After a criminal named Sergei Czarsky has his court case thrown out because of a critical error Shawn made while investigating him, all of SBPD is furious with Shawn. When Internal Fairs makes it a point to hold SBPD accountable for their mistake, everyone's job is in jeopardy. Shawn plays it off like it's no big deal, but Gus and Henry see otherwise. Vick then places Shawn on suspension, and makes the difficult decision to fire Henry. As a result, Henry and Shawn have a huge falling out that subsequently causes Shawn to have a series of "It's Wonderful Life"-type dream sequences in which Shawn sees what life would have been like for our characters had he never come back to Santa Barbara.
Actor Tony Cox, as himself, plays Shawn's comically apathetic guide in the dream sequences. Cox first takes Shawn to see what his parents are up to. Shawn is shocked to learn that Henry is living in squalor, and his mother is married to a Moroccan Prince. Then Cox takes Shawn to see Gus — who, much to Shawn's surprise — is married to an overbearing woman with kids who are ungrateful and want nothing to do with him. Next, Cox takes Shawn to see SBPD, where Lassiter is the chief of police and runs the station like a militarized precinct. Shawn then realizes Juliet isn't there, so Cox takes him to where she is — policing the mean streets of Miami. In each of these dream sequences, Shawn subconsciously pictures our characters speaking about the Czarsky case and later uses this info for clues.
After he awakens, Shawn remembers that when he broke into Czarky's headquarters, he was almost positive he avoided all the security cameras... yet the defense has surveillance video of him. This convinces Shawn that he has to retrace his steps on the case. Shawn recruits Gus after some heavy convincing, and Shawn tells Gus that he believes the surveillance footage was shot from across the street, and not from a camera in Czarsky's headquarters. Instead of going at it alone, Shawn decides to play it by-the-book this time. Shawn and Gus convince Lassie to accompany them to the apartment across the street, where they notice a strong chemical smell coming from the door. This gives the SBPD legal cause to enter without a warrant. Inside, they see the surveillance photos of Czarsky and his men in the building Shawn was caught in. Lassie finds the makings of a homemade bomb, and Shawn checks the phone records and sees there have been many calls made to Dade County in Florida — a place where Czarsky has known dealings. This bit of info leads them to get Jules involved. She tells them that "Tacos del Carmen," a place where Czarsky had dealings, burned to the ground recently and it was owned by a man named Juan — a name that Shawn had deduced belongs to the owner of the apartment.
While interrogating Juan, Shawn learns that Juan's business was part of a long line of small businesses Czarsky had been extorting for money and that Carmen was Juan's fiancé who ended up dying in the fire that Czarsky set off. They end up breaking Juan down and get him to admit he planned on using a bomb to kill Sergei, in revenge for killing his fiancé. It is set to go off in exactly 24 minutes. Shawn tries to convince Juan that he still has a chance to make the right choice and let the SBPD handle Czarsky. The police reluctantly save Czarsky from getting blown up. Shawn seizes the moment to make an emotional plea to the neighborhood residents who've gathered at the scene. He knows they are terrified of Czarsky, so he and Juan encourage them to take a stand now or they could suffer the same fate as Juan's fiancé. Suddenly other small business owners that Czarsky extorted step forward and say that they will testify against him in court. This is exactly what SBPD needed to get Czarsky behind bars.
Shawn is proud of himself for solving this case the honest, straightforward, (legal) way. But most of all, he's happy to make amends with Henry, and regain his respect from the rest of SBPD.