It’s based on the O. Henry short story “The Anthem and the Cop”, in which a guy is trying to get thrown in jail.
To that end, Bud orders Lou to “insult that lady”. Lou tries gamely, addressing her as “Toots”.
But the lady answers, in a terrifying, raspy voice and body language, that she’s “on the lam” and will kill him if anyone finds out that her actual name is Toots.
Lou reports back to Bud who asks him if he insulted the lady.
Woman on Street: Don’t you dare call me toots, see. I quit the mob 10 years ago and I’m trying to go straight, see. If you guys don’t let me alone, I’ll get one-eyed Pitsie after you!