Art captured Theo, so higher ups suspected Theo was trying to get revenge.

Theo however realized that this was an opportunity to get Picker, who killed his son Sammy, sent to jail where I'm assuming it would be easier to kill him (since the hitmen had come up empty so far.)

Picker then told Raylan what he had heard from Boyd, which was Daryl Jr. (Why Raylan would think Picker who'd been holed up and had little connection to the Harlan stuff would know anything is a little problematic.)

Daryl Jr. then had Kendall take the blame since he'd get just a few years in juvee while Daryl Jr. would get life or the death penalty.