The story begins where The Hostile Hospital left off, with the three Baudelaires still hiding in the trunk of Count Olaf's car, listening to Count Olaf and his troupe discuss their plans. They talk about a woman named Madame Lulu. Madame Lulu has told Count Olaf where the Baudelaires are hidden each time they move. Count Olaf and his troupe depart the car and the Baudelaire then make it out of the trunk of Count Olaf's car through some clever lockpicking on the part of Violet Baudelaire. The orphans spy on Madame Lulu's caravan in Caligari Carnival and hear her explaining to Olaf that her carnival needs more customers otherwise they may close. They also recognize Lulu's accent as that used by Olaf when he was disguised as Gunther in The Ersatz Elevator. Madame Lulu is Count Olaf's bartende