The 65-year-old 'Aerosmith' star had signed a deal with Fuller when he joined 'American Idol', the show and franchise he created as a judge in 2010, reported Contactmusic.
He was later dropped from the show due to disputes with his lawyer Dina LaPolt over his business affairs.
"Simon dropped Steven because of all the drama. His lawyer Dina LaPolt was very protective, even overbearing, and wouldn't allow the manager to do his job.
"She put a wedge in between Steven and Simon. It was exhausting. She also pushed Steven towards doing the Aerosmith record and tour instead of focusing on another season of 'Idol," a source said.
"Simon Fuller and his team felt that it was impossible to guide Steven Tyler because all the drama around him was draining. The Aerosmith album and tour hasn't done as well as expected. The band opened for Van Halen in Sydney recently, and Steven was furious," the source added.
Tyler has now been signed by Red Light Management's Bruce Flohr but his spokesperson insisted he was never dropped by his previous management.
The singer had confirmed he was quitting 'American Idol' in July 2012.
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