The Baudelaire children now live with their eccentric Aunt Josephine. Residing on a hill looking over Lake Lachrymose, Aunt Josephine has a penchant for grammar but fears everything else. The family goes grocery shopping one day and encounter Captain Sham, who, you've guessed it, turns out to be Count Olaf.
Threatened by the villainous actor, Aunt Josephine fakes her own death, leaving the children a letter full of grammar mistakes. The note states that she has jumped into the lake and will leave them in the care of Captain Sham. Klaus eventually discerns a hidden message in the note: Curdled Cave. Josephine is hiding there. The children manage to reach her hiding place after surviving a turbulent storm. Unfortunately, Josephine gets eaten alive by the Lachrymose Leeches on their journey back when they encounter Count Olaf. Sunny later proves to Mr. Poe that Captain Sham is actually Olaf by biting off his fake peg leg.