Server replies with default debug response instead of raised exception response - ruby-on-rails

Question

Within an engine w/ an API, when querying the API an exception is thrown, but the server response is not using the response specified, and instead rendering a default debug response (in production).
I can confirm that the exception is caught by the controller:
Started GET "/api_v2/admin/submissions?system_id=123&spt_id=123" for
127.0.0.1 at 2019-03-15 10:04:37 -0400
Processing by ApiV2::Admin::SubmissionsController#show as JSON
Parameters: {"system_id"=>"123", "spt_id"=>"123"}
[3, 12] in /....../emp_api_v2/app/controllers/emp_api_v2/application_controller.rb
3:
4: before_action :doorkeeper_authorize!
5:
6: rescue_from ::ActiveRecord::RecordNotFound do |e|
7: byebug
=> 8: response(:standard_error, 500, "Hello World")
9: end
10:
11: def doorkeeper_unauthorized_render_options(error: nil)
12: { json: { message: "Not authorized" }, status: 403 }
(byebug) cont
Completed 500 Internal Server Error in 5220ms (ActiveRecord: 0.0ms)
ActiveRecord::RecordNotFound - Couldn't find Emp::System with 'id'=123:
The server is expected to respond with 500 Server Error not the debug error stacktrace.
Why are there two responses, even though the controller catches the exception and runs a response method.
NOTE: This happens in dev and prod ! Server responds with 500 first (my catch response) but then with a stacktrace and 404 (As this is the source of the error and correct exception). It breaks my tests as the past response was 500. I was not able to revert my server to the old behavior by: reinstalling ruby, reinstalling rails + all gems + rolling back all changes throughout the repo. This behavior seems to be externally set by a ENV variable or something else.
I'd be grateful for any insight.
Edit: The (api) app controller looks like this:
module ApiV2
class ApplicationController < ActionController::API
before_action :doorkeeper_authorize!
rescue_from ::ActiveRecord::RecordNotFound do |e|
response(:standard_error, 500, "Hello World")
end
def doorkeeper_unauthorized_render_options(error: nil)
{ json: { message: "Not authorized" }, status: 403 }
end
end
end
Edit 2: I was able to get the correct response by wrapping the call in a rescue block. That code will result in a lot of begin/rescue blocks though as each of them has a specific error message.
begin
system = Emp::System.find(sys_id)
rescue
render json: { status: 500, content: "Specific Error msg" } and return
end
Originally i had a method as follows:
def handle_exception(message, &block)
begin
block.call
rescue Exception => e
render json: { message: message }, status: 500 and return
end
end
This will result in double render error as it's not returning from the top-level method but from the block.