Fair disclosure: I'm somewhat involved in this case (as are several of my colleagues in CA universities) as a party to an amicus brief on behalf of the plaintiffs. Therefore, what follows is (as always) my own analysis, rather than any neutral introduction to the case.
The story behind Valdivia is this: after lengthy litigation between parolees and the state regarding parolees' rights in parole revocation hearings, federal courts issued a consent decree, according to which the state consented to reform its procedures so as to grant parolees the right to a fair hearing, requiring probable cause, a speedy hearing within 35 days, the right to representation, and a larger array of intermediate sanctions.
Prop 9, adopted in 2008 under a title of victim rights, included some provisions that violate this consent decree. As you may recall, the proposition limited the cases in which legal counsel would be awarded to the indigent, as well as allowed for participation of more parties and relaxed evidentiary requirements for parole violations. Judge Karlton refused to implement these changes, arguing that they violate the prior consent decree, which was consistent with constitutional requirements. As a result, the victim-rights part was severed from the parole hearing limitations part, and Prop 9 came to life only partially.
The argument on behalf of the plaintiffs is, basically, that upholding Prop 9 in its entirety violates the minimum constitutional requirements for due process, the standards of which were the cornerstone for the consent decree. In addition, upholding Prop 9 will mean a disastrous return to the state's abysmal parole proceedings, generating more "revolving door" situations and exacerbating our severe overcrowding problem. Since the parole system has proven immune to every effort at reform save for compliance with court orders, rolling back these reforms will have terrible consequences.