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Well what the cops did was illegal in your situation. Although they had probably cause to look around, they had no right to demand people to leave or to say they would take your car. It is a clear case of harrasment as well as having your civil rights violated.
The problem is that the police really have no checks and balances. You can take them to court and they will just lie through their teeth and say it never happened. It sucks, but it's the society we live in.
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