The state Supreme Court heard arguments Monday on whether a $650,000 sexual harassment verdict, including $500,000 in punitive damages, should be reversed because the trial judge failed to instruct the jury that wrongful conduct on the part of upper management need be shown.

A Mercer County jury awarded the damages to former saleswoman Doreen Longo, after finding that she was subjected to sexual harassment while working for the company, East Coast News Corp., and its subsidiary, Pleasure Productions Inc., and fired in retaliation after she complained about the conduct.

A divided Appellate Division panel upheld the verdict. Judges Edith Payne and Ellen Koblitz ruled it was not error for Superior Court Judge Douglas Hurd to omit the instruction. Judge Dorothea Wefing dissented, arguing that Hurd’s omission of the instruction was error because it was not clear that upper management was complicit.

“This was reversible error” that led to “an unjust result,” said the company’s lawyer, Francis Cook. “The jury was never allowed to make a finding of actionable participation on the part of management.

“Punitive damages were awarded only for negligence,” said Cook, of the Princeton office of Fox Rothschild, in Longo v. Pleasure Productions, A-37-11.

Longo was fired by the general manager, Michael Savage, and some of the sexual harassment came from the sales manager, David “Bo” Pezzullo.

Justice Barry Albin asked Cook whether Savage and Pezzullo were not upper management.

“That’s correct,” Cook said, adding that the jury exonerated the company’s president and co-owner, Frank Koretsky.

“If there is any doubt, give the charge,” Cook said. “Here, there was no reason not to do it.”

Justice Anne Patterson focused on Pezzullo. “What was his role?” she asked.

“He was the sales manager,” Cook replied. “But he had no role in enforcing policy.”

Longo’s attorney, Andrew Dwyer, said there nothing improper about not giving the jury instruction.

“I’m allowed to look at the conduct of all the employees,” said Dwyer, who runs a firm in Newark.

Albin asked whether it was a requirement that upper management had to be involved for there to be an award of punitive damages.

Dwyer said no, and pointed to the court’s ruling in Baker v. National State Bank, 161 N.J. 220 (1999). There, the court found there was no prejudice to defendants from the absence of an upper management charge when the actors clearly were in that position.

Savage, he said, reported to Koretsky and did have the power to enforce policy.

“All you have to show is some involvement by upper management,” Dwyer said.

“How do you know upper management was involved?” Albin asked.

“Because of the wrongful termination,” Dwyer replied.

Patterson asked whether there was evidence of upper management involvement.

“There was tons of evidence,” Dwyer said. “The jury found that by clear and convincing evidence.”

At the trial, Longo testified she was not offended by and in fact enjoyed the workplace environment until Marc Kercheval joined the company as a salesman in 2005. It was his harassing conduct that she claimed was a violation of law, leading to her complaints to management and to her retaliatory firing.

In her suit, Longo alleged that Kercheval “had thrown a chair across the room; engaged in angry outbursts; held a fork to her face while threatening to gouge out the eyes of their boss [sales manager]; called her a cunt; expressed the desire to clear her desk and then ravish her on it; stated that she would give oral sex to anyone for an order; and suggested that she engage in oral sex with an Ohio customer as a means of obtaining lucrative business for the company,” according to the Appellate Division ruling.

Longo said she complained verbally and via email to Pezzullo, who said he investigated the claims and found them unbelievable. Longo forwarded the emails to Savage, who sent them to company president and co-owner Frank Koretsky.

Koretsky verbally reprimanded Longo and Kercheval for not working well together and for poor sales performance, warning they would both be fired if their numbers did not improve. They were also given disciplinary notices and admonished to correct their conduct.

In March 2006, Pezzullo, with Savage’s approval, fired Kercheval over his sales performance. The following month, at a meeting with the company’s lawyer, Savage fired Longo. She said he told her she was a great sales rep but must leave because her complaints about Kercheval had caused a commotion. Savage later testified Longo was fired for poor sales.

The jury also found Conscientious Employee Protect Act liability on the part of ECN and Koretsky, and awarded Longo $120,000 for economic losses and $30,000 for emotional distress. In a separate trial, the jury awarded $500,000 in punitive damages against ECN only.

Wefing’s dissent guaranteed a Supreme Court review of the case.