In a flashback to 1991, we meet Henry's old detective partner, Lou Gamble, whom teenage Shawn convinces to tell the story of the missing girl named Veronica Towne the SBPD are investigating. She was last seen by the place she used to work, a lounge called The Blue Derby. She was wearing a red dress and a gold necklace with her initials on it. They think her killer is her boss at The Blue Derby, Jordon Beaumont.
We then come up on present day at a crime scene where the SBPD, Shawn and Gus are investigating the dead body of a 70 year-old man at a local construction site. In the distance, Shawn notices a worker digging and sees that another dead body is being unintentionally unearthed. He takes a closer look and immediately determines that body matches the same exact description of the woman that went missing back in 1991, the same woman that Lou described to Shawn in the flashback. From this, Shawn determines that the woman who went missing in 1991, Veronica Towne, is the same woman who was just found dead at this crime scene.
Woody determines that the body does indeed belong to Veronica and that she was strangled. From this, Henry predicts that the culprit must have been Veronica's hotheaded boyfriend at the time, Jordan Beaumont. In fact, she was last seen arguing with him in front of The Blue Derby. He goes on to tell the group that he and his late partner Lou were detectives on the case twenty years ago. He also tells them they never got enough evidence to arrest him and the case has gone unsolved all these years.
Woody figures out from his report that the body of the 70 year-old man found at the same site belonged to Ellis Beaumont, father to Jordan, Veronica's ex-boyfriend. The SBPD now believe that it was Jordan who killed both Veronica and his father Ellis. Henry gets approval from Vick to be detective on this case, as he desperately wants to finish solving what he and Lou never got the chance to.
Shawn, Gus, and Henry show up at the Beaumont estate, where Jordan is currently living, to get some answers. Jordan tells them that he didn't kill Ellis or Veronica and that he has an alibi. He says he was with the woman he is dating, Thea Summers.
They then go to meet Thea, who is staying at the Beaumont's hotel property and who bears a striking resemblance to Veronica. From this meeting, Shawn determines that Jordan's alibi isn't as solid as he thought it was. Jordan arrived at the hotel to see Thea at 9 PM and the murder took place 6 PM. However, Shawn's doubts about Jordan are overshadowed by the fact that it was just discovered that Lou's DNA was found on Veronica's body.
From there, Henry, Gus, and Shawn pay a visit to Lou's widow Bea. She eventually admits that she received threatening phone calls from a mysterious man with a deep, raspy voice. She also admits that she received a strange envelope containing candid photos taken of her and reveals that Lou had taken a second job working security at The Blue Derby.
They go to The Blue Derby and meet Ida Lane, who immediately recognizes Henry. Ida tells the guys that she barely knew Veronica because she was never there and was always getting special treatment from the owner, like taking 6 months off and returning to her shifts like nothing happened. The last time Ida saw Veronica, she crying hysterically saying things like, "I will not do this alone!"
Then our guys discover that The Blue Derby wasn't just a lounge, that it was actually a place where they made crack cocaine, and that Lou may have been in on it.
They return to the SBPD to tell Karen that Ellis was using The Blue Derby to make crack. They decide to bring Jordan back in for questioning. Just then, Shawn gets a call from a mysterious man telling him to stay far away from the Towne case.
Shawn and Gus visit Woody and learn that he discovered Veronica had given birth three months before her death. From this, Shawn believes that it was Jordan who impregnated Veronica, sent her away, and when she returned wanting more, he killed her and had the cops cover it up.
Then Shawn and Gus discover a manila envelope containing candid shots of Juliet much like the ones they saw of Bea. They immediately head to see if Jules in danger. Juliet is OK, but Shawn goes on to explain the photos and the strange phone calls he has been receiving. Juliet is instructed to stay home under police protection until Jordan is caught.
Henry finds out that Jordan was married to Ida for a short time in the 90's, so they go to Ida to press her about Jordan. Ida explains they broke up because she wanted kids and Jordan literally could not produce them, as he was and still is sterile. From this they determine that Jordan could not have been the one who impregnated Veronica.
Just then, Shawn remembers he saw a business card for an OBGYN found in Veronica's belongings that has now been noted as evidence. They go to the OBGYN's home and find out that he did in fact deliver Veronica's baby, but didn't know who the father was. The only thing he knows is that the baby was named Dahlia Towne.
After Gus drops Shawn off, Shawn is immediately accosted by a man in a ski mask. He gets knocked out, but is OK the next morning.
Shawn and Gus show up at Thea's room at The Beaumont Hotel demanding to know where Jordan is. It turns out Jordan is there in Thea's room. They question him, but Jordan denies ever trying to threaten Shawn. It wasn't Jordan who accosted him in a ski mask the night before.
Just then Shawn gets another mysterious threatening call. Lassiter, who had a tap on Shawn's phone, calls Shawn immediately after and tells him that they traced the mysterious call back to a payphone two blocks from where Shawn is. Shawn and Gus are able to make it to the payphone in time to see that the same person who made the calls and who is currently fleeing the scene, is Jack Atwater, another one of Henry's former co-workers who was on the Veronica Towne case years ago.
Jack is brought into the station for questioning and admits to taking part in the drug scheme at The Blue Derby, along with Lou who was hesitant at first to participate. He goes on to tell them that Ellis called them and told them there had been an "accident with one of the Blue Derby waitresses" and that if they didn't play a part in covering up her death, Ellis would expose the fact that members of the SBPD were taking bribes. Lou was the one that hid the body, but felt guilty about the whole matter and threatened coming clean about the whole thing. But even after all of that, Jack still vehemently denies killing Ellis. Suddenly, Shawn notices in Ellis's file that he was colorblind. This prompts Shawn to flashback to a moment that makes it clear that Thea is colorblind as well.
From this, Shawn discovers that Thea is actually Veronica and Ellis's daughter, who was adopted after Veronica was killed. Her adoptive parents changed her name from Dahlia to Thea. And Jordan is actually Thea's brother.
Shawn and Gus pay a visit to Thea who is in the midst of leaving town. Jordan is there too, pleading with her not to leave. Shawn does the case breakdown right then and there and tells Thea and Jordan that Ellis (who was married at the time) impregnated Veronica, sent her away to have the kid, and when Veronica returned after giving birth wanting more from Ellis, he choked Veronica, paid off the cops to cover it up, and sent Thea off to live with her adoptive parents. But years later, Thea's adoptive parents told her the truth about her real mother that went missing 20 years ago, and shortly after, Thea moved to Santa Barbara to investigate for herself. And when Thea discovered the culprit was Ellis, she had him bring her to the same site where he killed her mother and shot him in cold blood. Thea is then arrested and placed into police custody.
The next day, Henry turns in his gun to Chief Vick, telling her that he is through with police work, as this news about Lou and Jack really shook him. He also tells Shawn that he wants to take time away from The SBPD to spend more time with Shawn. Henry offers to grab a beer together. Shawn agrees, but Henry says there's an old friend he needs to visit first and that he will meet up with Shawn after.
Henry shows up to chat with another former fellow cop from 1991, Jerry Carp, who was also on the Veronica Towne case. Henry laments about everything that went down with Lou and Jack. Then suddenly, Jerry slips and accidentally admits he was a part of the police cover up about Veronica, as well.
Back at the SBPD, Shawn realizes that the old friend Henry has gone to see is Jerry after he sees a file saying Jerry was also part of the police cover up. Shawn's face drops, and immediately races out to find Henry.
Unfortunately it's too late, as Jerry has already pulled a gun on Henry and shoots him point blank.
The gallery for Santabarbaratown can be found here.
- There are clear and deliberate echoes throughout of the 1974 Jack Nicholson movie Chinatown, culminating in Gus "Forget it, Shawn. It's just Santa Barbara." line.