I'm sure Blaine knows the exact reason but I would guess since the piston wasn't able to fully cycle a bit of air was trapped in the system. I likely introduced it when I elected to swap the calipers but ignored the knuckle. When I went to bleed the system the pad likely fell into that groove and couldn't push the last bit of air out. The affected side was still braking but likely more on the front side of the rotor since the rear was locked in place. Instead of clamping both pads together it was, in essence, pulling the front side pad against the rotor. (Blaine did I get remotely close

)
Like I said previously I think my initial issue was caused by piston knockback as Blaine told me within moments of me asking him. Which was caused by the caliper contacting the shock mount on a full turn. (fixed with spacers)
It was one of those fun issues that could have been avoided if I paid more attention to the parts (knuckle). The part I'm kicking myself about is I noticed the damaged area when I re-assembled everything the first time but blew it off since it looked like it was purposely put there.