Hello.
Unfortunately, I was unable to run the VI you sent, since Test Module General Error Handler.vi has a broken arrow when I open it in my computer (I don't know why). However, I ran into a very similar situation when I was trying to program an application using state machines and event structures as you are doing in the VI you attached. After some investigation, I noticed that the execution locks if there is an event for an event structure that is in a state of the state-machine different to the current state. So, my guess is that when you press "Passed" your state machine is not going to the state you think it is going. Put a probe at the output of the shift register where you store the current state to verify that this is so. I don't know if this is the
problem, but if it is, that probe is an easy way to get to the root of it.