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.

Few, if any, municipal bankruptcy cases have gone this far without big stakeholders settling, Jim Spiotto, an attorney with Chapman Strategic Advisors LLC in Chicago, said in an interview.

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