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My thoughts are that the boy needs to keep his mouth shut, focus on his grades and staying out of trouble, and learn that some words aren't socially acceptable. What do you all think?

Yes, he needs to learn a lesson. (But I'm glad that he's just getting a stern talking to and modest fine for it. Name calling is stupid, but not worth going to jail over.) If it was one of my daughters calling someone a name like that, they'd be in a lot of trouble with me as well.
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