I don't think we can pile all the blame on the system.
Trying to discern what is happening inside the minds of other people is not an exact science.
Neely had been in and out of mental facilities over the years and the only recourse left to authorities would have been to permanently and involuntarily commit him. Something that comes with many questions and challenges.
As for Penny, though he did the right thing in subduing Neely, he did not need to use that particular hold or any choke hold.
A "full Nelson" would have accomplished the same purpose of subduing Neely without cutting off his air or blood flow.
Sounds like Penny was appropriately charged.
I would hope that, if convicted, the sentencing takes the extenuating circumstances into account and he doesn't spend an excessive amount of time, if any, behind bars.