OK so after trial and errors I finally have it working on both sides. Arcade and and non software list. The problem was I have to have the Pause button be the same on MAME and LB. I also had to have it checked, unchecked in the pics below. If I had that suspend emulation checked it would crash. If I didn't it would work but MAME would still have the game running in background. That's why they needed to have the same pause key.
Damit. MAME is still running in the background when I hit the Pause key in LB. If I check suspend emulation it crashes. So the option for me is pause MAME emulator first with its own Pause key and the use LB pause key button. To bad there isn't a way to have both use the same Pause key button. I can't check the suspend emulator or I'm back to square one.