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You ought to check out "LA Confidential" by James Ellroy. He used a lot of real people in this fictional novel (Mickey Cohen, Johnny Stompanatto-- I know I spelled that wrong-- etc). It's been years since I read the book, so I don't remember how he went about researching it (or if he even put that in the book), but if you could find the particulars, that'd probably fill you in on how far you can go in using real people in stories.
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"Strange things are afoot at the Circle K..."
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