For this specific case, I agree 100%. If a question is a duplicate of something, then "Too Localized" would not seem to apply as it is helpful to someone else. That being said, if there is no bug here as the system is working as designed. You can close a question as a duplicate regardless of the closed status of the question.
This would seem to be more of a feature-request since you want to change how the system works.
Making a specific rule to prevent "Too Localized" questions from being the duplicate target would be a waste of time since "Too Localized" has been depreciated, although we do have a similar custom close reason now. If you encounter one, it is best just to leave a comment as to why you think it should be reopened, and then vote to reopen (if you have the privileges) or flag the post to reopen it.
But in a broader sense, even though questions are closed, they can still have value so preventing duplicate closure of closed question is not appropriate. There are a number of closed questions with good answers. There is also often good feedback in the comments as to why the question is closed and/or suggestions on how to resolve the problem.
So closing new questions as duplicates of closed questions can help point users to specific solutions that already exist. This is the entire point of duplicates. Likewise, questions can be closed for another reason after being the target of a duplicate closure, so any prohibition would end up failing here unless you prevent closure to begin with.
The real issue is closing a question as a duplicate of any question that does not have an answer (regardless of whether it is closed or not) and fortunately the system now requires a question to have an up-voted or accepted answer before it can be used as the target of a duplicate question.1
This was not always the case though, so if you do see a question closed as a duplicate of an unanswered question, especially a closed unanswered question, you should flag the question to get reopened and closed as a better duplicate or closed for the appropriate reason.
1 - Meta sites are exempt from this requirement because duplicates are often used to prevent multiple unresolved bug reports or duplicate feature requests from splitting the discussion.