FisherBroyles Exodus Shows Rift Over Virtual Firm Profits, Taxes

FisherBroyles, the largest law firm with a work-from-anywhere model, is suffering a mass exodus after partners disapproved of how leaders handled expenses and a tax accounting error.

The chairs of FisherBroyles corporate and litigation practices, Michael Pierson and Joel Ferdinand, left the firm late last year to start Pierson Ferdinand. The leaders said they have commitments to hire up to 130 of their former partners at the new firm.

If those hires materialize, they would represent nearly half of the roughly 280 lawyers who work at the firm led by James Fisher and Kevin Broyles. It would be among the largest law firm spinoffs in recent history—similar in size to the roughly 110 lawyers who left Lewis Brisbois last year to join a new firm.

The departures highlight the economic challenge faced by owners of virtual law firms, who by design run a bare-bones operation but must also provide enough accoutrements to satisfy partners. FisherBroyles became the first such firm to crack the country’s 200 largest by revenue, according to data from The American Lawyer.

The departures will also spur recruiting efforts by rivals, said Dan Binstock, a partner at legal search firm Garrison & Sisson, which has worked with virtual law firms.

“While FisherBroyles will remain a major force, their key competitor in the distributed law firm space, Rimon, and other smaller distributed firms such as Sterlington and Practus will obviously seek to leverage this in recruiting efforts and otherwise,” Binstock said.

Unique Model

The FisherBroyles model allows partners to keep 80% of the revenue they generate with the other 20% largely going to leaders Fisher and Broyles, who founded the upstart firm in 2002 and pay for the firm’s relatively minimal expenses.

Some lawyers have chafed at the expenses they had to bear, such as the cost of their legal research and marketing, and felt those costs should have come out of the 20% they sent back to the firm, according to three people familiar with the matter who spoke on the condition of anonymity.

Some lawyers were also unhappy with the firm’s handling of a tax issue.

A new accounting firm hired by FisherBroyles alerted leaders in the early portion of last year to a firmwide tax issue with California, according to four people familiar with the matter. As a result, partners in other states learned they would have to pay taxes to California, according to the people.

“A lot of people thought this was a firm issue—the firm’s accountants screwed it up,” said one former FisherBroyles partner. “And some people felt they shouldn’t have to pay anything because it wasn’t their fault. And that is what struck the match to ignite these exits.”

Fisher and Broyles didn’t respond to questions about the support they provide partners or the California tax issue. In a statement, they confirmed the firm was parting with a “number of partners” and wished them the best in their future endeavors.

“As a leading AmLaw 200 firm, we look forward with confidence to 2024 and providing our clients with all the world-class legal services they have come to expect from FisherBroyles,” the pair said in a statement.

One person at FisherBroyles who is remaining at the firm said leadership agreed to pay the partners’ taxes as well as the late penalty and fines. Another person who is remaining at the firm said he doubted the tax issue was the preeminent reason for the departures but that it may have been used to recruit others to leave.

Partners were displeased with the messaging of the tax problem, with some for at least a period of time believing they would have to cover some of the costs, two people familiar with the matter said.

Pierson Changes

Pierson Ferdinand has implemented business model changes that could be viewed as responses to the irritations partners expressed with their old firm.

For example, the new firm has implemented an incentive plan that Pierson said in an interview would reward partners who join in the first quarter of the year with a “true piece of the profits” in the law firm going forward. While Pierson didn’t share details of the plan, the idea is a distinction from FisherBroyles, where the firm’s two founders held a grip on most profits.

“The incentive plan is designed to be a reward mechanism for everyone at the firm, not just a small number of people at the top,” Pierson said.

FisherBroyles is also rolling out a profit-sharing plan this year, The American Lawyer reported.

Pierson also highlighted what he called a “massive investment” in technology, including a customized legal practice management platform. The firm will offer legal research and other productivity services for its partners, he said.

Previous Tax Issue

The episode in California last year was not the first time FisherBroyles partners were alerted to a tax snafu.

In 2014, the firm sent a letter to current and former partners acknowledging it had failed to timely file taxes in the state of Georgia for the years 2010 through 2012. The letter, obtained by Bloomberg Law, stated the firm would reimburse partners for any interest or penalties incurred by the error.

“One of the firm’s goals in this process is that our partners and former partners are not subject to any tax, interest or penalties that would have not been assessed if the partnership returns had been timely filed,” the letter said.

The letter came shortly after the last time FisherBroyles experienced a large departure. More than 15 partners founded the firm CulhaneMeadows in July 2013.