The Texas Court of Appeals held that a provision in an arbitration agreement that improperly limits a consumer's right to recover attorney fees under state law is unconscionable, but if the agreement contains a severability clause, the unconscionable attorney fees provision should be severed and arbitration can then be compelled.

In Security Service Federal Credit Union v. Sanders, No. 04-07-00540-CV, 2008 WL 2038826 (Tex. Ct. App. May 14, 2008), Sanders sued Security Service Federal Credit Union (SSFCU) for mishandling loan and deposit accounts. SSFCU moved to compel arbitration pursuant to the arbitration agreement in the parties' contract.

The trial court denied the motion, holding that the arbitration agreement was both substantively and procedurally unconscionable. The court held that the agreement was substantively unconscionable because it improperly limited Sanders' statutory right to attorney fees under the Texas Deceptive Trade Practices (DTPA) and procedurally unconscionable because it was not signed by Sanders and was buried in fine print.

On appeal, the Court held that the provision in the agreement that prevented Sanders from recovering attorney fees in violation of the DTPA was substantively unconscionable because it was contrary to Texas public policy to deprive a consumer of his statutory rights.

However, the Court held that the trial court should have severed the illegal attorney fees provision and compelled arbitration because a court is generally authorized to sever illegal or unenforceable provisions from a contract and enforce the remainder of the contract, and the contract at issue contained a severability clause.

Additionally, the Court held that the agreement was not procedurally unconscionable because there is no requirement under the Federal Arbitration Act or Texas law that an arbitration agreement be signed. The Court held that so long as the agreement is written and agreed to by the parties, it need not be signed, and since Sanders presented no evidence that he did not agree to the terms of the agreement, it was not procedurally unconscionable.

Moreover, the Court held that the agreement was not "buried in fine print" because the arbitration agreement was in the same print size as the other terms of the contract, and under the heading "ARBITRATION." Also, there was a warning in capital letters advising Sanders that he was waiving his right to litigate in court, so the agreement was not procedurally unconscionable.