.

The city is set to begin a four-day hearing today in Sacramento to win approval of a plan that pays two Franklin Resources Inc. funds only 1 percent of the $35 million they are owed. Franklin says it’s being unfairly targeted, as other creditors are due to collect anywhere from half to all of what they are owed.

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