To protect Paulie, you can go back after smacking the first thug to death. Use the red door to exit to the street. Go left until reaching the end of the street and go back to the yard. Paulie will not follow you any longer. Once this is done, you can get into the car and actually kill some of the thugs by running over them. Although the passage forward is pretty narrow, you can squeeze through to the area where two thugs are beating the third man.