Hey everyone!! Thanks so much for all of your replies – this is a tough situation, but I am so pleased that we've had several people step up to offer assistance and homes. As it stands now, we have tentative plans to fly Oatmeal out to a breeder in Texas, who can work with him on his behavioral issues until he is either adoptable through BRAT, or the breeder might just keep him herself. Either way, she says she would never put a dog to sleep, so it seems that his life is spared. Now we just have to organize transport, and I'm trying to get his owners to pay for the flight, because they do love him and feel terrible about giving him up.
To answer Tanza's question, he is unfortunately a pet store dog, which we all know means he likely came from a puppy mill. So as to his breeding, who knows?