Bad Experience as DM, AITA?

Changing some details and using dummy account, to protect my table's privacy. Sorry for the long post.

A couple days ago I was DM'ing for a group of 4 players and while it started off as a solid night of gaming, it ended in a really frustrating way and one of my players complaining that it was bad situation caused by several NPCs overreacting. I was adament it was all player choices and the world was reacting appropriately

Going back a bit to explain a bit of the relevant situation/story. A couple weeks back in-game (a few months irl) the party just arrived in a heavily militarized, capital city, and a couple of the PCs pick an (so far only verbal) argument with an npc and try to intimidate/physically threaten them. It goes poorly and the npc calls for the guards. I had recieved some DM advice in the past on dealing with players who instantly start breaking laws in town and/or antagonizing the guards/law. Instead of having the guards being a faceless force that only show up to hamper the party's "ingenious" plans in town, make an interesting NPC lieutenant or captain to give them a face they can interact with and potential quest giver/story hook. I chose this moment to introduce Lieutenant Dan. A troll who made it to a captain thanks to his headband of intellect. The players are initially quite antagonistic to him in this interaction, but eventually make some apologies and get some good persuasion checks. I characterized Lieutenant Dan as being very principled, so he ignores their initial bad attitude, and lets them off if they simply pay the npc they threatened.

As the sessions go on for a while the party gradually starts being friendlier and more cooperative with Lieutenant Dan, and he pays them for a couple of quests. They aren't particularly buddy-buddy with him, but he is one of the very few npc's they have a working relationship with. They have one other npc that most of the party is friendly with, a wizard and former adventurer named Caralax who hires the party on occasion for the less plot relevant/fetch quests. Through their interactions and quests they have been given, they have been shown evidence that the city guard of this militarized city is quite capable, with Lieutenant Dan in particular being quite powerful and above what the party could hope to fight at their current level (6). As well as by the spells they have seen Caralax cast, he is at least twice their current level.

As I mentioned, most of the party is quite friendly with Caralax and he is one of their few allies and sources of jobs in town (the empire attracting many high tier mercenaries and bounty hunters to town that are stiff competition to adventurers). The exception is the party's wizard, Daron. He has outright told Caralax he doesn't like him, but had intentionally been trying to act friendly to him lately. Another party member, the rogue Slick, recently made a deal with Caralax to help him make a magic device to help with a problem from Slick's backstory. They agree to do a couple of quests in exchange and Caralax says it will take a few days to create the magic device.

Party comes back the next day to report they completed the first quest. Caralax tells them the 2nd quest is he has dangerous items he needs delivered to a client. They ask him where they need to go and tells them to follow him, walking out the front door of his house. Daron shouts "He better not just be walking us to the place we need to go. Why would he send us on this job if he was going himself? He should be working on our device," not following (he is just leading them to the cart to put the goods on, but party doesn't know that). Meanwhile Slick follows Caralax and offers him a bottle of wine (he has a wine collection they've seen and is a bit of a drinker).

Daron then comes outside and sees Caralax holding the bottle in hand. He is angry that he is day drinking and declares he is going to make a nonlethal attack with his dagger at Caralax. "Are you sure about this?" Daron commits, saying he'll knock him unconscious and they'll make up afterwards. I call for initiative and Daron ends up going first. He misses his attack. The sorcerer and fighter grabbing Daron and want to pull him away. Slick says he just watches. Caralax starts casting a spell and I ask for a save from Daron, he passes with a very high roll. Daron asks if he can determine what spell was just cast and I allow an arcana check, he rolls terrible and doesn't figure it out (it was hold person).

Daron declares that Caralax just made a huge mistake and summons some creatures to attack. "Stop, think, are you sure you want to do this? This is a big escalation of the situation." He replies, claiming Caralax already escalating things to casting magic. He specifies the summons are all using melee attacks, and so can command them to only attack non-lethally. They do a bunch of damage but the high level wizard is still standing. Caralax then casts another spell and disappears (party again fails arcana to identify it).

Daron says he is waiting inside Caralax's home, as he'll have to return eventually and then the two of them will sort things out. He tells the rest of the party to let him handle this alone. They insist on staying with him. The party waits there in the npc's manor for 15-20 before Lieutenant Dan arrives, leading several guards. The party states they are going to stand and watch as the approach. The guards surround the building and Lieutenant tries to enter. Slick shouts "All for one and one for all. If you want Daron, you'll have to kill me first." Daron says he just waits. Rest of party tries to physically block the doorway but don't draw any weapons. Dan and guards have to take a couple of rounds to grapple and move party out of the way. Party is actively confirming they are resisting and not cooperating, trying to stop guards from reaching Daron without actual violence. Dan and the guards arrest them all.

I call the session there as I honestly don't know what to do next. Daron's player asks if he should make a new character. I comment most likely the result is Daron is getting locked up for a while for assault or something like that. The rest of the party is going to probably spend a few days in jail and be fined for attempting to obstruct the guards. Daron goes on a rant, saying he is really angry. The whole situation was bs and required several characters act bitchy and not realistic, emphasizing these were all characters "played by the same person, you." He complains that Caralax made the "biggest, little @#$% move" by running to the guards/Dan. He also complains there is no way the rest of the party would get in trouble for what they did, as none of them attacked Caralax. Plus he had attacked with magic first and was the one to escalate things in another "@#$#-y move."

I try to explain above game "He had only tried to cast Hold Person and-" Daron starts talking over me, ranting that it wasn't hold person, but an unkown spell he was attacked with and the npc had absolutely taken things too far. It should have been obvious to npc that all his attacks were nonlethal. I left it as "I'm sorry you feel that way, but these were entirely reasonable actions." Party uses rest of the normal session time to talk about what Daron's new character could be. Eventually he calms down and says he isn't angry anymore, but still stand by what he says and his view of the situation.

So, mostly just venting after a frustrating session after a frustrating day at work, but if anyone has any advice or insight into how I could have handled things different, I would appreciate it. Would like to avoid things like this in the future when possible.