Here is my version of app.js: https://gist.github.com/sdondley/9db6dbffb8fb751c4afcd1092ab24fd0
Alright, so all confusion is from the fact that I did hack the app.js file and did not revert it back to its original state as I thought. I did make this change to app.js:
2696c2696 < this.env.search_scope = 'base'; ---
this.env.search_scope = 'all';
This is a bug an upstream bug. Sorry to waste your time. Please close this out. I will report this to roundcube project.