To have meaning or not to have meaning
Deciding such matters isn't easy. At the end of the day, though, California's court settlement is the right one. If high school diplomas are to have any integrity, if they are to represent that their possessors have acquired the minimum academic skills necessary for work, then all recipients must demonstrate that they can read and do math at a basic level.
It is no doubt difficult to deny diplomas to special education students who have put in gobs of time and effort to work their way through the grades. Certainly such pupils deserve something for their efforts (a certificate of completion, perhaps). But the bottom line (where one necessarily finds himself after doing the relevant syllogisms) is this: Any senior who cannot pass California's exit exam???which can be retaken indefinitely, beyond graduation, and on which the receipt of passing scores requires only the most basic knowledge and skills???is unprepared to competently fill most work positions in a modern economy. The signaling of work-related competency is, supposedly, what high school diplomas are meant for.