Yes..the dealer did think that everyone was all in....P1 wasn't paying attention and he also thought everyone was all in, so he exposed his cards.
Both P1 and P2 said they were going to check it anyway.
The outcome was as such.....since we didn't really have a "floor person" per-se, the decision was mine to make because it was my game. I actually talked it over with another player who was not in the hand and we decided that since P1 showed his hand that we would bring the river card back, reshuffle it and replace the river. Since both P1and P2 said they were going to check it anyway, betting was frozen. We did realize that P1&P2 not betting shouldn't affect P3's all in hand...BUT also we wanted to stay true to the rules of what should happen in this same situation if P3 had not been all in. If P3 had not been all in, then this is what would have happened, so we felt that we should stick with the "standard".
After reading some answers on here and having time to think about it, I would agree that leaving the board as-is would have probably been the better decision. Because P1&P2 checking it down shouldn't affect the all-in player and the outcome of the hand.
As a side note; the replacement river card gave the all in player a straight, which he thought was the best hand, but it gave P2 a higher straight. P1 would have scooped the pot with a flush, but after this decision he only got the low half, while P2 got the high end. All these guys are friends of mine, so no one thought there was any favoritism in the call.
Someone also tell me your thoughts on this........While I was thinking about the decision, P1 was saying that he didn't care which way the decision went; that we could do the river over or leave it as is....Now, I'm sure he was saying this because he knew he had the lock low, but even with a flush, it wasn't the nut high...but he figured he was getting half either way. I told him that if this were a real casino situation that he would be better off just keeping his mouth shut and letting the floor person make the decision without his providing any input either way.
Does anyone agree that he should just be quiet and let the floor make their decision without influence either way?