Erm. I'm still getting this bug, or something like it. I fought them in the bar, killed them, even got a journal note saying something about 'I can tell him that he doesn't need to worry about them'... but when I go to speak to him, I get the dialogue for the second fight, and Dana spawns again; only this time she's marked friendly and nothing initiates combat or allows quest progression. Talking to her she tells me not to feel sorry for him - even though he's still alive - and talking to him just takes dialogue back as if I'd never been to the inn.
Any advice? I've tried all the conversation options - including attempting to kill him myself - and the result is always the same - the thugs spawn with Dana, all as friendly NPCs and nothing happens and dialogue is in the wrong place.
Now, unfortunately, I started this quest a while back, as I tend to do quests area by area, and hadn't got back to the Gift in over 30 days, so it would be difficult to reload and make a different decision on the quest, but multiple attempts at reloading for this conversation have no luck.
EDIT: Found a way round it, if unsatisfying - I can steal from an item nearby while everyone is there to make the Valians attack me, thereby letting me kill him for a quest completion. However, despite the congratulations that Dana gives me - and a recommendation that sticks for getting a job from the House - my journal lists that both she and the man died in the warehouse, even if her brother seems to think otherwise.
Also means I get the pistol that I presume is the quest reward he's meant to give me. On the downside, no sign of the paladin, so no idea if I was meant to end up with her or not. Also took a hit to Defiance Bay reputation by stealing and getting caught. That and seriously crossed wires between my journal entry, what actually happened and the survivor's tales. Definately looks like it needs a little error solving.