Avulstein Gray-Mane will be in the Gray-Mane clan house, hiding in one of the bedrooms, explaining that he is paranoid of meeting the same fate as his brother who is missing . He is certain that the Battle-Borns are behind the disappearance of his brother and wants proof stolen from their house.
If Idolaf Battle-Born is killed, the Dragonborn may receive a message by courier from Avulstein, thanking the player. He states that he knows it was you who killed him, and that he will not report you to the authorities.
There is a glitch where Avulstein will become hostile if you have a bounty on your head. However, if you sheath your weapon, he will not yield. If the guards see him attacking you, they will consider it assault and attack Avulstein constantly, and during the quest Missing in Action, he will not die, preventing you from going further.
PS3 During the quest Missing in Action, if Avulstein gets really hurt, his character will limp on the ground. Casting the spell Healing Hands will not help and he will keep limping. Just proceed through Northwatch Keep and he should stand back up soon.