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(The complete setup for this game can be found here: lsat/viewtopic.php?t=16406)
The correct answer choice is (D)
If L is in group 2, then from the contrapositive of the third rule H must be in group 2. Due to space restrictions, F and J must be in group 1, leaving K and N to form another dual-option:
The problem is still tricky because the dual-options are not completely free to rotate. The fourth rule affects both G and N, and assigning K and M—the remainder in each dual-option—to group 1 forces G and N into group 2 together, a violation of the fourth rule. Hence, answer choice (D) is correct.
Note that answer choice (B) is possible because G and N can be in group 1 together; the fourth rule just prohibits them from being in group 2 together, as discussed in the setup.