Ironic that you chose a story about Yale, but Yale Law/Medicine famously doesn't have grades. Grades are the easiest way to show that the student is participating, but it isn't the only way.
Yale Law doesn't have to use grades because it's the top law school and it can push 100% of its students. It's the same with top graduate departments, which have grades but rarely actually give anything below a B. Lower-ranked law schools have to use grades so the top students can actually distinguish themselves and get decent jobs.